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Displaying items by tag: South Africa’s Economy

New data from the Central Energy Fund of South Africa shows that the petrol price is set to drop by 3c in November. 
The possible decrease is attributed to a strengthening rand and a decrease in Brent crude oil prices. 
South Africa’s petrol price jumped to a record-breaking R17.08 in October; this would be the first decrease in eight months.
The South African petrol price is set to drop by 3c per litre in November, the first drop in eight months, new data from the Central Energy Fund (CEF) shows.
 
But the news is not all good: the diesel price is set for a massive 35c per litre hike. 
 
The possible decrease in the petrol price is attributed to a strengthening rand, and the global decrease in Brent crude oil prices, data from the CEF released on Wednesday shows. 
 
The CEF is a state-owned entity mandated to manage PetroSA and Strategic Fuel Fund (SFF) to secure South Africa’s national energy security. 
 
Hugo Pienaar, senior economist at the Bureau for Economic Research at Stellenbosch University, said things are looking increasingly promising for consumers in South Africa. 
 
“It is not only that the rand, on average, performed stronger against the US dollar, but the oil price also fell sharply from around $86 a barrel in early October, to around $76 today,” Pienaar told Business Insider South Africa. 
 
He said the petrol price may decrease slightly or remain the same as October prices when a formal determination is made.
 
The local petrol price jumped to a record-breaking R17.08 inland in October, and R16.49 at the cost. 
 
“I think the most important point is that the price [of petrol] will stay roughly the same, which in itself is positive after the sharp increases,” said Pienaar. 
 
President Cyril Ramaphosa set up an inter-ministerial committee in July to investigate possible interventions the state can make to lessen the effect of petrol price hikes on South Africans. 
 
The initial report was set to be completed by September, but has now been postponed to the end of November, energy minister Jeff Radebe said this week. 
 
 
Source: Business Insider
 
Published in Business
Naspers is planning to increase its stake in Indian online food-delivery business Swiggy as the startup plots its third fund-raising round of the year, according to people familiar with the matter.
 
Africa’s largest company by market value has indicated that it intends to support a financing that could raise more than $600 million, Swiggy’s biggest to date, according to the people. There’s also an opportunity to buy stakes from investors such as Bessemer Venture Partners, they said, asking not to be identified as the information isn’t public.
 
Tencent, the Chinese internet giant in which Naspers owns a 31% stake, is also planning to invest in the fundraising, according to one of the people.
 
Naspers declined to comment. Swiggy, Tencent and Bessemer didn’t immediately respond to emails seeking comment. The story was first reported by VC Capital website.
 
Swiggy’s value has risen to more than $2 billion after Cape Town-based Naspers led two previous funding rounds to become the firm’s biggest shareholder, according to the people. Naspers had a 22% stake as of the end of March. The company hasn’t made a final decision on whether to take part in the latest financing and may yet opt against it, one of the people said.
 
Naspers has targeted India for investments as the company seeks to replicate a blockbuster early bet on Tencent. The company made a $1.6 billion profit from the sale of its 11% stake in Indian e-commerce startup Flipkart earlier this year, and also has shares in travel business MakeMyTrip and classifieds business OLX.
 
Food delivery has been a favorite industry of Naspers, with assets including Germany’s Delivery Hero AG and iFood in Brazil. The company plans to invest in another Indian food company called Hungerbox, a tech-enabled corporate catering company, said one of the people.
 
Naspers shares have fallen 22% this year, valuing the company at 1.2 trillion rand ($83 billion), as a record slump in Tencent’s share price dragged down its South African investor. Naspers fell 4.% in Johannesburg on Tuesday.
 
 
Source: The Routers
Published in Business
Thursday, 18 October 2018 22:02

6 reasons why the rand is back from the dead

The rand has seen strong gains in recent days – rallying from R15.04/$ to R14.22 in a week.
 
Here are some of the main reasons for its current run:
 
1. Delay in the Moody’s announcement
There was apprehension ahead of the credit rating agency’s latest decision on South Africa’s sovereign debt rating, which was expected last Friday.
 
Moody’s is the only credit rating agency that has kept South Africa at investment rating. But the agency decided not to announce its decision, which is now only expected after the medium-term budget next week.
 
If SA lost its investment rate grade from Moody’s, it would have cost the country its place in the most important group of government bonds. The Citigroup’s World Government Bond Index contains only bonds that are investment grade. 
 
All the massive investment funds that track the index would have been forced to sell their South African government bonds. It has previously been estimated that foreigners would have to sell South African bonds worth R200 billion. This would have lowered the value of our bonds, and make it much more expensive for government to borrow money to keep the country afloat.
 
2. Donald Trump’s attacks on the Fed
The dollar has been taking strain amid the US president’s repeated attacks on his country’s central bank. Trump does not like the fact that the US Federal Reserve is hiking interest rates.
 
 "I think the Fed is making a mistake. It's so tight. I think the Fed has gone crazy," Trump told reporters last week. 
 
Higher interest rates make a currency more attractive: investors in that currency earn a higher rate of return.
 
3. Weaker US inflation
A central bank will hike interest rates to protect an economy from inflation. But the latest US inflation numbers, released last week, show that September inflation is now only 2.3% - from 2.7% in August and 2.9% in July
 
 “I think the Fed will continue on its gradual interest rate hiking path. But for now there seems to be less risk of a sharper-than-expected Fed interest rate hiking cycle,” Arthur Kamp, economist at Sanlam Investments, told Business Insider SA.
 
4. The Mboweni effect
Kamp believes the biggest reason for the rand strength is the appointment of Tito Mboweni as minister of finance.
 
“In policymaking, good track records are important. Of course, Mboweni does not have a track record yet in fiscal policy, but he has a good track record in monetary policy.
 
“Inflation targeting was first implemented (successfully) during his tenure as Reserve Bank governor. From this perspective the Treasury’s support of the current inflation targeting regime and the Reserve Bank’s mandate is likely to continue.
 
“That’s important because in a time of currency volatility the central bank is the anchor for inflation expectations and the currency.
 
“If the bank does what is needed (unfortunately that sometimes implies interest rate hikes) to keep inflation expectations anchored at a low level then there is a good chance the currency will settle – over time,” Kamp said.
 
5. The rand was oversold
Sanisha Packirisamy, an economist at Momentum Investments, believes the rand was unfairly sold off over recent weeks, as the market lumped South Africa with Turkey and Argentina. South Africa is in healthier shape than these countries, she believes.
 
“SA’s current account deficit is smaller than that of Turkey (...) and it has a credible and independent central bank.
 
“Assets in Brazil and SA (and more recently in countries which have done significant amounts of structural reform, including Indonesia, India and the Philippines) have been sold given the depth and liquidity of their markets.
 
“As such, these countries acted as proxies for the countries which experienced economic mismanagement in the last while and were unfairly sold off,” says Packirisamy.
 
When markets are worried about emerging markets, the rand gets hit first because it is a very liquid currency.
 
This means that traders know they can get in and out of the rand very quickly as there are massive amounts being traded in the rand every day. In fact, the rand is the 20th most traded currency in the world – it attracts much more action than the currency of Poland, with an economy 60% bigger than the South African GDP.
 
6. More hope for emerging markets
For a long time, emerging market currencies have been shunned amid concerns about Turkey and Argentina.
 
But a new Bloomberg survey among more than twenty fund managers shows there are more professional investors who are bullish about the prospect of emerging markets, than those who are negative:
 
Forecast for the rand:
Analysts polled by Bloomberg at the end of last month, expected the rand to end the year somewhat weaker than at current levels. The median forecast for the rand versus the dollar by year-end is R14.75.
 
Paul Makube, senior agricultural economist at FNB Agri-Business, thinks that the medium-term budget statement, which will be released on 24 October, will provide some direction for the rand.
 
 
Source: Bloomberg news
Published in Bank & Finance
So far this year, tax collections seem to be much stronger than expected, which may mean that South Africans will be spared big tax hikes in February’s Budget, says PricewaterhouseCoopers (PwC).
In recent years, government earned much less tax than it expected: the tax shortfall in its budget reached R49 billion last year.
 
This resulted in massive tax hikes over the past two years. In the Budget this year, South Africans were hit with an estimated R36 billion in new taxes.
 
“For the first time in a number of years it is looking likely that further significant tax increases may not be required in the February Budget, something that the government would want to avoid in an election year,” says Kyle Mandy, tax policy leader at PwC.
 
“The good news is that revenue collections for 2018/19 are looking surprisingly good (compared to forecasts) based on the data available to the end of August, despite the economy being in a technical recession,” says Mandy.
 
As at the end of August, total gross tax income was up 11.2% compared to a forecast increase of 10.6%, suggesting collections are on track to exceed the budget revenue forecast in the year ending March 2019.
 
This is largely due to strong VAT income, which grew by 19.5% by August, compared to the budgeted growth of 16.8% for the year, said PwC.
 
VAT was hiked from 14% to 15% in February. Import VAT, which is growing at almost 15% - almost double the forecast growth – is also contributing. And income from the fuel levy, which currently represents some R3.37/litre of the inland petrol price of R17.08, is supporting tax income. 
 
Personal income tax, the single largest source of tax revenue, is looking on track to meet the forecast. Mandy says that this is due in part to the higher-than-budgeted public service wage agreement, which will add R7 billion to the government budget.
 
“This is not a reason to celebrate as it will be net negative for the budget balance unless steps are taken to keep expenditure within the expenditure ceiling set out in the Budget.”
 
It is clear that companies are struggling: by August, corporate income tax was up only 2.8% compared to a forecast of 6.5%.
 
“The big question is what the outlook looks like for the rest of the financial year. Unfortunately, it is difficult to see much in the way of upside, but plenty in the way of downside risks to the forecasts,” Mandy warns.
 
Risks to tax income:
Personal income tax should remain stable for the rest of the year, but corporate income tax could come under more pressure as company profits suffer.
 
Tax income could be hurt even more if government announces in the mini-budget next week that white bread, sanitary products, school uniforms and nappies will be VAT-free from now on. An expert panel has recommended that these products should be free from VAT.  This could shave off up to R6 billion in tax income.
 
 
Source: Business Insider
Published in Bank & Finance
South African investors' belief that the country is permanently in some kind of pre-Armageddon has probably cost them trillions of rand over the past twenty years. The number of failed global expansions is ratcheting up and investors whose bias remains largely negative toward local assets are bearing the cost.
 
Retired FirstRand founder Laurie Dippenaar had a rule that whenever an executive came up with an idea for global expansion, the first question he would ask was: “Who on your team wants to go and live there?”
 
South African shareholders have paid the price for those kinds of international strategies for years as large corporations sought to diversify their earnings streams away from the country. And no doubt, some executives also saw it as a cushy way to move countries at someone else’s expense.
 
There have been some great success stories: SABMiller, Bidvest, Nando's, Naspers and Investec Asset Management among them.
 
But a growing number of South African companies' international expansions are coming unstuck. 
 
The list of disasters and missteps is growing.
The latest to join the list is Mediclinic. Its share price this week was pulverised by a warning that its profits are going to be lower, primarily as a result of - yes, you guessed it - challenges in its international operations. 
 
It blamed an anticipated 10% earnings decline on “customary seasonality” in Switzerland and the Middle East but also highlighted that its Swiss operations were coming to terms with regulatory changes and that was causing unforeseen complexity.
 
On top of that, fewer pneumonia and bronchitis cases in South Africa this year hit its domestic business. Sometimes good news can also be bad news.
 
Competitor Netcare this year finally chucked in the towel in the UK. Its strategy of picking up overflows from that country’s heavily burdened National Health Service didn’t make provision for austerity and cutbacks brought about by the global financial crisis and, more recently, Brexit. That, coupled with eye-watering property rental agreements, made it untenable to remain.
 
Famous Brands seems eager to extricate itself from its R2bn Gourmet Burger Kitchen deal and has written off a large part of its value in its accounts.
 
Old Mutual has just concluded its conscious uncoupling - they prefer the term “managed separation” - and brought its primary listing back to Johannesburg after squandering billions in value by overpaying for businesses across the globe
 
While the US market devoured one of the founders of the SA unit trust industry, Sage, Discovery saw the light in time. After ratcheting up a billion rand in losses, it rethought its global strategy.
 
CEO Adrian Gore is uncomfortable with any assertion that the firm's 25% stake in China’s Ping An Health, a division of the world's biggest insurance company, could be its Tencent.
 
And Tencent itself is finally proving to be a bit of a drag on Naspers. The latter peaked at over R4,000 a share in the hype cycle that nothing could ever go wrong for the firm in which it bought a 46% stake in 2003 for $200m.
 
Regulatory changes in the Chinese gaming industry are leading to some concerns about future profits. Yet despite the pull back, this is one expansion that has delivered considerable returns for investors.
 
Still, why not all global expansions out of South Africa have been disastrous, few have achieved their strategic objectives and returned real value to investors.
 
Investors need to be more circumspect about the real intentions of management teams when they spend their money on global jollies.
 
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
Published in Opinion & Analysis
The South African economy is in the midst of its longest business cycle downturn in more than 73 years, according to the Reserve Bank, and things aren't looking particularly favourable right now either.
 
The adverse business climate has impacted the stock market too this year, seeing listed companies declining year-to-date on the whole. 
 
According to analysis done by Corion Capital, a boutique hedge fund manager, 60% of listed counters had depreciated by the end of September, with more than a third slumping in excess of 15%. Only 16% of the stocks in the All Share Index gained more than 15% this year to end-September.
 
Topping the list of poor performers are Tiger Brands, off more than 40%, two healthcare companies, Aspen and Mediclinic, MTN, and Woolworths.
 
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
And the sharp sell-off has continued into October, with only the Resource Index managing to gain ground last week and the Banks Index hardest hit, losing 7%.
 
Garreth Montano, a director of Corion Capital, puts the bout of negativity swamping investor sentiment this year down to:
 
- Low GDP growth. South Africa has unfortunately missed out on a resurgence in the world economy and has been left well behind in terms of GDP growth. The reasons behind the sluggish performance of the domestic economy can be debated at length, but many view the Zuma era as a large contributor to the underperformance of SOEs, heightened corruption, lack of job creation and lack of investor confidence in attracting foreign direct investment.
 
- The land debate and mining charter have further dented prospects of new investment, which would aid growth as well as assist in creating new jobs. All of which are dearly needed.
 
- Many commentators believe that president Ramaphosa’s hands are tied until general elections, and the righting of the ship and benefits to the economy will start gaining momentum once there is more clarity around the land issue and elections are behind us.
 
To add to these internal challenges, emerging markets, as a whole, have had a difficult 2018, being largely led down by the crises in Turkey and Argentina. Trade wars have also had a negative effect, creating concerns about a drag on emerging markets exports due to potential for tariff impositions by the US, Montano says.
 
Locally the negative sentiment towards broader emerging markets has played out in large outflows fromn our bond market, as well as foreigners selling off equities, says Montano. Last week almost R6bn alone was taken out of South Africa by foreign investors.
 
These disinvestments have also played out in currency markets, driving the rand dramatically lower to more than R15 to the dollar at stages compared with its peak of almost R11.50 in February this year.
 
 
Source: Business Insider
Published in News Economy
The rand has been on a seesaw over the past 24 hours hitting above R15 to the US dollar.
 
Currently the rand is at High R14.60 Low R14. 57 to the greenback.
 
The rand has been under pressure for the past few weeks with ratings agencies Moody’s and Fitch citing continued political uncertainty.
 
Rising US interest rates have also had a profound effect on the rand which has plunged to levels last seen in 2016.
 
The local currency has also been volatile this week with economists concerned about the medium-term budget speech later this month.
 
All eyes will be on former Reserve Bank governor and now Finance Minister Tito Mboweni with rating agencies calling for more stability and transparency at the highest level.
 
 
Source: News24
Published in Bank & Finance
The South African economy is in the midst of its longest business cycle downturn in more than 73 years, according to the Reserve Bank, and things aren't looking particularly favourable right now either.
 
The adverse business climate has impacted the stock market too this year, seeing listed companies declining year-to-date on the whole. 
 
According to analysis done by Corion Capital, a boutique hedge fund manager, 60% of listed counters had depreciated by the end of September, with more than a third slumping in excess of 15%. Only 16% of the stocks in the All Share Index gained more than 15% this year to end-September.
 
Topping the list of poor performers are Tiger Brands, off more than 40%, two healthcare companies, Aspen and Mediclinic, MTN, and Woolworths.
 
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
 
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
 
And the sharp sell-off has continued into October, with only the Resource Index managing to gain ground last week and the Banks Index hardest hit, losing 7%.
 
Garreth Montano, a director of Corion Capital, puts the bout of negativity swamping investor sentiment this year down to:
 
- Low GDP growth. South Africa has unfortunately missed out on a resurgence in the world economy and has been left well behind in terms of GDP growth. The reasons behind the sluggish performance of the domestic economy can be debated at length, but many view the Zuma era as a large contributor to the underperformance of SOEs, heightened corruption, lack of job creation and lack of investor confidence in attracting foreign direct investment.
 
- The land debate and mining charter have further dented prospects of new investment, which would aid growth as well as assist in creating new jobs. All of which are dearly needed.
 
- Many commentators believe that president Ramaphosa’s hands are tied until general elections, and the righting of the ship and benefits to the economy will start gaining momentum once there is more clarity around the land issue and elections are behind us.
 
To add to these internal challenges, emerging markets, as a whole, have had a difficult 2018, being largely led down by the crises in Turkey and Argentina. Trade wars have also had a negative effect, creating concerns about a drag on emerging markets exports due to potential for tariff impositions by the US, Montano says.
 
Locally the negative sentiment towards broader emerging markets has played out in large outflows fromn our bond market, as well as foreigners selling off equities, says Montano. Last week almost R6bn alone was taken out of South Africa by foreign investors.
 
These disinvestments have also played out in currency markets, driving the rand dramatically lower to more than R15 to the dollar at stages compared with its peak of almost R11.50 in February this year.
 
 
Source: Business Insider
Published in News Economy
Argentina's citrus-growing regions were affected by frost at the end of winter, high temperatures in summer, plus excessive rain that delayed harvest for about a month. The combination affected both quality and total output.
 
South Africa, on the other hand, had improved weather conditions the two main citrus-growing provinces, the Eastern Cape and Limpopo. An increase in planted area also helped.
 
The Eastern Cape and Limpopo account for 80% of South Africa's lemon and lime production, and increases there helped offset lower production in the drought-hit Western Cape.
 
But the European party for South African exporters may already be over, says Eddy Kreukniet of Exsa Europe
 
"We've now entered the final weeks of the season and the market it decreasing with the entry of Turkish and Spanish citrus."
 
Growers who, during this period, did not plant a mix of products, might be headed into a difficult year, warns Kreukniet.
 
 
Source: Business Insider
Published in Agriculture
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