Tag: economy

Is this the end of SAA?

By Jeanine Walker for SA Promo Magazine

“The end of the line is coming soon,” economist Mike Schussler told the Sunday Times over the weekend.

“We are in a deep crisis, we cannot save every state owned entity (SOE) and I think at this point in time Eskom is much more important than SAA”

His comments come at a time when SAA requested another R4 billion from the government in an attempt to keep the struggling airline afloat. BusinessTech reports the airline continues to operate at a loss and has a R3.5-billion short-term loan, which will be depleted at the end of this month (June 2019), along with a long-term R9.2-billion loan.

SAA board member Martin Kingston is quoted as saying that the board was worried about the state of the economy and how it may impact the government’s decision to bail out the airline.

Schussler says the airline is “indebted to the nth degree”, and that it probably wouldn’t survive.

Meanwhile labour union Solidarity says SAA needs urgent, radical intervention from outside. Responding to the resignation of SAA CEO, Vuyani Jarana, last week, Connie Mulder, head of Solidarity’s Research Institute says since President Cyril Ramaphosa’s election a spirit of excitement prevailed about a new beginning. “However, it now seems as if the faces on the pictures may have changed but the facts on the ground have not. Mr Jarana’s resignation leaves Solidarity with no choice but to update its court papers for business rescue, making a final end to the cadre merry-go-round at the SAA.”

SAA ‘is unsalvageable’

He says he finds its extremely disconcerting that in his letter of resignation Mr Jarana cites all the challenges Solidarity had highlighted in 2018 as the reasons for the airline’s failure. “This is proof that while the airline is state-owned it is unsalvageable, regardless of who is at its helm. In 2018 Solidarity reached an agreement with Mr Jarana in terms of which he would give us regular feedback on progress being made with the turnaround strategy. It is now clear to us that this strategy is not going to be implemented for as long as the SAA is owned by the state,” Mulder added.

The SAA’s status as a going concern is still in jeopardy, and it would appear as if little progress has been made as far the implementation of the turnaround strategy is concerned.

“To give a new CEO another chance, yet again, will be irresponsible given the history of the SAA,” Mulder added.

Solidarity considers the SAA business rescue application to be a precedent-creating case of vital importance, not only for the SAA, but also for taking back other, bigger state-owned enterprises from the hands of the state.

“To sit back now and let the SAA continue with another bailout and a new face will be akin to treating a patient who needs heart bypass surgery with a Panado. The SAA and other state-owned enterprises need radical, external intervention, and Solidarity will provide it,” Mulder concluded.

When Jarana resigned he said he would vacate the post on 31 August. However, the Sunday Times reported that he would now vacate his position immediately and would be succeeded by Zukisa “Zuks” Ramasia as acting CEO of SAA.

SA’s GDP nosedives

The South African economy has suffered its worst quarterly GDP performance in 10 years, dropping by 3.2%.

The downturn has been caused by, among others:

– The failure of state-owned enterprises, such as Eskom and SAA
– A slump in manufacturing
– A major downturn in secondary industries, especially construction
– Year-on-year GDP growth of 0% – meaning the economy is stagnating
– Agriculture lost 13% of its output in the first three months of the year
– A decline in household spending: despite spending more on alcohol, food and restaurants, consumers have avoided buying new clothes (down 12.7%) and skimped on transport costs (down 3.1%)

By Luyolo Mkentane for Business Day

The unemployment rate rose to a near 15-year high in the first quarter of 2019, highlighting the enormity of President Cyril Ramaphosa’s plans to recover the country’s economy.

Ramaphosa said he wants to lead the country out of “nine wasted years”, a tacit reference to his predecessor Jacob Zuma’s term in office, which was marked by increasingly brazen corruption and state capture. Under Zuma’s watch unemployment soared and economic growth faltered, while confidence in the SA economy fell to new lows.

Read the full article here: https://www.businesslive.co.za/bd/economy/2019-05-14-soaring-joblessness-weighs-on-ramaphosa-presidency/

SA blackouts may cut growth close to zero

By Rene Vollgraaff and Londell Phumi Ramalepe for Bloomberg/Fin24

South Africa’s power cuts could bring economic growth for the year close to zero if they continue at the same severity seen in March, the central bank said.

The wave of rolling blackouts that started in November and are among the worst the country has yet experienced could knock 1.1 percentage point off economic growth, the Reserve Bank said in its Monetary Policy Review released Wednesday in Pretoria, the capital.

Expansion of close to zero would be the worst outcome since 2009, when former President Jacob Zuma came to power.

The nation’s embattled power utility, Eskom, implemented so-called stage 4 load-shedding, which removed about 10% from the grid, last month as ageing plants were offline. The company is battling with high debt levels and declining revenue after years of financial mismanagement. It was at the center of alleged looting under the previous administration that’s referred to locally as state capture.

“It has become clearer, however, that the legacy of state capture of which load shedding is one symptom will constrain growth for a longer period,” the Reserve Bank said. “The damage done by state capture is worse than previously understood.”

The country’s economy went through a recession last year and hasn’t expanded at more than 2% annually since 2013. Growth will only pick up once domestic constraints are dealt with, Deputy Governor Kuben Naidoo said in a presentation after the release of the Monetary Policy Review. Gross domestic product increased 0.8% in 2018.

The central bank pointed out that its estimates, which also show 125 000 jobs could be lost, assume load shedding will persist at high levels throughout the year, and don’t incorporate longer-term costs such as forfeited investment.

“It’s unclear to what extent firms and household have now made their own plans to manage or avoid their reliance on Eskom, which could mitigate growth costs,” the Reserve Bank said.

How rolling blackouts affected the economy

BankservAfrica’s monthly Economic Transaction Index (Beti), a broad indicator of the country’s economic health, showed that transactions declined by 0.4% from February to March.

“The March Beti declined across all measurement periods,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, in a statement. Naidoo said the numbers are a clear indication of the “deteriorating state of the economy”.

According to a recent article in MoneyWeb,  Eskom’s load shedding in March hit the economy hard. Individual transactions increased in value but decreased in number during this period.

The standardised nominal value of the Beti was R875.7-billion while the average value per transaction was R8 444. This is the first nominal rise in 23 months, said Naidoo. This rise, however, is due to VAT refunds paid in March.

“Without the nearly R20-billion worth of VAT repayments paid into the National Payments System, the March Beti would have been worse off.”

Source: Supermarket & Retailer

Data shows that 2 out of 3 South African consumers participated in Black Friday shopping at some point, according to Isana Cordier, sector head for consumer goods and services, corporate and investment banking at ABSA.

ABSA card data indicates that, on average, every last Friday of the month consumers spend about 55% of purchases on groceries.

On Black Friday, however, this changes and durable goods make up about 20% of purchases.

“It, therefore, seems that consumers are holding back spending on those durable items to buy them on Black Friday. South Africans especially like to spend on electronics on Black Friday,” Cordier said at a recent consumer insights event hosted by ABSA in Cape Town.

Black Friday has become the biggest spending day of the year in the SA retail sector, with more than R3bn spent last year.

Another interesting trend for her is that, whereas Black Friday shopping in SA was initially mostly centred around Gauteng and the Western Cape, the “frenzy” has started to spread to other provinces as well.

For instance, the Eastern Cape now makes up about 7.2% of Black Friday spending in SA, KwaZulu-Natal 14.2% and the Free State 4.1%. Gauteng still accounts for 37% of spending in SA on Black Friday.

Fin24 reported last year that retail sales over the Black Friday and Cyber Monday period most likely “saved” the South African economy in November, according to the BankservAfrica Economic Transaction Index (BETI).

On Black Friday and Cyber Monday, a total of 5.2 million card transactions were recorded.

More significantly, according to the BETI report, there was 55% growth in online sales for Black Friday and 36.4% for Cyber Monday.

Shock as Sun City’s value plummets

By Siseko Njobeni for Business Live

The tough economy is behind the shock decline in Sun City’s value.

Sun International has for the first time reduced the value of Sun City as a struggling economy brought pressure on the iconic resort and casino.

The R306m reduction in value to R2bn comes after the company spent R1bn on refurbishments at the Sun City complex in 2016.

The drop in the resort’s value attests to the difficulties facing SA’s leisure and retail sectors due to increased competition, sluggish economic growth and reduced discretionary consumer spending.

Food prices set to rise during 2019

By Dean Hutton for Bloomberg/Business Insider SA

Shoppers at Shoprite, Woolworths and Spar saw only small increases in food prices last year. But Shoprite is warning that prices could head higher in coming months.

Comparing prices at Shoprite and Checkers now, versus a year ago, there remains little evidence of price pressure.

Amid all the other pressures in the economy, food inflation has been the one relatively happy place the past year.

In its results this week, Shoprite reported that its prices only went up by 0.4% in the six months to end-December.

Woolworths said its food prices only increased by 1.2% in the same period, while Spar food price rose by only 1.4% – and the retailer says prices continue to fall across a wide range of grocery and perishable items.

In December, some 10,719 items in Shoprite and Checkers stores were cheaper than a year before.

The most notable price drops were among basic commodities such as frozen chicken portions, sunflower oil, rice, fat spreads and UHT milk across all our supermarket brands, a spokesperson told Business Insider SA.

However, the food price party could be drawing to a close.

In September last year, more than 11,600 items at Shoprite and Checkers were cheaper than a year ago, indicating that prices of almost 1,000 products have stabilised by December.

Shoprite itself is warning that prices will start to pick up. “The price of maize meal has already started increasing, which in turn will impact the cost of chicken feed,” the spokesperson said.

At the height of South Africa’s extreme drought in 2016, the white maize price reached R5,000 a tonne – which pushed up food inflation to more than 7%. However, following good rains in many parts of the country, the maize price fell to below R2,000 a tonne. Of late, however, the maize price is back around R3,000 amid renewed drought concerns.

“(Also), the price of sugar has traditionally over the past years increased in the first quarter of the year and we expect this increase to still be implemented,” Shoprite said. “Other categories to be affected will depend on factors such as inflated supplier prices, exchange rates, etc.”

Comparing prices at Shoprite and Checkers now, versus a year ago, there is little evidence of price pressures, however.

For now, the price of Huletts white sugar (2.5kg) remains unchanged at R34.99 from a year ago, at Shoprite.

The price of Ace Super Maize Meal (10kg) has actually fallen to R48.99, from a year ago (R52.88). A coffee brand like Frisco (750g) is also cheaper now (R54.99) than a year ago (R59.99). At Checkers, prices were also largely in line with twelve months ago, with some products like Sir Fruit juice falling from R29.99 to R25.99

The only big increase we could find was in sunflower oil, with the Helios brand (5 litre) up from R74.99 a year ago to R79.99

Zimbabwe introduces new currency

Source: BBC

“Nobody knows what it is,” is the verdict of Zimbabwe’s former trade minister and now opposition politician Nkosana Moyo.

He was talking about what appears to be a new currency in the country.

It has been introduced over the last few days but its impact is not yet clear.

Why is it needed?
Zimbabwe has a troubled history with currency.

In 2009 it ditched the Zimbabwe dollar and adopted the US dollar after hyperinflation destroyed its value. At its height prices were almost doubling every day and the reserve bank printed notes worth 100tn Zimbabwe dollars to try and keep up.

But because more US dollars were leaving the country – in the form of payments for exports – than coming in, US dollar cash was in short supply. This led to long bank queues as people struggled to get their money out.

In 2016, the government introduced bond notes and coins, which were supposed to be worth the same as the US dollar, to make up for the cash shortage.

But no-one had faith that they were equivalent and, on the black market, bond notes have lost value against the dollar.

And now the government has introduced the Real Time Gross Settlement (RTGS) dollar, which is being described by some as a new currency.

RTGS dollar?
It’s not a phrase that exactly rolls off the tongue, but the initials are familiar to Zimbabweans who have been using them to describe money that has been electronically transferred into their bank accounts.

As well as paying for goods in US dollars, Zimbabweans have been able to use other foreign currencies such as the South African rand, plus bond notes, debit cards drawing on bank accounts and money stored on a mobile phone app.

But each of them had a different exchange rate, meaning that customers were sometimes charged different prices depending on what payment method they chose.

The RTGS dollar is supposed to bring together bond notes and debit card and mobile money payments to make sure that they are all worth the same.

Significantly, the government has given up on the pretence that the bond note and the US dollar have the same value. Now it is saying that the value of the RTGS dollar against the US dollar will be set by the market.

What makes a currency a currency?
While business journalists and commentators are saying that there is a new currency, the government has not used this phrase.

The Zimbabwe dollar has such a tarnished history that the government is reluctant to be seen to be returning to this.

At its simplest, a currency is something that is widely accepted as a means to buy goods and services.

From now on the government wants things priced in RTGS dollars, rather than US dollars, and people should be able to use the various payment methods denominated in RTGS – debit cards, bond notes and mobile phone money – to purchase them.

So it feels like a currency but there are no plans to have notes and coins with “RTGS dollars” written on them and you cannot use them outside the country.

How much is an RTGS dollar worth?
The government has said it wants the price of the RTGS dollar to be determined by the market.

It initially suggested that it should trade at 2.5 RTGS dollars to the US dollar, but this was significantly less than the black market rate for the bond note, which was selling at more than 3.5 to the dollar.

If the RTGS dollar is truly allowed to float without intervention then the black market should be eliminated altogether.

The government hopes that it will make things simpler as there won’t be different prices quoted according to the various currencies and payment methods.

It also hopes that prices will stay the same or even decline as stability and predictability is brought into the market.

Will this solve Zimbabwe’s problems?
Zimbabwe has been hit by rising inflation and increasing levels of government debt for many years.

But if the RTGS dollar is the solution, then the government is “misdiagnosing the problem”, opposition politician Mr Moyo says.

He argues that poor economic management is at the heart of the problem, saying that government expenditure needs to be reined in.

But Finance Minister Mthuli Ncube insists that austerity measures he introduced in last year’s budget are working and government revenue is increasing.

As long as the government does not try to manage the RTGS dollar exchange rate, then this is a step in the right direction, says the chief economist at Renaissance Capital, Charlie Robertson.

But given the history that Zimbabwe has with currencies, it will take a lot to restore people’s trust, he adds.

Zuma’s second term cost SA R470bn

President Jacob Zuma’s second term cost SA’s economy R470-billion, Nedbank chief economist Dennis Dykes told Business Day on Tuesday.

The former president is said to have cost SA the following during his second term:

  • R470bn of GDP stemming from corruption, maladministration and misguided policies
  • R140bn in estimated lost tax revenue
  • A subsequent reduction in the budget deficit in 2019 to about 2.4% of GDP (currently at a projected 4%)
  • A reduction in government debt to R250bn: less than 49% of GDP versus 56% of GDP
  • The South African economy could have been up to 30% (R1-trillion) larger
  • The economy could have created 2.5-million more jobs
  • The government could have collected R1-trillion more in tax
  • The government could have minimised Eskom’s debt, which is R419bn by comparison.

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