In the words of William Shakespeare, July will be remembered as a winter of particular unhappiness around the world.
Rising inflation (particularly the price of energy commodities), rising interest rates, and a slowdown in economic growth top the list of annoyances that plague people in virtually all nations.
In the case of South Africa, the list is augmented by the worst-ever load-shedding period, deteriorating road and rail infrastructure, and the existence of dozens of dysfunctional municipalities (outside of the Western Cape).
The sharp depreciation of the rand exchange rate in recent months is also a source of concern, but this is a global phenomenon driven by the disproportionate strength of the US dollar.
However, a persistent depreciation will make it more difficult to control inflation. Currently, currency weakness is not a serious issue, as it provides exporters with welcome benefits.
Aside from the sharp increases in fuel prices, the most immediate threat to the financial stability of businesses and households is the power outages. As anticipated, the full spectrum of representative organizations in the country has reacted strongly, and society as a whole is putting pressure on the government to address the energy crisis immediately.
Mantashe has 10 days to address the energy crisis.
Deregulation is required immediately.
Specifically, the National Planning Commission (which operates under the Presidency) has recommended that the electricity supply shortage be regarded as an emergency and that immediate action be taken to deregulate the entire energy supply chain.
This may involve the elimination of the 100 megawatt (MW) cap on private power generation licenses, the simplification of the registration process, and the streamlining of environmental impact assessments.
The new executive leadership of Eskom has been pushing for reforms to the regulatory and institutional framework for energy and has recently confirmed that 18 companies have been chosen from the bids submitted for the lease of Eskom-owned land in Mpumalanga. This land has been designated for independent renewable energy generation, and these 18 projects will add 1,800 MW of solar or wind energy generation capacity to the grid.
Exports
South Africa’s international trade performance is going from strength to strength and continues to break records, most notably the cumulative value of R791 billion in exports in the first five months of the year.
Additionally, sales of new vehicles on the domestic market increased by more than 7 percent in June, while export sales increased by 18 percent (year-on-year).
Sentiment
Despite the formidable obstacles, many foreign companies remain optimistic about South Africa’s prospects for achieving sustainable growth.
This is reflected in the impressive performance of foreign direct investment (FDI) inflows during the first quarter of the year, which totaled R27 billion.
The fivefold increase in average quarterly FDI inflows since 2018 is unmistakable evidence of the renewed confidence in the country’s economic future following the gradual implementation of market-friendly reforms by President Cyril Ramaphosa (compared with the state capture era).
Hopefully, a swift end to the conflict in Ukraine and the abolition of lockdown regulations will soon eliminate a significant portion of the current geopolitical and socioeconomic instability.
In the interim, however, the majority of consumers face a challenging second half of the year.
