BREAKING NEWS: The South African Reserve Bank Hikes Interest Rates By a Whopping 50 Basis Points

The monetary policy committee of the South African Reserve Bank has concluded its meeting today where it decided to raise interest rates by a further 50 basis points to take the repo rate to 8.25% which was above market expectations of 8%. 

The rate is hiked in the midst of a cost of living crisis in the country which is being made worse by the rapidly depreciating rand that is adding a cost push effect on the already high inflation which the reserve bank is trying to tame.

It seems as though the rate hikes have had somewhat of a desired effect on the level of inflation which was reported yesterday and came below market expectations although it is still high. It remains to be seen whether the SARB will maintain its hawkish stance or change after the latest rate hike. 

Reserve bank governor Lesetja Kganyago will be speaking later today to provide more clarity on the outlook of the economy and interest rates going forward.

The Weakening Rand Can Start an Industrial Revolution

The depreciation of the rand presents not only bad news but also the good although the stage of harvest will follow a tumultuous period of changes within the country.

The sharp and quick depreciation of the South African rand against the US dollar and a couple of other major currencies in the recent days has caused a lot of discomfort among concerned locals, with some calling for the head of the president and his political party the ANC, and some hailing the Minister of International Relations Naledi Pandor for her swift reaction in an attempt to try and put out the storm that had caused such an unsettling slide of the currency that saw the USD/ZAR rate cross over the never before seen R19/$1 mark. Amid an on-going war between Ukraine and Russia, the US ambassador in South Africa Reuben E. Brigety claimed that South Africa had supplied Russia with arms which were loaded onto and ferried by the Russian cargo ship Lady R which was docked at the Simon’s Town Naval Base. When Pandor finally got the US ambassador to come out and pronounce in public that his claim was mere speculation that cannot be backed by proof, it was already too late for the rand.

Quite frankly the rand has been on a downward spiral since the advent of a democratic era in 1994. The nature of the incoming ANC government’s economic policy which was largely focused on distribution of proceeds from business activity as opposed to wealth creation resulted in expanded social programs which meant increasing government spending. With a small tax base that suddenly had to anchor bigger social programs, the government had to resort to borrowing among other methods of funding, which resulted in exponential growth in the GDP-to-debt ratio. The following decades’ economic scandals arising from the ruling ANC party only served to deter foreign direct investment from the country, and therefore leading to waning demand of the rand and exacerbating its weakening against major currencies.

As the weakening local currency forces a new reality on us, there are upsides and downsides of a depreciated currency. Investors with investments offshore will see good returns from their investments if overseas conditions remain favourable compared to the magnitude of depreciation of the rand. Exporters will reap higher profits as well compared to past periods because now when they get paid in foreign currency, they will have more money after converting it back to rands which will leave them in a better place to expand their operations and create the employment that is desperately needed in this hopeless time of our country.

The manufacturing sector of South Africa on its own cannot support the needs of the economy and the public, and if it becomes impossible to source and profitably use imported capital goods then new industries will have to be created internally and old ones strengthened as there would be no other choice. Under such circumstances, continued importation will raise inflation to record levels above current alarming rates, in turn giving the central bank incentive to hike rates even higher making capital expensive for companies and households who from time to time rely on debt to fund one thing or another. That will then lead to defaulting and the beginning of issues in the financial sector threatening an American-like crisis that is currently seeing several regional banks fail while economic participants remain uncertain about the future. Re-industrialising might be the one favourable way of keeping the country running and on a growth path whilst also creating expert skills among the population and giving opportunities to graduates with no jobs. That process will be very expensive and will need a lot of expertise, but that is where the government is supposed to come in – to support emerging industries and see to the realisation of their prospects. In the chance that we are unable to grasp what is happening and act accordingly, we await Armageddon.

 

The FNB Youth Start-up Accelerator Programme (YSA) Has Returned and You Can Now Apply

 

If you’re a young entrepreneur or aspiring business owner and would like to have experts hone your skills and assist you to grow your business financially and in other aspects, then this might be the opportunity for you.

The First National Bank (FNB) has partnered with Fetola, an SME support entity that is involved in the grooming of young entrepreneurs and their businesses as well as those aspiring to be in business. The programme focuses on youth from the rural, township and peri-urban areas.

The duration of the programme is scheduled to last for twelve months that are divided into two phases both of which serve different purposes.

You can click on the link below to download the brief of the program for more info:

https://fetola.co.za/programmes/ysa/&ved=2ahUKEwibodytwYP_AhWShVwKHWobAsAQFnoECBgQAQusg=AOvVaw2KJbUNcqCFx2VvhChQ49G7

 

Or you can go to Fetola’s website via this link and apply:

https://fetola.co.za/programmes/ysa/

The Cost of Stalling the Karpowership Project Seems to be Higher Than the Project Itself.

 

The Karpowership project has been blocked for years now and it seems while opposition against it drags on, things keep getting worse and worse in the country. Unemployment keeps going high and GDP keeps dwindling among other things.

For years now the country has been plunged into near total darkness by the incapable Eskom power utility which is unable to generate enough electricity to keep the lights on for 24 hours a day.

Karpowership, an energy company from Turkey that manufactures power ships that produce electricity and feed it into the grid have availed a solution to cover the shortfall in the power that Eskom supplies. Whereas the project has the support of the country’s president, Cyril Ramaphosa and a few other prominent ministers in his cabinet, the Democtratic Alliance is in opposition of it and has called for alternative ways to cover the shortfall. The tender for the project has been rewarded already, however the commencement of power production has been blocked by numerous court challenges lodged by several business parties and environmental groups, as well as unending environmental assessments by the Department of Forestry, Fisheries and the Environment.

The truth is that as much as the project is going to cost South Africa an amount of around R200 billion over a duration of 20 years, there is even a greater cost in the stalling of a final decision on the issue. Beyond the environmental challenges that are raised by those in opposition of the project, economic production keeps on deteriorating and threatens long-term stability. A persistently deteriorating rate of production negatively affects government’s social programs as well as the lives of ordinary South Africans whose opportunity out of life’s miseries can be found in a flourishing economy that is perhaps only a few more kilowatts of electricity away. It goes without saying that the worse that things get in the economy would be the more destitute the lives of struggling South Africans get. It may be argued that South Africa is already a failed state, so imagine if things got worse than they already are.

On the positive side, the interesting thing about money is that if you invest it and take care of the investment, it will make back the money you invested in it and more. Hypothetically speaking, the R200 billion that will be used over the 20-year duration of the Karpowership contract can possibly be returned by the economy before the end of that 20 years if the intended benefits of such an investment are realised. The Democratic Alliance argues that the money can be used to construct two more power stations which will be a better investment compared to the Karpowership project, however, can those power stations be completed well in time to come and help businesses and South Africans with the electricity that they need now? Would it not be a good idea to secure the current shortfall with Karpowership and then work on the side for the creation of extra power stations that will cover supply when the Karpowership contract lapses? On the issue of environmental costs, if other countries such as Brazil, Guinea Bissau, and Zambia among others are doing it then can’t we also quickly find a way to make it work as safely as possible before things get worse?

At the end of the day, if the country can get extra power injected into the grid, that will be a big win for all races and ethnicities regardless of political affiliation, ideology, or religion. 

Greater Unemployment is Looming in South Africa

 

The trend of the unemployment rate over the last years and the prevailing circumstances in the  signal only the worst to come.

Earlier this week Statistics South Africa released an unemployment rate that showed an increase from the previous report. The rate now stands at 32.9% up from the 32.7% previously reported. The report also shows that the number of people added into employment during the reporting period dwindled, and the youth is still by far the most affected.

The ongoing energy crisis in the country has created strenuous circumstances for businesses and as a result they cannot expand to absorb labour since many of them are forced to operate for less hours of the day which results in less production and reduced revenue. All of this is happening while ruling party ministers are still yet to implement any plan that will see additional power capacity added into the grid. The slow deregulation of business and the questionable appointments of political leaders such as is the case with the last two mayors of the city of Johannesburg, Thapelo Amad and Kabelo Gwamanda, are neither enticing investors nor building confidence among consumers in the economy.

Both the South African Reserve Bank and the Department of Treasury are aligned with the World Bank and the IMF on the stark outlook of the South African economy. The inconsistent GDP growth that fluctuates within a low tight range is not helping the course of employment. Among other unpredictable factors are the public sector employees who can bend the government to their will and demand large pay increases in the middle of crisis, forcing the government into borrowing more money and leaving little of the rand for internal development which in turns takes away those scrappy government jobs that a portion of the youth look to for a few bills to get by.

Should we not get out of the above outlined situation soon, things will not get any better but worse. The country’s citizenry will be left in a place where they will remain destitute or create opportunities now out of the little resources that are still accessible.