The world is in a structural state of flux at the moment—from persistent inflation in the rich world and the war in Ukraine, to South Africa’s ongoing power generation crisis. The pattern of concurrent shocks and interconnected risks we see in the global economy today is described by some as the ‘polycrisis’. Yet the leadership of winning businesses and countries will recognise that unstable times also create opportunities for change, renewal, and growth.
There’s little doubt that the confluence of factors we see in the world today will reshape the geopolitical landscape and world economy over the next decade. The way that the Fed and other rich world central banks’ balance the need to tame inflation with the imperative of avoiding deep and prolonged recession could well leave as long-lasting impact as did their response to the Global Financial Crisis. In the case of the Fed today, the bank may need to adapt to the acceptance of a terminal inflation rate at year-end that is higher than its current official target of 2%.
Meanwhile, the war in Ukraine and trade tensions between the west and China are challenging the trade relationships forged during the globalisation of the 1990s and early 2000s. Western manufacturers like Apple are adapting to reconfigure supply chains to be less reliant on China, while European governments are mitigating risks by ramping up military spend and seeking alternatives to Russian gas and oil.
In South Africa, persistent level 4 to 6 load shedding is testing the adaptability and resilience of the country’s people and companies. Retailers, manufacturers, shopping malls and other organisations are pouring millions of rand a month into diesel as a short-term solution to minimise business interruption. But many have already turned to solar as an option for energy independence and business sustainability.
We cannot predict how all these trends will play out, but the countries and companies that show resilience and adaptability will turn them into opportunities. For example, resource-rich and low-cost manufacturing countries have a gap to position themselves as alternatives to Russia and China. A shift from gas and oil could help European countries move towards their Net-Zero goals. And in South Africa, self-generation and competition have the potential to create a greener, more resilient, and more decentralised power market in the longer term.
The power crisis, along with South Africans’ disillusion with crumbling infrastructure, high costs of living and rampant crime, create fertile grounds for political change. It’s likely that the ANC will not command a majority in the next general election unless it acts resolutely and positively against its internecine weaknesses. Regrettably, we have not witnessed any signs of any such “renewal” (adaptation) to date. Continuity on the current low road may mean that the Party may only survive through the formation of a corrupt ANC/EFF ruling cabal, or the possibility of a coalition of parties that becomes paralysed in its policy decision-making.
“The greatest danger in times of turbulence is not the turbulence—it is to act with yesterday’s logic.”
– Peter Drucker, Management Guru & Author
Global News
- Demand for U.S. workers shows signs of slowing, a long-anticipated development that is appearing in private-sector job postings even while government reports indicate the labour market is running hot. Figures from two large online recruiting companies, show the number of job postings on their sites declined more late last year than the Labour Department report on job openings for that period indicated. The companies report that available jobs have fallen further this year, potentially foretelling a decrease in openings in coming Labour Department reports, and a slowdown in hiring this year. This bodes well for wage inflation as the Fed hopes to slow the economy and inflation just enough to avoid a hard recession. Reductions in postings could signal it is achieving that goal.
- China’s leaders have been surprised by the pace at which its economy has rebounded, with manufacturing posting its biggest improvement in more than a decade, services activity climbing and the housing market stabilising. China’s rebound is also giving a boost to manufacturing in other parts in Southeast Asia, specifically Thailand and Vietnam, whereas the picture in North Asia has been mixed with Japan’s factory activity falling and Taiwan gaining slightly. Economists have however cautioned that even as the improving factory data suggests the recovery is becoming more balanced, there are still headwinds, as global demand remains weak, and exports will likely contract this year.
- President Xi Jinping is moving to consolidate the Communist Party’s hold over the world’s second-largest economy, with plans for sweeping changes to China’s bureaucracy and more influence within private companies, including reforms for the financial sector. Xi said the party would roll out plans for “deepening structural reform” in the financial sector and hold more control over science and technology work — key strategic areas as the US moves to prevent China from obtaining advanced computer chips and other high-tech products. Meanwhile Apple Inc.’s Chinese suppliers are likely to move capacity out of the country far faster than many observers had anticipated to pre-empt supply disruption fallouts from escalating Beijing-Washington tensions, according to one of the US company’s most important partners.
- Britain and the European Union have reached an agreement on new trade rules in Northern Ireland in an attempt to resolve a thorny issue that has fuelled post-Brexit tensions in Europe and on the island of Ireland. This breakthrough deal is being seen as the first step to repairing some of the damage Brexit has done to the UK economy.
- Russian billionaire Oleg Deripaska has warned his country could run out of money as early as 2024. The oligarch is subject to UK, US and EU sanctions over Russia’s invasion of Ukraine. He says Russia will need to look to other countries with “serious resources” to compensate for the loss of Western investment as a result of sanctions. This reflects how global dynamics are changing and raises the spectre of a new cold war between the West and China, Russia, and allied countries.
- UN nuclear watchdog, the International Atomic Energy Agency, is having talks with Iran on the origin of uranium particles enriched to up to 83.7% purity, very close to weapons grade, found at Iran’s Fordow enrichment plant. While spikes in enrichment levels can occur and this could have been accidental, this spike is relatively large.
- In a bid to limit addiction among youths to short videos, Chinese media regulators are studying measures they can put in place. Videos were popularised by tech giants from ByteDance(TikTok) to Tencent. Video streaming platform Kuaishou Technology stocks dived as much as 4.2% in early on Tuesday trading in Hong Kong, while rival Bilibili fell by 3.7% on the news.
- Meanwhile, the European Parliament has banned TikTok from staff devices over cybersecurity concerns. This means that the Chinese video-sharing app is now barred in all three of the EU’s main institutions because of worries over data protection and collection of data by third parties. The suspension kicks in on 20 March.
- Elon Musk has regained his spot as the world’s richest person, after briefly losing the title to France’s Bernard Arnault on the back of a nearly 70% surge in Tesla stock price this year. The stock is up about 100% from its intraday low on January 6. The electric vehicle manufacturer will build a new plant in Mexico despite his much-hyped third Master Plan for the vehicle falling flat with investors after failing to offer any firm detail on the company’s long-awaited next generation of electric cars. Musk has also been wooing AI researchers in recent weeks to start a new research lab to counter OpenAI’s ChatGPT, according to sources, Meta CEO, Mark Zuckerberg, has his own plans in the offing: a new top-level product group at Meta focused on artificial intelligence technology, which can produce various types of content, including text, imagery, audio, and synthetic data.
- As at Thursday’s close the S&P 500 was up 0.3% for the week.
Local News
- The ground-breaking story that unfolded this week was the Intelligence reports obtained by Daily Maverick that link two senior members of President Cyril Ramaphosa’s Cabinet to four criminal cartels operating inside Eskom. This has caused large scale sabotage and corruption at Eskom’s power stations and represents a programme of political destabilisation. Daily Maverick’s insightful piece details the report in a narrative manner that makes sense of the issues at the state utility.
- The ANC is coming under increasing pressure as next year’s elections loom. It could easily fall in the vote next year to an unprecedented minority level, states veteran journalist Stephen Grootes. “This is what makes its response to the claims of corruption at Eskom so startling — there appears to be no understanding of how vulnerable the party is and just how much the lives of ordinary South Africans have worsened of late.” It has not yet been revealed which politically connected individuals are benefiting from corruption at Eskom, yet it is likely that much more information will burst into the public domain soon. The ANC’s response, so far, may have echoes of the beginning of the State Capture era, when the circling of the wagons was the name of its game. Instead of cracking down on corruption, the party is attacking those who are fighting to save Eskom and the South African economy.
- For the past 20 years, minister of mineral resources and energy Gwede Mantashe has relentlessly opposed the licensing of independent power producers, which have offered the only possible solution to the crippling power deficit from which the country is suffering today. At the same time, his tenureship has seen South Africa drop into the 10 least favourable destinations in the world for mining investment, despite the country’s wealth of natural resources. Notwithstanding this, Mantashe, instead of leaving government, has been retained in the top leadership structures of the ANC and government.
- More than two weeks after President Cyril Ramaphosa announced a National State of Disaster pertaining to the impact of Severe Electricity Supply Constraints during his 2023 State of the Nation Address, government has now gazetted the disaster management regulations on electricity constraints, after a special sitting of Cabinet on 27 February. The electricity State of Disaster was declared by the Department of Cooperative Governance and Traditional Affairs (CoGTA) in line with the provisions of the National Disaster Management Act, Act 57 of 2002. Business Day’s editorial points out that some of the regulations are vague, and the powers given by these regulations can be used to push through objections to costly contracts for emergency power generation. Read about how this affects you here.
- Hospitals, clinics, schools, and police stations, among others, are not exempt from loadshedding. This is because they are “embedded” on the same grid as other consumers, such as households. However, under the new emergency regulations, there is no relief as the National Disaster Act, under which the National State of Disaster was declared, doesn’t provide any promises. “Where technically possible, it will enable us to exempt essential infrastructure such as hospitals and water treatment plants from load shedding.”
- Deputy president David Mabuza has formally resigned as a MP, allowing the president to appoint a new second-in-command as part of his expected cabinet reshuffle. This ends his five-year stint in the spot. It is widely expected that Mabuza may be one of the senior politicians involved with the organised crime syndicates behind Eskom as exposed by the Daily Maverick.
- This comes as South Africa’s greylisting by the Financial Action Task Force (FATF), as announced last Friday, has significant implications for the country’s economic growth and global competitiveness. Moves are however already being made to satisfy the FATF which has identified eight strategic deficiencies that SA must remedy by no later than end-January 2025. However, the National Treasury says. “If SA continues to make significant improvements in effectiveness and swiftly exits greylisting, it will have a limited impact on financial stability and costs of doing business “
- Since 2023 started, the rand has dropped by a not insignificant 6.4% against the US dollar (compared with -6.2% during all of 2022, and a long-term average of -5.9%). This makes the rand the 3rd worst performing emerging market currency in 2023, after Egypt and Argentina. The rand has also substantially underperformed in the basket of emerging market currencies, highlighting the fact that the recent weakness is largely due to domestic factors. However, the currency is trading at a discount to our fair value model and may experience some retracement in March.
- The US has warned its citizens against travelling to South Africa due to high crime, a statement that foreign minister, Naledi Pandor has dismissed, arguing that it is fearmongering. According to Daily Maverick, this denial means the country is not likely to get out of the crisis of corruption and crime soon. “Those with the power to act won’t and those who feel powerless are becoming restless. When they act, it will be destructive.” Despite this, there are still things that can be done to right matters. The article lists seven steps that must be taken, which amount to taking action and righting the ship. As commentator Peter Bruce asks, does Ramaphosa have the courage to lead?
- Cape Town must be doing something right. Boosted by tourism during the festive season, the coastal region created 167,000 jobs in the three months to December, a 7% increase from the previous quarter and more than any of the other eight provinces. Cape Town has plans to ensure it will remain a desirable destination, with the Western Cape seeking to add as much as 750MW of power supply by 2025 and to reach 5,700MW by 2035.
- Despite the odds being stacked against South Africa, the unemployment rate in the fourth quarter of 2022 edged lower to 32.7% from 32.9% in the previous quarter, Statistics South Africa said on Tuesday. However, this shows that there was no meaningful improvement in the job numbers, which are still sky high, and among one of the worst blights on the economy.
- Manufacturing has been hard hit by rolling blackouts. After astounding on the upside in January, it dropped sharply in February. Absa’s purchasing managers’ index fell to 48.8 index points in February, down from 53 in January, 51.3 in December, and well below the market consensus of 50.
- Woolworths estimates that loadshedding has cost it R90 million in the six months to December, as it joins ranks with other major retailers in South Africa in being hard hit by the power outages. According to the group, the energy crisis has been devastating and has had a pronounced impact on the broader South African economy and business confidence.
- British American Tobacco South Africa (BATSA) has warned that illegal tobacco producers are driving out those that pay tax and depriving South Africa of billions in excise duty. Illicit traders, who benefited from the underground trade of smokes during the Covid prohibition, have now snatched between 54% and 70% of the legal market. BATSA calculates that there are at least 24.4 billion illicit cigarettes on the market, costing the country R24 billion in excise revenue only, excluding VAT and other taxes.
- New York-listed IHS, a cellular tower company, is looking at possibly bidding for Telkom’s infrastructure business, according to sources. The business unit is worth about R8.7 billion based on future expected cash flows, based on a recent note from Nedbank. IHS and Telkom declined to comment on the matter. Telkom shares rose as much as 6.6% on the news, closing 4.2% higher on Tuesday in Johannesburg.
- Aspen Pharmacare shares jumped the most in 23 years on Wednesday, 13.29% higher, after the country’s largest generic drugmaker painted a rosy picture heading into the second half of the financial year and beyond. They closed at R160.75 on the JSE, adding R8.4 billion in market value.
- Murray and Roberts is considering issuing shares to get out of its debt issues. It owes R800 million and wishes to decrease this debt during the next few months. The news sent the share price plunging to its lowest levels in five months, crashing 24.44% to R1.70. Its share was R97.35 in October 2007, just before the start of the Global Financial Crisis. Ignoring dividends, the share price has fallen 98.3% from those historic highs.
- As at the time of writing, the rand was 1.6% stronger for the week and the ALSI was up 1.7%.
Sources: Dynasty, Daily Maverick, Bloomberg, The Guardian, Reuters, CNN, TechCentral, BusinessLIVE, BusinessTech, WSJ, Analytics Consulting, etc.
