As the global community seeks to accelerate the move towards cleaner power sources, South Africa’s government is still hooked on coal. This is despite the hundreds of billions of rand South Africa has secured from rich countries to help fund its just transition towards renewable energy. Business Day carries an editorial about how government seems to be at war with its own policies on climate change.
As with many other challenges in South Africa, ANC factional politics is setting the agenda. Gwede Mantashe, Minister of Mineral Resources and Energy, is one of the figures who appears to be slowing down the transition towards renewables that are cleaner, cheaper, and much quicker to get onto the grid than coal-generated power.
Deliberate efforts to slow down the transition are costing South Africa dearly. With the country suffering load shedding more days this year than not—including the current Level 6 load shedding—we are experiencing the direct consequences of slow movement in awarding Independent Power Producer bids over the past three years.
As Business Day notes, the long term implications are even more alarming. If we do not meet our global emissions reduction commitments, our exports will not be welcome in a transitioning world. As the author writes: “Arguing that South Africa should exploit its coal resources simply because we have so much of it, is spectacularly unimaginative and stubborn.”
“To truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy.”
– Barak Obama, 2009 Former President of the USA
“Having an energy conversation without talking about climate is like talking about smoking and not talking about cancer.”
– Chris Hayes MSNBC Television Host
Global News
- Stocks kicked off the week with losses and bond yields climbed as a US services gauge unexpectedly rose, fuelling speculation the Fed will keep its policy tight to tame stubborn inflation. Elsewhere in markets, oil is headed for a weekly drop of around 10%, whilst gold has advanced for a fourth consecutive day. (As at 12:15 pm today, Brent Crude was trading at $77/Bbl, while the spot gold price was at $1795/oz).
- In the US, the labour market remains historically tight, with many employers competing for a small pool of workers who are no longer prepared to work for a low minimum wage, thereby bidding up wages despite an uncertain economic outlook. Employers added 263,000 jobs in November, holding near the strong gains of the previous three months, when they averaged 282,000 a month. The strong November jobs report keeps the Federal Reserve on track to raise interest rates by a half percentage point at its meeting in two weeks and underscores the risk that officials will raise rates above the 5% mark in the first half of next year.
- Former US president Donald Trump’s real estate company was convicted on Tuesday of carrying out a 13-year-long criminal scheme to defraud tax authorities, adding to his woes as he campaigns for office again in 2024. The company faces up to $1.6m in fines following the guilty verdicts by a jury on all charges.
- The UK economy faces a decade of lost growth unless the government acts on investment tax reliefs, the Northern Ireland protocol and the shrinking workforce, the Confederation of British Industry has warned. The UK has already fallen into a “short and shallow” recession that will leave business investment 9% below 2019 levels and productivity 2% below its pre-pandemic trend even at the end of 2024. At the same time, another wave of strikes is set to disrupt Britain’s train network over the holiday season, further hurting the economy.
- The UK is also battling to develop a skilled and globally desirable workforce, with domestic talent increasingly less attractive to overseas businesses according to a poll of over 5,000 executives conducted by the Institute for Management Development.
- China will ease off its strict “zero Covid” policy, after an extraordinary outburst of discontent in mass street protests a week ago. This has been seen as a victory for protestors. China’s November trade data was weak, which may explain why it has eased COVID-19 restrictions, anticipating that with slowing exports, the domestic consumer will drive growth.
- In emerging market news and ahead of an impeachment vote by Congress, Peru’s president Pedro Castillo tried to dissolve the government and seize power. The attempt ended with his ouster and arrest.
- South Africa isn’t the only country with a power crisis. In Europe, there could be staggered electricity outages to save energy including temporary cuts in mobile phone and internet services; schools closed for a lack of lighting and heat; and even traffic lights that could potentially be briefly powered down. This is in spite of Europe having spent months preparing for a winter without Russian gas, stockpiling fuel, and pushing conservation measures in the hope of maintaining enough energy to keep power grids running.
- In company news, Intel is on course to regain chip production control, hitting all the targets it has set on a path to regain leadership in semiconductor manufacturing.
- Apple is scaling back ambitions for self-driving plans for its future electric vehicle and postponed the car’s target launch date by about a year to 2026, according to people with knowledge of the matter. The car project, dubbed Titan inside the company, has been in limbo for the past several months.
- Microsoft is increasing the price of its new Xbox games to $70 from $60 from next year following the lead of other big gaming rivals such as Ubisoft Entertainment, Sony Group, and Take-Two Interactive Software.
- As at Thursday’s close the S&P 500 was 1.6% down for the week.
Local News
- Ahead of the ANC’s national elective conference due to start next week, Fitch has said that impeaching the president could lead to political instability and increased uncertainty about South Africa’s policy outlook and this could further weigh on near-term investment prospects if the findings weakened business sentiment. The possibility of an impeachment situation has already adversely affected the bond market.
- Many South Africans are fantasising about what a future after President Ramaphosa and the ANC as the governing party will look like. Jonny Steinberg warns us to be careful what we wish for, pointing to the coalition chaos in the metros. He argues convincingly that it’s vitally important that Ramaphosa survives Phala Phala and is ultimately succeeded by someone with the dexterity and subtlety to form a credible coalition government after 2024.
- Paul Mashatile, ANC secretary general, is likely to emerge politically strengthened at the elective conference and is a strong bet for deputy president as well as a candidate for the country’s next president. The only question up in the air may be when, exactly, he takes South Africa’s reins.
- The Investigating Directorate of the NPA has received a criminal complaint from the Organisation Undoing Tax Abuse under the Prevention of Organised Crime Act, with Deputy President DD Mabuza named as the lead suspect. The allegations include many charges that stretch from 2002 to the present day, mainly to do with the ‘land claims scam’ and the case of conservationist and whistle-blower Fred Daniel.
- Meanwhile, as South Africa tries to avoid being greylisted in February, the test of laws to avert greylisting is a huge hurdle. Even if the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Bill, (“General Laws Amendment Bill”), and the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill are passed in a hurry, making certain they are in place by February will be difficult.
- After contracting by 0.7% in the second quarter of 2022, the South African economy bounced back to 1.6% growth in the third quarter, beating economists’ expectations and making South Africa’s economy larger than before the pandemic. This provides a glimmer of hope in a country that needs to grow GDP at 5% to create enough jobs. At the same time, business conditions have gradually risen over the year, increasing to their best level since the beginning of 2017.
- Eskom has run out of money to buy diesel for its emergency generation fleet while further breakdowns at its power stations mean that South Africa is dealing with Stage 6 for the fourth time in 2022. In the worst year for rolling blackouts, some areas could be without power for up to ten hours a day, as 47% of the grid is down. Eskom is trying to avoid Stage 7.
- It is well known that South Africa’s budgeted expenditure at a national level is primarily comprised of interest charges and civil servants’ wages, and that there is a lack of much needed investment in infrastructure. Yet another crisis is looming in that our municipalities appear to be living beyond their means, with National Treasury flagging financial sustainability concerns. Costs are being driven by employee-related costs and materials and bulk purchases, rather than infrastructure investment. Municipalities are taking a hit from an increase in bad debt and low consumption as a result of higher water and power costs. Meanwhile from a revenue perspective, according to the most recent available data for 2022, the total outstanding amount due to municipalities stands at circa R255 billion. It is therefore vital for municipalities to be able to collect their billed revenue which in Dynasty’s view will present challenges on several fronts. (Source – Stanlib Economic Research)
- Tiger Brands’ results for the full year to September was a year of two halves for South Africa’s largest food company. The first half saw the cost base severely impacted by unanticipated galloping inflation, coupled with significant and lengthy industrial action at the snacks and treats facility. The second half of the year helped it manage a 10% increase in total revenue to R34-billion. This growth was largely the result of the effective implementation of category-specific margin recovery initiatives, as well as the execution of specific initiatives in the bakeries, snacks and treats, and export divisions. Revenue growth was driven by price inflation of 11% and a marginal overall volume decline of 1%.
- Murray & Roberts (M&R) plunged 21.05% on the JSE on Monday, to close at R3.75 a share, after it announced that it had terminated the proposed disposal of its Australian subsidiary Clough and placed both Clough and Murray & Roberts Pty Ltd (MRPL) into voluntary administration. MRPL is an indirect wholly owned subsidiary of the group and the group’s holding company in Australia. Italian construction company Webuild has stepped in to fund wages for Clough employees and to ensure that work will continue on Australia’s biggest hydropower project, Snowy 2.0.
- As at the time of writing, the rand was 0.3% weaker for the week and the ALSI had gained 2%.
Sources: Dynasty, BizNews.com, BusinessLIVE, Reuters, Bloomberg, TechCentral, Wall Street Journal, New York Times, Daily Maverick, Business Insider, Moneyweb, UBS, Stanlib, etc.
