Uncertainty And Volatility Rising
05 Apr 2023
In Q4 2022, the North West University Business School’s “Policy
Uncertainty Index” registered a score of 53.2 - the higher the
number, the more uncertainty is present.
For Q1 2023, the Index has risen to 71.7.
Globally, events such as the Russian invasion of Ukraine, higher
inflation, rising tension between the United States (U.S.) and China, and
recently, turmoil at notable financial institutions such as Silicon Valley Bank
and Credit Suisse, have combined to increase uncertainty around the
macroeconomic and growth picture.
For South Africa specifically, the Index cites industrial
action, low growth, violent crime, corruption, the greylisting by the Financial
Action Task Force, delayed reforms, and most pressingly, the energy crisis.
In a week during which the control of the Tshwane metro reverted
to a coalition led by the Democratic Alliance, while control of Ekurhuleni
returned to an ANC-EFF bloc, political uncertainty could be added to the list.
Heightened uncertainty increases the risk premium for investing
in South Africa and, in a global context of tighter credit and lower growth,
could serve to disincentivise investors and businesses.
In an update published last week, financial services company PwC
noted that based on a consumer survey, ‘South Africans are seeing the price of
household goods skyrocket, larger queues and a lack of certain stock in stores
across the country’. It added that disruptions to local and global supply
chains were continuing to affect consumers with rising prices for everyday
goods. This could be a factor in rising discontent and lower support for the
governing ANC, particularly going into winter and amidst the likelihood of more
loadshedding.
~ Source Centre for Risk Analysis
CODE RED FOR LOAD SHEDDING
Energy Analyst Chris Yelland, recently shared Eskom’s 52-week
outlook, which was published on the Eskom website, on his Twitter account, with
the caption: “Code RED: The likely risk scenario for the next 52 weeks, taken
directly from the latest Eskom system status report published on the Eskom
website on Friday 31 March 2023 (Note: This is not an April fool’s joke, it is
for real.)
In a nutshell, the power utility is forecasting load
shedding every week for the next year, assuming a worst-case scenario of
outages (both planned and unplanned) exceeding 17 000MW.
Speaking to News24, Yelland explained that the forecast is not a
reflection of whether there could be a blackout or grid collapse. “If load
shedding is implemented – then it means that demand and supply have been
brought to balance,” explained Yelland. “The risk of blackout occurs when we
cannot bring supply and demand back into balance through load shedding,” he
added.
"The fact that we are doing load shedding and bringing
supply and demand back into balance means there is no additional risk,"
said Yelland.
International Risk Warning
Citing police reports that show a strong correlation between
periods of power outages and increased criminality, International Security
Intelligence and Analysis Service, DragonFly Intelligence, warn that rolling
electricity blackouts over the winter period are very likely to intensify
criminal and unrest risks.
Advice
We refer to our advice in the Executive Brief of 9 Feb: “If you
have not already done so, our advice to clients is to work with us to update
your emergency plans and response procedures taking into consideration the
knock-on effect of load shedding. Alternative sources of back-up power to
safety and security infrastructure are a non-negotiable.”