Corporate Planning Bulletin - 22 January 2024

22 Jan 2024

ECONOMY & BUSINESS

• Ports: Mozambique and other African countries are benefitting from South Africa’s deteriorating ports and rail infrastructure as the country continues to fall behind the rest of the continent. This is the view of Econometrix chief economist Dr Azar Jammine, who said there is a direct correlation between significant volume increases at Mozambique’s Maputo Port and South Africa’s port woes over the past year. “There have been reports of thousands of these trucks carrying coal and going to the Ressano Garcia border post in Maputo.” He said these businesses are exporting their coal and other goods through Maputo. This has placed the Mozambican government in a position to raise its fees for export since South Africa’s ports are increasingly becoming unviable. “So, they are benefiting where we are losing,” he said. He added that this is not exclusive to Mozambique, as some other Southern African ports have been gearing up their facilities precisely to take advantage of South Africa’s logistics crisis. Jammine said this is concerning, as these countries are upgrading ports all around the continent to facilitate increased passage of trade while South Africa is falling behind. In addition, ports in other African countries have less government interference in improving their facilities and infrastructure. “In Maputo, they’re quite happy to get outside parties to come and do the work to upgrade their facilities,” he said. “In South Africa, there’s a distinct ideological reluctance on the part of government to get private sector bodies involved.” “There was an agreement many months ago to get a Filipino Consortium to start improving our port facilities. That agreement is still not being signed by the South African government.” “Eventually, the government will be bankrupt if it doesn’t actually bow down and allow the capability that exists in the private sector to actually intervene to help them improve,” he warned.

• Fitch Ratings has kept South Africa's credit rating unchanged at 'BB-' with a stable outlook. While the country could see less load shedding this year, Fitch is concerned about the country's weak growth prospects and ballooning government debt. Fitch expect government debt will reach 83.2% of GDP this year, which is well above the median of BB-graded countries (52%). ANC could lose its majority in the May 2024 general election, but this is unlikely to result in major changes in economic policy, the agency said. Fitch's rating remains at 'BB-' with a stable outlook, which is in line with S&P's rating (also BB-). Moody’s rates South Africa slightly higher: at Ba2, which is equivalent to the BB rating Fitch and S&P use. In its ratings report, released on Friday, Fitch projected that the local economy would grow by 0.9% in 2024 and 1.3% in 2025, from an estimated 0.5% in 2023.

• Petrol stations vs Shell: British petroleum giant Shell has been accused of using coercion, duress, harassment, threats, and unfair tactics against its franchisees operating fuel stations across South Africa. The Shell Retailer Council (SRC), representing several Shell outlets, has approached the Johannesburg high court to interdict Shell Downstream South Africa from using “draconian” and unfair tactics against its members. Franchisees also want the court to order Shell to halt what they say is a breach of the Consumer Protection Act (CPA). The SRC argues in its court papers that the multinational — the third-largest petroleum wholesaler in South Africa — has imposed unfair, unreasonable, and unjust contractual obligations on its members. According to the SRC, the annual turnover of Shell’s South African operation is about R1.76bn and the company collects an estimated R388m from 450 franchise sites in franchise/royalty income annually. Among other things, the SRC complains that franchisees are forced to pay “development fees” when Shell “unilaterally” revamps their business premises and refusal to do so brings threats of termination or nonrenewal. “The development, and accompanying development fees, is imposed on the SRC member (franchisee) resulting in them assuming the risk of a loss-making development; the assumptions, estimates, projections, and speculations underlying the calculation of the development fee due and payable are highly subjective and unrealistic.

• The rollout of 39 electric commuter buses by the end of next year in Tshwane and eThekwini by the end of next year. The introduction of the zero-emissions vehicles will form part of a pilot project funded by the Global Environmental Facility (GEF), and managed by the Development Bank of Southern Africa (DBSA) and the South African National Energy Development Institute (SANEDI). SANEDI, which has been appointed by DBSA as the implementing agent, says the project will see the procurement of 39 electric buses (e-buses) and the associated charging infrastructure, enabled by the $4.7-million in funding that the bank secured from GEF. The e-bus project was initiated by DBSA in consultation with several municipalities that indicated they were interested to participate. Conceptualisation started in 2018. Covid-19, however, halted the project. Work resumed in 2022, and by late last year DBSA managed to secure the necessary funding. In terms of the project scope, the City of Tshwane will be allocated 20 buses and eThekwini 19. In both cities electricity infrastructure will be upgraded and charging facilities installed, says SANEDI. “The project will be implemented over a period of five years, with half the buses being commissioned in the first two years and the rest at a later stage.”

• The BankservAfrica Economic Transactions Index (BETI) improved somewhat in December 2023 after two dismal months. Driven by lower stages of load shedding and fuel price cuts during the month, the latest reading is welcomed, but unlikely to signal the start of a significant economic turnaround in 2024.  The monthly BETI increased by 1.9% to reach an index level of 133.0 in December. On a year-on-year basis, the BETI was only 0.6% above the recorded level. The average BETI in 2023 was also 0.5% lower than the 2022 average.

• The SACCI December 2023 survey on trade conditions indicated a slight improvement in the trading climate for November and December 2023, though respondents generally still perceive the conditions as fragile. In December, 38% expressed positivity about the conditions, and 43% anticipate improvements in the next six months. Seasonally adjusted expectations saw a minor decline from 51% in October 2023 to 50% in December 2023. Notably, 64% viewed trade conditions in December 2023 as worse than in December 2022. During December 2023, 67% reported lower sales volumes, while 37% experienced increased new orders. Although input cost increases seemed to ease, poor demand restrained the rise in sale prices. Expectations were negatively influenced by constrained holiday spending, particularly in financially pressured households. Refer to the Infographic for detailed information on trade components. The ongoing decline in new vehicle sales serves as a leading indicator, signalling potential challenges for the economy. Retail trade volumes are also showing a negative trend, but foreign trade and inward tourism have positively impacted trade in the short and medium term.

• Altron FinTech Household Resilience Index: The restrictive monetary policy stance by the South African Reserve Bank (SARB) continues to weigh on South African households, with most remaining under severe financial pressure amid the higher interest rates. This is according to the third-quarter 2023 Altron FinTech Household Resilience Index. In the third quarter of 2023, the AFHRI recorded a value of 109.9, a marginal increase compared to the level of 109.1 during the second quarter of the year. No meaningful change was recorded year-on-year. Predictably, the ratio between household disposable income and household debt costs has been the worst-performing indicator included in the AFHRI.

• Ford said it would cut the number of workers making its F-150 Lightning truck as US demand for electric vehicles continues to weaken. In another sign that traditional gas-powered vehicle demand remains strong despite the accelerating climate crisis, Ford also said it was hiring nearly 900 new employees and adding 700 employees from its Rouge Complex for a third shift at its Michigan Assembly plant. “It’s pretty clear there’s been some slowdown in EV adoption,” said David Lefkowitz, head of consumer equities for UBS Global Wealth Management. “We’re getting to the part of the market where it may take a little more effort to penetrate.”

• Property analysis: As rising municipal rates and electricity tariffs shoot up and service delivery drops, homeowners will be looking to make the jump to areas where things aren’t falling apart – and the Western Cape is likely to benefit. This was one of the key trends outlined in FNB’s 2024 property insights analysis by John Loos, a property strategist at the company’s commercial property finance department.  risks remain abundant,” he said. In 2024 for the commercial property market the municipal and utilities service reliability remains a key theme. The increasing municipal rates and utility tariffs are putting pressure on net property operating income. Although electricity supply is predicted to improve, people are likely to continue moving to areas where things work, resulting in semigration for household and business activities. The Western Cape is expected to be a key beneficiary of this semigration trend.

• Business risks: Critical infrastructure blackouts have emerged as the number one risk for businesses in South Africa for the second consecutive year, highlighting the severe impact of power outages and the failure of essential infrastructure such as ports, railways, roads and more on the economy and businesses, insurance and risk multinational Allianz says. “The closely interlinked peril of the energy crisis has climbed to the fifth position, up from sixth place in 2023. Cyber incidents continue to be the second most significant risk and business interruption continues to be the third most significant risk. South Africa's business community must remain vigilant in the face of critical infrastructure blackouts. The persistent threat of power outages and infrastructure failures poses significant challenges to businesses, disrupting supply chains and impacting the overall economy.”

• Coal exports halted: South Africa’s coal exports have again been halted at the start of 2024, with the coal export line to Richards Bay having been closed after two trains collided near Richards Bay in the early hours of Sunday, 14 January. In recent months, there have been several disruptions to the line, mainly caused by the derailment of trains. In November 2022, a derailed train resulted in the company losing earnings estimated at R1 billion a day. Gavin Kelly, CEO of the Road Freight Association, said the collision underscored the vulnerability of the coal line due to the inherent risks of outdated manual systems and poor operational control.