A frustrated finance minister has lambasted South African consumers for not saving enough while spending like there was no tomorrow.
Finance Minister Trevor Manuel said that South African consumers were heavily indebted, mimicking the pattern of unsustainable American consumption spending.
“They live on debt and are highly leveraged. It is not a basis of stability. If they are borrowing for consumption then there is something wrong in the equation,” said Manuel.
Manual, one of the world’s longest serving and most respected finance ministers, added that price stability of 2 percent was preferable, and was needed to ensure that those relying on a fixed salary were not hit by rampant inflation.
Inflation is currently at 11.6 percent, way above the 3-6 percent band mandate of the reserve bank. The bank has raised its prime lending rate by 500 basis points to 15.5 percent since June 2006, when the tightening cycle started.
However, Manual said that “the response to rate increases is abysmally low,” adding that while a 25 basis point increase in Europe meant an immediate curtailment in spending, this was not the case in South Africa.
He added that up to a 700 basis points increase has been required in the past “before [consumers] bite”.
“People are tying themselves into knots ... if people live on debt we find ourselves with a problem,” he said.
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Wednesday, August 27, 2008
South Africa power crisis costs 1.3$ of GDP
The South African energy regulator has estimated that the cost of national power shortages during late 2007 and early 2008 to have cost the economy about R50-billion (about $6.4-billion) in lost potential.
The National Energy Regulator of South Africa (Nersa) said that the economic impact of load-shedding had been estimated at R75 per kWh.
Nersa CEO Smunda Mokoena said that “the supply shortage caught South Africa by surprise,” and that an inquiry was necessary to ensure the prolonged stability of power generation and supply.
The knock would wipe off over one percent of the country’s GDP (PPP), which was estimated at about $470-billion for 2007.
The Nersa inquiry found that the country’s national power utility, Eskom, had responded speedily and appropriately to the power supply shortage. However, there have been serious reservations around Eskom’s disclosure or the problems it faced. Eskom had, well into the crisis, broadly suggested that there was no problem, until an investigative programme, Carte Blanche, showed that coal stocks were dangerously low.
The inquiry did, however, identify a potential conflict of of interest between the generator of electricity and the system operator. This effectively undermined the security of the system.
“We are very sceptical that current procurement is being done by Eskom [and] not by government,” said Mokoena.
Mokoena added that procurement of generation capacity, including independent power producers and co-generation facilities, needed to be managed by a professional agent that was independent of Eskom.
“The sooner we establish an independent power procurer the better,” he said.
Africa’s largest utility has a R343-billion ($44-billion), five year expansion programme aimed at beefing up generation and supply.
The National Energy Regulator of South Africa (Nersa) said that the economic impact of load-shedding had been estimated at R75 per kWh.
Nersa CEO Smunda Mokoena said that “the supply shortage caught South Africa by surprise,” and that an inquiry was necessary to ensure the prolonged stability of power generation and supply.
The knock would wipe off over one percent of the country’s GDP (PPP), which was estimated at about $470-billion for 2007.
The Nersa inquiry found that the country’s national power utility, Eskom, had responded speedily and appropriately to the power supply shortage. However, there have been serious reservations around Eskom’s disclosure or the problems it faced. Eskom had, well into the crisis, broadly suggested that there was no problem, until an investigative programme, Carte Blanche, showed that coal stocks were dangerously low.
The inquiry did, however, identify a potential conflict of of interest between the generator of electricity and the system operator. This effectively undermined the security of the system.
“We are very sceptical that current procurement is being done by Eskom [and] not by government,” said Mokoena.
Mokoena added that procurement of generation capacity, including independent power producers and co-generation facilities, needed to be managed by a professional agent that was independent of Eskom.
“The sooner we establish an independent power procurer the better,” he said.
Africa’s largest utility has a R343-billion ($44-billion), five year expansion programme aimed at beefing up generation and supply.
Tuesday, August 19, 2008
No smelters in southern Africa possibly good news
Power supply constraints in South Africa meant that no additional aluminium smelting capacity was likely for at least 10 years, according to BHP Billiton’s chief executive.
“I cannot see any scenario where in the foreseeable future there is going to be any smelter construction in southern Africa,” said Marius Kloppers.
BHP Billiton, which controls the majority of South Africa’s smelters, has had electricity supply cut to 90 percent of normal operating capacity. Earlier this year, the diversified resources giant temporarily cut ties with is financier, Standard Bank, after the bank suggested it cut back on its planned smelter expansion in favour of more sustainable projects that made better use of the power available.
Platinum and gold mining has also suffered power-related setbacks, while Rio Tinto has put its controversial $3-billion smelter at Coega, a government-led development to industrialise around a new deep water port near Port Elizabeth, on hold.
Kloppers added that new power would not be available “for a long time” meaning that the current “capacity curtailment is probably going to continue”.
Commentators have suggested that South Africa’s power problems are not necessarily all negative as they give the country the opportunity to catch up with the efficiency of more developed nations, while encouraging less efficient power projects, like smelters, to reorganise elsewhere. This could help South Africa, which already suffers chronic unemployment, ensure a better between power usage per job ratio.
“I cannot see any scenario where in the foreseeable future there is going to be any smelter construction in southern Africa,” said Marius Kloppers.
BHP Billiton, which controls the majority of South Africa’s smelters, has had electricity supply cut to 90 percent of normal operating capacity. Earlier this year, the diversified resources giant temporarily cut ties with is financier, Standard Bank, after the bank suggested it cut back on its planned smelter expansion in favour of more sustainable projects that made better use of the power available.
Platinum and gold mining has also suffered power-related setbacks, while Rio Tinto has put its controversial $3-billion smelter at Coega, a government-led development to industrialise around a new deep water port near Port Elizabeth, on hold.
Kloppers added that new power would not be available “for a long time” meaning that the current “capacity curtailment is probably going to continue”.
Commentators have suggested that South Africa’s power problems are not necessarily all negative as they give the country the opportunity to catch up with the efficiency of more developed nations, while encouraging less efficient power projects, like smelters, to reorganise elsewhere. This could help South Africa, which already suffers chronic unemployment, ensure a better between power usage per job ratio.
South African recession unlikely as inflation, rates outlook turns
South Africa, while experiencing higher inflation than in recent years coupled with slowing growth, was unlikely to dip into recession according to a market analyst.
Investec director Jeremy Gardiner said that although a world trend of slowing GDP is evident in South Africa too, the markets in the first half of 2008 had been quite resilient to bad news, while the outlook for 2009 was more positive.
He said that inflation was expected to ease significantly over the next year, which, with a more positive outlook on interest rates, was expected to bring consumers added relief.
The August Merrill Lynch fund managers’ survey for South Africa forecast that 80 percent of managers believe the next interest rate move would be down after the reserve bank kept rates unchanged at 12 percent last week.
Gardiner added that although “anything that requires a loan to buy is vulnerable” he believed we were already 60 percent of the way through the subprime crisis, which had seen liquidity dry up as banks became reluctant to lend leading to falling asset prices.
He believes that although it may take time for banks to regain the confidence required to lend more freely, this should slowly start improving, which was good news for falling asset prices.
Further reasons to be positive for Gardiner was that food prices had stabilised, and in cases already sharply corrected after retailers failed to cash in on inflation fears by pushing up prices absurdly. Commodities have also experienced a necessary pullback, like oil, which could help free up liquidity as the price of fuel dips.
Investec director Jeremy Gardiner said that although a world trend of slowing GDP is evident in South Africa too, the markets in the first half of 2008 had been quite resilient to bad news, while the outlook for 2009 was more positive.
He said that inflation was expected to ease significantly over the next year, which, with a more positive outlook on interest rates, was expected to bring consumers added relief.
The August Merrill Lynch fund managers’ survey for South Africa forecast that 80 percent of managers believe the next interest rate move would be down after the reserve bank kept rates unchanged at 12 percent last week.
Gardiner added that although “anything that requires a loan to buy is vulnerable” he believed we were already 60 percent of the way through the subprime crisis, which had seen liquidity dry up as banks became reluctant to lend leading to falling asset prices.
He believes that although it may take time for banks to regain the confidence required to lend more freely, this should slowly start improving, which was good news for falling asset prices.
Further reasons to be positive for Gardiner was that food prices had stabilised, and in cases already sharply corrected after retailers failed to cash in on inflation fears by pushing up prices absurdly. Commodities have also experienced a necessary pullback, like oil, which could help free up liquidity as the price of fuel dips.
Thursday, August 14, 2008
Australian mining junior awarded dubious license in South Africa
South Africa has awarded a small Australian mining house access to one of the county’s most treasured bio-diversity hotspots, undermining the country’s ability to drive sustainable economic development.
Mineral Resource Commodities (MRC) has been granted rights to mine a portion of the Xolobeni mineral sands project, on South Africa’s Wild Coast.
The move is disappointing for businesses hoping to cash in on the African giant's sustainable eco-tourism potential in the area. The country’s environmental affairs minister, Marthinus van Schalkwyk, is in hot water over the decision as his department failed to meet the deadline to object to MRC’s request by several months.
The award is embarrassing to government who have been trying to protect South Africa’s natural heritage sites, as well as driving policy to wean the country off mining in favour of more sustainable growth. MRC pushed the application through before two pieces of legislation, which would have scuttled its plans, were passed.
Had the Integrated Coastal Management Bill or the National Environmental Management Second Amendment Bill been enacted, the MRC’s application to mine Xolobeni’s dunes would have been blocked according to opposition Democratic Alliance MP Gareth Morgan.
The Australian stock exchange-listed firm would now have access to the Wild Coast’s pristine beaches in the hope of extracting titanium-related minerals. The company said it would provide basic infrastructure and services. The most likely includes roads to transport minerals to ports as the Wild Coast is largely without infrastructure, and basic housing for some employees.
Mineral Resource Commodities (MRC) has been granted rights to mine a portion of the Xolobeni mineral sands project, on South Africa’s Wild Coast.
The move is disappointing for businesses hoping to cash in on the African giant's sustainable eco-tourism potential in the area. The country’s environmental affairs minister, Marthinus van Schalkwyk, is in hot water over the decision as his department failed to meet the deadline to object to MRC’s request by several months.
The award is embarrassing to government who have been trying to protect South Africa’s natural heritage sites, as well as driving policy to wean the country off mining in favour of more sustainable growth. MRC pushed the application through before two pieces of legislation, which would have scuttled its plans, were passed.
Had the Integrated Coastal Management Bill or the National Environmental Management Second Amendment Bill been enacted, the MRC’s application to mine Xolobeni’s dunes would have been blocked according to opposition Democratic Alliance MP Gareth Morgan.
The Australian stock exchange-listed firm would now have access to the Wild Coast’s pristine beaches in the hope of extracting titanium-related minerals. The company said it would provide basic infrastructure and services. The most likely includes roads to transport minerals to ports as the Wild Coast is largely without infrastructure, and basic housing for some employees.
Wednesday, August 13, 2008
Construction booming in South Africa
Liberty Properties, one of South Africa’s largest property groups, has announced a R1.77-billion ($0.25-billion) revamp to one of its most strategic assets - the Sandton City mall.
The construction project would see one of Johannesburg’s premier malls extended between 2008 and 2012 in order to accommodate more shops.
Liberty said the project was currently at tendering stage. Several of South Africa’s biggest construction companies, including Group Five, Aveng and Murray & Roberts were benefiting from an increased infrastructure spend ahead of the 2010 Fifa World Cup. Currently, the construction and infrastructure sector is the fastest growing economic sector.
Several of the country’s top property experts believe the boom will outlast 2010 by several decades based on years of under-spending on infrastructure. Absa’s head of construction and infrastructure at Absa Corporate and Business Bank, Peter Steyn says, “It's not a 2010 story alone - South Africa has been under-spending.”
Styen further noted that while residential properly was experiencing a slowdown as a result of global concerns, the fact that “we are running out of production capacity” bodes well for the sector, especially if the country want to continue supporting growth rates of close to 5 percent.
While the boom has been supported mainly be private spending over the last few years, government’s planned R600-billion infrastructural investments over the medium term will see private business taking the backseat.
Government investments are mainly in the areas of power generation, road infrastructure and water services.
The construction project would see one of Johannesburg’s premier malls extended between 2008 and 2012 in order to accommodate more shops.
Liberty said the project was currently at tendering stage. Several of South Africa’s biggest construction companies, including Group Five, Aveng and Murray & Roberts were benefiting from an increased infrastructure spend ahead of the 2010 Fifa World Cup. Currently, the construction and infrastructure sector is the fastest growing economic sector.
Several of the country’s top property experts believe the boom will outlast 2010 by several decades based on years of under-spending on infrastructure. Absa’s head of construction and infrastructure at Absa Corporate and Business Bank, Peter Steyn says, “It's not a 2010 story alone - South Africa has been under-spending.”
Styen further noted that while residential properly was experiencing a slowdown as a result of global concerns, the fact that “we are running out of production capacity” bodes well for the sector, especially if the country want to continue supporting growth rates of close to 5 percent.
While the boom has been supported mainly be private spending over the last few years, government’s planned R600-billion infrastructural investments over the medium term will see private business taking the backseat.
Government investments are mainly in the areas of power generation, road infrastructure and water services.
SADC may form FTA
The 14 countries that make up the Southern Africa Development Community (SADC) are on the verge of signing a free trade area (FTA) into existence.
While this would be eight months after the initial date decided after a trade protocol was signed in September 2000 with an eight-year timeline to create the union, South Africa’s Trade and Industry Minister Mandisi Mpahlwa said it would be launched in Johannesburg this weekend.
The summit meeting would be used to approve the planning required for a customs union between the SADC members with this hope of building a fully-fledged customs union, which could become a major building block of a “United States of Africa”.
Mpahlwa said that since a decision in 1996 in Maseru, Lesotho to work towards union, a study had shown that trade among SADC trade had been 85 percent liberalised, and would be tariff-free by 2012.
However, the minister added, “Regional economic integration is not only about the removal of tariff barriers ... the FTA is not an end in itself, but the beginning of a process we need to embark on to build both our productive and trade capacity, improve the competitiveness of our industries and address the supply side constraints that inhibit us from benefiting from better terms of trade in the region.”
Mpahlwa said that industrial and competition policies would need to be harmonised to facilitate this too.
While this would be eight months after the initial date decided after a trade protocol was signed in September 2000 with an eight-year timeline to create the union, South Africa’s Trade and Industry Minister Mandisi Mpahlwa said it would be launched in Johannesburg this weekend.
The summit meeting would be used to approve the planning required for a customs union between the SADC members with this hope of building a fully-fledged customs union, which could become a major building block of a “United States of Africa”.
Mpahlwa said that since a decision in 1996 in Maseru, Lesotho to work towards union, a study had shown that trade among SADC trade had been 85 percent liberalised, and would be tariff-free by 2012.
However, the minister added, “Regional economic integration is not only about the removal of tariff barriers ... the FTA is not an end in itself, but the beginning of a process we need to embark on to build both our productive and trade capacity, improve the competitiveness of our industries and address the supply side constraints that inhibit us from benefiting from better terms of trade in the region.”
Mpahlwa said that industrial and competition policies would need to be harmonised to facilitate this too.
Eskom to approach WB?
Africa’s largest power utility, Eskom, could approach the World Bank, or other large banks, to borrow up to $1-billion a year for the next five years.
The move might become necessary after ratings agency Moody’s downgraded the South African power utility, making it more difficult for Eskom to raise capital on financial markets. Eskom has confirmed that it was “rechecking” its funding strategy, which could see it borrowing from World Bank and African Development Bank, as well as from export credit agencies.
Eskom needs to spend billions after rolling blackouts across the country in early 2008 made it clear that the power house was running short of power. Power supply has since stabilised, but the damage has already been done. Blackouts cost Africa’s largest economy billions in lost productivity, unsettling foreign and local investors.
Moody’s downgraded Eskom’s local currency rating to Baa2 from A1 and cut the foreign currency rating to Baa2 from A2. The four notch local currency downgrade was based on Eskom’s aggressive capital investment programme and its inability to recoup costs through higher tariffs, which led to a lower stand-alone credit profile. The result would mean higher tariffs in the future for a country that once boasted the cheapest electricity in the world, unless government agrees to guarantee loans.
South Africa’s treasury has budgeted R60-billion (about $8-billion) over the next three years to help fund Eskom’s R343-billion ($46-billion) 5-year expansion programme.
The move might become necessary after ratings agency Moody’s downgraded the South African power utility, making it more difficult for Eskom to raise capital on financial markets. Eskom has confirmed that it was “rechecking” its funding strategy, which could see it borrowing from World Bank and African Development Bank, as well as from export credit agencies.
Eskom needs to spend billions after rolling blackouts across the country in early 2008 made it clear that the power house was running short of power. Power supply has since stabilised, but the damage has already been done. Blackouts cost Africa’s largest economy billions in lost productivity, unsettling foreign and local investors.
Moody’s downgraded Eskom’s local currency rating to Baa2 from A1 and cut the foreign currency rating to Baa2 from A2. The four notch local currency downgrade was based on Eskom’s aggressive capital investment programme and its inability to recoup costs through higher tariffs, which led to a lower stand-alone credit profile. The result would mean higher tariffs in the future for a country that once boasted the cheapest electricity in the world, unless government agrees to guarantee loans.
South Africa’s treasury has budgeted R60-billion (about $8-billion) over the next three years to help fund Eskom’s R343-billion ($46-billion) 5-year expansion programme.
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