Posts Tagged ‘BRICS News’

South Africa starts first day of 21-day lockdown

Covid-19 cases exceed 1,000, faster pace than Italy or China in first 20 days

Ramaphosa noted that these measures are vital to flatten the curve of the spread of COVID-19 [PREUSS]

President Cyril Ramaphosa ordered a national 21-day lockdown that started on 27 March as the containment measures announced by the South African government on 15 March had failed to “flatten the curve”, with South Africa reporting a larger number of cases than either Italy or China in the first 20 days since the first case was reported on 5 March. In contrast to the experience of both China and Italy, where most of the deaths took place in the age group older than 65 years, the first two deaths were both female, with one aged only 28 years young and the other 48 years young.

South Africa has been far more aggressive in its containment policies as it has a large population of people living with HIV (PLWH) and tuberculosis (TB), whose immune system is compromised and so are 20 times more likely to die than healthy people based on South Africa’s experience with the 2009 H1N1 virus. That is why South Africa held its first conference on how to deal with the coronavirus pandemic on 24 and 25 February, almost two weeks before the first case was reported.

Dr Kerrigan McCarthy of the Division of Public Health, Surveillance and Response from the National Institute for Communicable Diseases (NICD) said the South African government had pro-actively prepared for a possible outbreak. She said a national response team had been convened on 24 January, the day after Chinese health authorities placed the city of Wuhan, which is where the virus originated, under quarantine. This was six days before the World Health Organisation (WHO) declared the virus outbreak a Public Health Emergency of International Concern (PHEIC).

On that day, Health Minister Dr Zweli Mkhize declared a Public Health Emergency in South Africa and activated the Emergency Operations Centre. The Incident Management Team was then constituted the following day and has met daily since then.

Source: NICD

The national lockdown means that most economic activities cease except those related to public health, food, water, sanitation and electricity. That is why the deep level gold and platinum mines are not operating, but the coal mines supplying coal to Eskom, the national electricity utility, are working. Residents can go to food stores and pharmacies, but when they do so, they need to meet social distancing protocols, which is why public transport, that is normally jam packed, is running at very much reduced capacities. Non-food stores are closed, while all restaurants, bars and cinemas are closed, as are schools, churches and universities.

Nedbank chief economist Nicky Weimar said she had already expected the economy to remain in recession in the first quarter prior to outbreak of COVID19 and the national emergency/disaster declaration.

“The first quarter decline will now just be deeper and likely to extend into the early part of the second quarter.  Thereafter some improvement off a low base is still possible, if the world and South Africa manage to stop the spread of the pandemic and manage to treat the ill effectively. Prior to the pandemic, we had GDP growth of 0.7% for this year, then we revised it to 0.3% after China & Italy imposed their lockdowns.  We will now have to re-examine our forecasts, but the risk of the economy contracting over 2020 is very high,” Weimar said.

John Ashbourne from the UK-based Capital Economics said it was too early to tell what the economic impact on South Africa of the national emergency measures to combat the spread of the coronavirus would be, but noted that the Treasury had limited fiscal maneuvering space.

He also expected a Moody’s downgrade to junk status later in the year, but said it would have little impact.

“The economic and financial dislocation caused by the virus will be much more significant than a downgrade,” he said.

The government has announced several packages to help those impacted by the lockdown and many people anticipate that the lockdown may last longer than 21 days.

Most people have welcomed the lockdown as the government puts saving lives ahead of saving profits. An example of the collective response to the crisis is the R1 billion each that the Rupert and Oppenheimer families are contributing to a Solidarity Fund that will help small businesses and their employees riding out the lockdown, while many commercial banks have said they will provide “repayment holidays” to businesses and individuals, who will experience a large drop in revenue/income.

Another example of the collective response is the agreement negotiated in the National Bargaining Council for the Clothing Manufacturing Industry, which will ensure that workers are paid during the lockdown period. This agreement, which will be made possible with funds drawn from the Unemployment Insurance Fund (UIF), makes provision for the extension of the lockdown to a possible six weeks, with the UIF and clothing manufacturing companies  taking turns to pay workers’ weekly salaries.

Helmo Preuss in Makhanda, South Africa for The BRICS Post

Learning from Mistakes in Pandemic Response

As of March 27, 2020, at 2:00 PM EST, there are over 5650,000 infection cases of COVID-19, the novel coronavirus discovered in December 2019, in the world. The number of global fatalities due to the virus has surpassed 26,000.

“Passengers spend St. Patrick’s Day waiting for their luggage at John F. Kennedy International Airport after returning from overseas before a number of airports shut down due to COVID-19 fears [WISE].

The majority of all COVID-19 cases, including those closed, have been concentrated in China, where the virus was first detected, with Italy and Iran trailing close behind. But, as symptoms often present similarly to the common flu, international travel and global trade have allowed the virus to leap between countries undetected—at least at the beginning of the outbreak.

The European Union (EU) is an example of the way that the free movement of goods and people today has enabled contagion; Director-General of the World Health Organization (WHO) Tedros Adhanom called Europe the new “epicenter of the pandemic” last week.

During global crises like COVID-19, there is a consensus that people in all countries must unite against a disease that doesn’t stop at borders. To combat COVID-19,  many states have cancelled or postponed large public events, shifted schools to online learning, and asked anyone feeling under-the-weather to self-quarantine if possible, depending on the severity of the outbreak.

This isn’t the first time that the world has had to respond to a pandemic; countries have grappled with Severe Acute Respiratory Syndrome (SARS), Middle Eastern Respiratory Syndrome (MERS), HIV/AIDS, Ebola, and others just in the past half-century. But, pandemics are not a modern phenomenon; even as far back as 430 BC, the Plague of Athens set fire to Libya, Egypt, and Ethiopia as it made its way to the Roman city-state on the back of the Peloponnesian War. It can be concluded, however, that as humanity grows more interconnected, modes of disease transmission also become more plentiful.

The question is: is there a trade-off between globalization and public health? Or, can we learn from past pandemics—and the world’s response to them—to craft a more conscious, prepared society?

Transmitting Disease

Historically, diseases have grown into pandemics through modes of human interaction. For example, the Black Death was carried from Crimea to North Africa, Italy, Spain, and France by Genoese trading ships in 1347 and 1348. Another outbreak of the bubonic plague, the Great Plague of London in 1665, spread through England via trading ports along the Thames River, and the 1855 Plague was spread from Yunnan province in China to Hong Kong and Guangzhou as the cities grew increasingly connected by mining. Sixty years later, in 1918, the Spanish Influenza was spread across North America by laborers using the Canadian rail system to reach Europe.

These are all examples of disease spread through benign means. Yet, there are also examples of pandemics being weaponized. Before it was spread to Europe, the Black Death was brought to Crimea by the army of Kipchak Khan Janibeg, which catapulted infected corpses into the town that is now Feodosiya on the Black Sea coast in an effort to cripple its population. As armies move, they can also pass infection unintentionally; like the armies that transmitted the Plague of Athens, the Huns were key in carrying the Antonine Plague in 165 AD.

Pandemics pose a clear danger to public health; but, they also hold an element of fear that make them a threat to the mental and economic wellbeing of society. This fear is, of course, due in part to potential fatality—but, what we especially fear is the unknown.

This is especially true with COVID-19. As COVID-19 is a novel, or new, coronavirus—viruses named just for the structure of their cells—information about its spread and possible prevention is still developing. With an unclear picture of the future, public health officials around the world are struggling to outline long-term needs and craft policy that will meet them without usurping resources too hastily.

Social Divides: Manifesting Fear

COVID-19 and the pandemics before it have taught us that fear often manifests in scapegoating. The tenth edition of the Journal of Public Health in Africa characterized leprosy, for example—which mushroomed from its minor existence into a European epidemic in the Middle Ages—as a “social killer” for the stigma it carried as opposed to “serial killers” like malaria.

Now, individuals and businesses of Asian origin all over the world are facing stigma associated with COVID-19, which originated in Wuhan, China. On March 9, two months into the hysteria, Twitter user @winyeemichelle asked followers to “pls consider making your weekly takeout a Chinese takeaway. My family’s businesses have all been impacted hugely by coronavirus panic.”

Similar Sinophobia, or hate of things Chinese, was witnessed during the SARS outbreak of 2002-2003, when a coronavirus originating in Guangdong, China, eventually infected 8,098 people worldwide as reported by WHO.

During the SARS pandemic, “The fact that China’s government initially suppressed information about the virus added to the climate of blame,” Rebecca Onion writes for Slate.

But, racist reactions have not been confined to viruses originating from China. “Our views about race have always colored our views about who is safe or who is contaminated,” Natalia Molina said in an interview with Sean Illing for Vox. “When we already have negative representations of certain groups…then it’s much more likely that we’ll see them as disease carriers or as health burdens.” Think of the stigma associated with Middle Easterners when MERS became an issue in 2012, with Africans during the Ebola outbreak of 2013-2016, and with Hispanics during the Zika craze of 2015-2016.

This ingrained racism manifests even in the way that a virus is named (i.e., “Middle Eastern Respiratory Syndrome”). COVID-19 is being called the “Wuhan Virus.” By marrying a virus with its origin, a label is slapped—intentionally or not—across people from that place identifying them as disease.

Of course, some see “The Wuhan Virus” as a fitting—at the very least, factual—name for a disease that did, in fact, originate in Wuhan. Deputy Editor of USAToday David Mastio wrote for the publication that “Finding excuses to hurl the racism charge over such minor issues as how to refer to a new disease cheapens the currency of a serious allegation.”

Likewise, U.S. president Donald Trump regularly refers to COVID-19 as the “Chinese Virus.” When asked on Thursday to comment on the use of the phrase “Kung Flu” by an unnamed member of his administration—and whether it puts Asian-American community at risk—he said, “I think [the Asian-American community] probably would agree with it 100 percent.  It comes from China. There’s nothing not to agree on.”

The Economic Impact of Social Distancing 

To limit the spread of COVID-19 as much as possible, many restaurants have switched to takeout or delivery-only. Schools and universities, from Northeastern University in Boston to Egypt’s American University in Cairo, have transferred their classes online and evacuated their dormitories. Many restaurants and cafes operate under curfews, and some other workplaces are requesting that employees work from home (though, to be clear, working from home has been a white-collar privilege that largely excludes service workers).

These measures are part of the broad “social distancing” measures that are being followed worldwide. In hard-hit countries like Italy, social distancing is federally enforced; NPR’s March 10 episode of its “Up First” podcast describes conditions inside Italy’s “red zone”, or national lockdown. In what contributor Sylvia Poggioli describes as “the most draconian measure ever taken in a Western country, at least in peacetime”, police cars patrol empty streets, entreating residents over a loudspeaker to stay inside. France and Spain have since taken similar measures.

In countries like Egypt, all airports have closed, and air carriers elsewhere have chosen to limit their flights. The Friday prayer, a staple of religiosity in Muslim countries, has been halted by edict from Saudi Arabian Islamic scholars.

Similarly, shipping and manufacturing have been limited; Honda, Ford, General Motors, Fiat-Chrysler, and Toyota have announced their intent to suspend all production in North America. Public gatherings like parades and sporting events have been cancelled, decreasing money flows domestically and internationally. Stocks have fallen and tourism has been depressed.

The United Nations (UN) Center for Trade and Development has estimated that these trigger points could cost the global economy between $1-2 trillion in 2020. But, economic impact is not distributed evenly; mirroring existing socio-economic disparities, low-income countries and individuals are usually hit the hardest.

The Center for Strategic and International Studies warns that, “At the sectoral level, tourism and travel-related industries will be among the hardest hit.” This has implications for tourism-dependent economies, chief of which are developing Caribbean states like the Dominican Republic and the Bahamas. Additionally, materials prepared by Chicago-based law firm Baker Mckenzie point out the reliance of African countries on Chinese demand for raw materials, which has been severely reduced.

That’s not to say that wealthy countries don’t feel the economic effects of COVID-19; in the United States, trading on the New York Stock Exchange, Nasdaq and TSX on March 10 was all halted as “circuit breakers” cut in to mitigate a selling frenzy. On that day, the Dow Jones fell 10 points, its worst performance since the 1987 market crash.

Within countries, inequity also persists. Consumers have devastated the aisles of supermarkets in “panic buys”: large bulk purchases of enough foodstuffs to last them a potential 14-day quarantine. Don Goldmann, Chief Medical and Scientific Officer at the Institute for Healthcare Improvement, describes the madness in Boston: “I can tell you I went shopping today, to Trader Joe’s, and the place was mobbed. All I wanted was frozen peas, and there was no frozen pea to be had in any store I went to.”

These aisle clearouts disadvantage those who don’t have the financial reservoirs to buy hundreds of dollars worth of groceries at a time; when people who shop day-to-day are met with vacant shelves, that may either eliminate the possibility of dinner or force consumers towards fast-food restaurants, where the possibility of contracting disease is higher. Similarly, without the guarantee of paid sick leave, low-income individuals are more likely to go to work when experiencing symptoms of COVID-19 at risk of infecting others.

Moreover, refugee and homeless populations are left exposed to the elements with little ability to self-quarantine. The UN High Commissioner for Refugees (UNHCR) and the International Organization for Migration have suspended refugee resettlement services. Although the UNHCR has implored individual states to enable resettlement to the extent they are able, widespread border closures make intake unlikely.

Similar social distancing measures were seen in the United States during the 1918 Influenza epidemic, but not after Ebola, SARS, or MERS. Gina Kolata reports for the New York Times that public gathering places in Philadelphia as well as schools and theaters in Albuquerque were all closed in 1918.

Political Crossroads

This outbreak of COVID-19 comes in the midst of primary voting for the 2020 U.S. presidential election, attempts to form a coalition government in Israel, and attempts by Russian president Vladamir Putin to extend his time in office.

Iran held its parliamentary elections on February 21—and saw only 43 percent voter turnout, the lowest since the Iranian Revolution in 1979. “Some people might have not gone to the polls because they were worried that they were going to catch the coronavirus,” scholar Holly Dagres explained in a podcast for the Cairo Review.

In countries undergoing election cycles, COVID-19 has many worrying about the integrity of results when many people are afraid to—and in some cases, have been advised not to—leave their homes.

Even in the United States, the Connecticut, Maryland, Kentucky, Ohio, Louisiana, and Georgia state primaries have been postponed. Some states have tried to maintain voting normalcy while taking precautions; for its primary on March 2, Massachusetts directed voting staff to disinfect polling booths with more frequency. Washington switched from in-person to mail-in and drop-box voting.

On the other hand, it is sometimes difficult to insulate pandemics from politicization. When swine flu struck the United States in 1976, Gerald Ford’s campaign for president added mass immunization to its platform. As David S. Jones writes in the New England Journal of Medicine, “When people fell ill or died after receiving the vaccine, and when the feared pandemic never materialized, Ford’s plan backfired and may have contributed to his defeat that November.” Now, U.S. voters are factoring ability to respond to pandemics into their choice between Joe Biden and Bernie Sanders, the two leading Democratic candidates for president.

The ways that countries are able to respond to COVID-19 are also part and parcel of the existing political context. When COVID-19 hit Iran, for example, it hit a country already crippled by corruption, mismanagement, and the U.S. “maximum pressure campaign” of sanctions—conditions ill-equipped for pandemic response.

“Every time U.S. president Donald Trump threatened to withdraw from the Iran nuclear agreement, European companies were hesitant to invest in the country”, Dagres asserted. As the world combats COVID-19, U.S. sanctions on Iran remain ironclad. “U.S. sanctions have hampered Iran’s ability to purchase or access medical equipment or pharmaceuticals in the international market”, Sanam Vakil said to Middle East Eye.

Have we learned anything?

Yes and no.

Take the United States, for example. In 2014, Beth Cameron was appointed to lead the White House’s National Security Council Directorate for Global Health Security and Biodefense, which was established in a “I wish we had had this” moment after the Ebola scare the same year. In 2017, that center was dissolved by the Trump administration.

Because of this, “When this new coronavirus emerged, there was no clear White House-led structure to oversee our response, and we lost valuable time”, Cameron wrote for The Washington Post. “The job of a White House pandemics office would have been to get ahead: to accelerate the response, empower experts, anticipate failures, and act quickly and transparently to solve problems.”

Yet, dissolving post-pandemic initiatives after a cooling period is hardly an administration-specific response. “Theoretically, we should be really well prepared,” Goldmann told the Cairo Review. “But,” he continued, “in my experience, our memory and our state of readiness tends to…I don’t want to use the word deteriorate, but the urgency wanes over time. And every time we have a new threat—like H1N1, which turned out to be less of a threat than we initially thought it might be—we seem to have to relearn the same lessons over and over again.”

With each pandemic, preparedness (or lack thereof), varies in states all over the world. “Unlike Central Africa, Ebola was not a usual occurrence in West Africa; the necessary elements of community trust and public health decision-making weren’t in place to detect and stop it,” Cameron writes. This, combined with the recognizability of Ebola symptoms and the launch of the Global Health Security Agenda, enabled the U.S. to take the global lead in response.

Goldmann contrasts the readiness of the U.S. federal government to respond to COVID-19 with that of the country’s healthcare delivery system, which doesn’t have to mold itself to changing presidential administrations. In Boston Children’s Hospital, where Goldmann works, staff had been running drills to practice response to potential hospital overload.

There are lessons to be learned by comparing Italy and China, handling their time at the front lines of the pandemic very differently.

On Sunday, a video compilation surfaced of quarantined Italians imploring the rest of the world—particularly Americans and Frenchmen reluctant to stay inside—not to underestimate the virus. “This issue is more serious than most of the world believes,” one man said; indeed, than Italians themselves believed at the beginning of the outbreak.

“What is happening is much worse than you thought it was,” another woman echoed.

For Italians, measures to contain communicable disease, like social distancing, felt foreign. In China and the areas surrounding it, however, measures like wearing masks were already relatively common. Some experts, like Keiji Fukuda, see China as equipped with muscle memory of its response to the SARS epidemic. “Virtually everybody here has been through the drill,” Fukuda said to Today’s WorldView. Indeed, today was the second day that China recorded no new locally-transmitted cases, though global travel still poses a problem for transmission.

However, though China has been effective in limiting viral presence within its borders since lockdown was declared in Wuhan on January 23, it had a potential to respond even earlier that was hampered by government suppression. Ophthalmologist Li Wenliang sounded the alarm in December, when he began treating patients in Wuhan for SARS-like symptoms; shortly after publicizing his worries, Wenliang and seven colleagues were forced to sign an admission of rumor-mongering by the Chinese security police. Because the Chinese government was reluctant to validate Wenliang’s information—and thereby provide him with personal protection while treating patients—Wenliang passed away after succumbing to the virus on February 7.

By contrast, South Korea—which has the same memory of the SARS epidemic—has seen a “highly coordinated government response that has emphasised transparency”, John Power writes for This Week in Asia. They reported 600 new cases on March 3, and just 110 on March 13.

So, maybe the ‘muscle memory’ of some countries and institutions is better than others when it comes to responding to pandemics. As Goldmann succinctly summarizes: “All we can do now is to remind ourselves of lessons from the past, ramp up prevention and control measures (especially physical distancing) as quickly as possible, and remember this experience when we begin planning for the future.”

An earlier version of this article previously appeared in The Cairo Review of Public Affairs and has been republished with permission.

South African Reserve Bank cuts repo rate by 100 basis points

Due to lower inflation forecast and expected recession

The National Treasury building in Pretoria [PREUSS]

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) took the unanimous decision to cut the repo rate by 100 basis points to 5.25 per cent in response due to lower inflation forecast as a result of the collapse in oil prices in March, as well as a forecast recession caused by the global response to the Covid-19 coronavirus outbreak.

A Bloomberg survey had 11 economists expecting a 50 basis points cut with 10 economists looking for a 25 basis points drop. None of the economists forecast a 100 basis point cut. The forward rate market had priced in a 50 basis points reduction.

“The domestic economic outlook remains fragile. At this point, Covid-19 is likely to result in weaker demand for exports and domestic goods and services, but its impact on the economy could be partly offset by lower oil prices. We also expect disruptions to supply chains and to normal business operations,” the MPC said.

The gross domestic product (GDP) growth projections were revised lower to a 0.2 per cent contraction in 2020 compared with the January forecast of a 1.2 per cent expansion. Growth is then expected to return in 2021 with a 1.0 per cent increase compared with the January forecast of a 1.6 per cent gain. Also, inflation forecasts were cut to 3.8 per cent from a January projection of 4.7 per cent in 2020, while there was no change to the 2021 forecast of 4.6%.

“The implied path of policy rates over the forecast period generated by the Quarterly Projection Model (QPM) indicated three repo rate cuts of 25 basis points each in the second and fourth quarter of 2020, as well as in the third quarter of 2021,” the MPC said.

The MPC emphasised that the QPM is a guide to monetary policy and the MPC stood ready to change rates if circumstances change. The next MPC meeting is in May.

Economists and analysts welcomed the cut, but the stock exchange index nevertheless ended weaker.

“The decision by the MPC today to cut the repo rate by 100 basis points is the right one to help mitigate the risks of Covid-19 to the SA economy. The MPC has now followed about 50 central banks around the world that have so far already reduced interest rates and also taken other steps to offset the impact of Covid-19 on their economies. While monetary policy is not a magic wand to eliminate the economic damage being caused by the pandemic, the SARB’s preparedness to take positive steps on this front is welcome,” Professor Raymond Parsons of the North West University’s Business School said.

“We hope it is not too late and that the cut from 6.25 per cent to 5.25 per cent will arrest the downward economic spiral we find ourselves in. The country is already in a recession and the disruption due to the coronavirus will leave nothing and no-one unscathed. This cut will make borrowing more attractive for individuals and businesses alike, encourage consumer spending and hopefully set us on the track of economic recovery,” Stanford Mazhindu, the spokesperson of the trade union UASA said.

Helmo Preuss in Makhanda, South Africa for The BRICS Post

South African final demand rose in the fourth quarter

Load shedding however meant that production could not keep up

The bad news from a government revenue point of view is that the nominal growth in GDP, on which taxes are based, eased to 4.2 per cent in 2019 from 4.7 per cent in 2018 [PREUSS]


Economists around the world look at real final demand to gauge the strength or weakness of an economy, although non-economists tend to get caught up in the headline gross domestic product (GDP) figure. That is why the South African rand weakened after worse-than-expected fourth quarter 2019 GDP headlines hit the trading screens, even though real final demand rose by 2.1 per cent quarter-on-quarter (q/q) at a seasonally adjusted annualized (saa) rate.

The headline GDP data as measured from the production side showed a 1.4 per cent q/q saa contraction as rotational power blackouts, known as load shedding in South Africa, impacted production. The constrained ability to produce meant that the goods producing sectors such as agriculture, manufacturing and construction all suffered quarterly contractions and that had a spillover effect into the trade and transport sectors.


The only sectors that showed a quarterly increase in the fourth quarter were personal services, financial services and somewhat surprisingly, mining.

In line with the government’s commitment to reduce the number of civil servants, many contracts of temporary staff at universities and other institutions were reduced with the result that government services also contracted in the fourth quarter.

As production could not keep pace with the positive demand there was a large R40.3 billion drawdown of inventories in the fourth quarter of 2019, with most of the inventory depletion taking place in the mining industry and trade.

The fourth quarter 2018 inventory drawdown was the largest for quarterly data going back to 2010. The previous largest drawdown was in the second quarter 2016 when the constant 2010 rand reduction was R37.4 billion. The inventory drawdowns lead to wild swings in gross domestic expenditure (GDE).

In the second quarter 2016 the drop was 4.1 per cent followed by a 5.7 per cent increase the subsequent quarter as inventories are replenished. In the fourth quarter 2018 GDE plummeted by 6.8 per cent. In the fourth quarter 2019 GDE fell by 4.4 per cent q/q saa.

On an annual basis, GDP as measured from the production side only grew by 0.2 per cent, the same growth rate as final demand as household consumption, which accounts for 62.2 per cent of GDP, eased to a 1.0 per cent rise in 2019 from a 1.8 per cent gain in 2018.

The bad news from a government revenue point of view is that the nominal growth in GDP, on which taxes are based, eased to 4.2 per cent in 2019 from 4.7 per cent in 2018.

The good news is that prospects for 2020 were looking good prior to the global panic resulting from the coronavirus outbreak.


The maize crop was expected to be 29 per cent larger this year, which should boost agriculture, while citrus exports were forecast to be 10 per cent larger. Government revenue jumped by 15.1 per cent y/y in January after only a 2.2 per cent y/y rise in December.

Now unfortunately, forecasts are necessarily murky, as production managers brace for the disruption caused by the quarantine in China. Automobile production managers have been pro-active and imports of original equipment components surged by 169 per cent m/m in January.

Helmo Preuss in Pretoria, South Africa for The BRICS Post

South African Budget does not raise any new taxes

“Our economy has won before, and it will win again” –  Finance Minister Tito Mboweni Budget Speech February 2020

“This Budget is about cleaning up our house,” Finance Minister Tito Mboweni said

In his briefing to journalists before his Budget Speech, Finance Minister Tito Mboweni pointed out that preparing a Budget Speech was an iterative process, as he would propose certain things and his team would either accept or reject them. In the event, the speech that was given to journalists was labelled version 10.

“This Budget is about cleaning up our house. It is very far from austerity, as we are not closing schools or hospitals. We have decided not to raise any new taxes as we push for growth,” he said at the media briefing.

“Those economists who expected a Value-Added Tax (VAT) rate increase will be disappointed, but it would have been foolhardy to increase the VAT rate now. Our focus instead will be on addressing the scourge of wastage and corruption,” he added.

In the 2018 Budget the government announced that it would raise the Value-Added Tax (VAT) rate from 14 per cent to 15 per cent, which puts it on a par with neighbouring states. That was the first VAT rate increase since 1993 and the first done by an African National Congress government. It added around R23 billion to revenue every year.

He was in a jovial mood at the media briefing and his Budget Speech had a similar positive tone as he referenced Miss South Africa, who became Miss Universe last year, the Springbok rugby team, which won the Rugby World Cup in Japan last year and the Proteas cricket team which beat the Australian cricket team this week as he was preparing his Speech.

“In the five years from 2003 to 2008, growth averaged around 5 per cent, and South Africa was amongst the fastest-growing major economies. The unemployment rate improved by 5 percentage points.  Now, even after a decade of weak economic performance, South Africa still boasts deep and liquid capital markets, strong institutions, the most diversified economy on the continent, and a young population.  We are part of the most vibrant continent in the world. As Pliny the Elder said: ‘Ex Africa semper aliquid novi’. Winning requires hard work, focus, time, patience and resilience,” he said in his Budget speech.

Despite the positive tone, Treasury reduced its GDP growth forecast to 0.3 per cent for 2019 from the 1.5 per cent forecast a year ago. It now expects GDP growth of  0.9 per cent in 2020 from 1.7 per cent forecast a year. It has remained conservative in its forward projections and forecasts 1.3 per cent in 2021 and 1.6 per cent in 2022.

Treasury noted that the impact of low growth on revenue collection has been considerable and it now expects to collect R63.3 billion ($4.2 billion) less revenue than projected at the time of the February 2019 Budget. Furthermore it does not expect the debt to GDP ratio to stabilize over the medium term, with debt-service costs now absorbing 15.2 per cent of main budget revenue and the expectation that it will shortly be the single largest expenditure item.

Treasury said halting the fiscal deterioration required a combination of continued spending restraint, faster economic growth, and measures to contain financial demands from distressed state-owned companies. Therefore as a first step, the 2020 Budget makes net non-interest spending reductions of R156.1 billion ($10.3 billion) in total over the next three years compared with last year’s budget projections. This includes large reductions to the public service wage bill, which will probably be fiercely resisted by the civil service trade unions. Treasury noted that the voluntary retirement scheme proposed last year had received a very muted response with only the Police Service seeing a significant uptake.

Non-interest expenditure is forecast to grow at 3.8 per cent over the next three years, down from an average of 8.4 per cent over the past three years.  The reduction in state expenditure is equivalent to 1 per cent of GDP per year.

The proposed adjustments to expenditure mean that the government keeps to its expenditure ceiling.

Treasury said that to achieve faster economic growth, South Africa required structural reforms in a number of areas. Most urgently, the regulatory path should be cleared to enable the private sector to generate electricity, contributing both financial and technical capacity to the country’s energy needs.

In that respect, Treasury officials told The BRICS Post that the commitments made at the 2018 and 2019 Investment Summits had not been factored into their GDP growth forecasts. In addition that did not include any investment that would flow from bid window 5 for renewable energy.

In other areas, cumbersome and unpredictable regulatory frameworks are undermining private investment. The President’s State of the Nation Address made several announcements in this regard, and more decisive steps will be required in the months ahead.

The bottom line is that until the economy starts “winning” again, the debt metrics will continue to deteriorate.

Helmo Preuss in Pretoria, South Africa for The BRICS Post

South African Energy Minister allows mines to self-generate electricity

“This will help close the energy gap caused by deteriorating Eskom plant performance,” says Gwede Mantashe.

Minister of Mineral Resources and Energy Gwede Mantashe told delegates at the Mining Indaba in Cape Town that government would allow mining companies to produce energy for their own use.

“This will help close the energy gap caused by deteriorating Eskom plant performance. Depending on the circumstances, the generation plant may only require registration and not licensing,” Mantashe said.

According to Andrew van Zyl, director and principal consultant at SRK Consulting, there is no better time to consider such opportunities.

“While Eskom’s base-load supply is still vital to keep mines running, independent power generation from renewable sources holds value for a few reasons. These relate to issues of rising electricity prices from the grid, as well as to mines’ environmental commitment and future carbon tax liabilities,” van Zyl said.

State-owned electricity utility Eskom had to institute a Stage 6 load-shedding schedule, which meant that they were short 6 000 Megawatts (MW) on December 9 2019 to a variety of breakdowns at its plants. In response to this crisis, a variety of players have suggested solutions, as in their view, this crisis could be mitigated if regulatory hurdles were eliminated.

Eskom instituted load-shedding on an intermittent basis since November 29 2018 after the connection with Mozambique broke down and it lost 700 MW of power imports. For most of 2019 however it has been its own plant availability that has constrained supply with the Energy Availability Factor (EAF) dropping to only 56.61 per cent in the first week of 2020. This compared with an average of 66.94 per cent for the full year and 71.84 per cent in 2018 and 78.61 per cent in 2017. The EAF in the first week of 2020 was made up of planned outages at 11.46 per cent, unplanned outages at 29.86 per cent and other outage factors at 2.07 per cent.

The South African Wind Energy Association (SAWEA) said then that current operating wind farms could add 500 MW immediately to the national grid, but more than 50 days later, there has been no movement on this front.

The wind industry is not allowed to do so currently due to the regulatory Maximum Export Capacity (MEC) on all operating wind farms, which governs how much energy is permitted to be exported by wind farm power generators. Currently wind farms can only export the pre-agreed maximum capacity into the grid and are forced to curtail any additional capacity.

“The operational wind energy plants have excess capacity of about 500MW available immediately. These can also be short term contracts that can be signed in this interim capacity constraint period and it doesn’t have to be viewed as long term commitments,” said Ntombifuthi Ntuli, CEO of SAWEA.

“Our current state of power shortage is threatening multiple sectors and especially small businesses that employ over half of the country’s labour force. Small businesses struggle to recover from extended periods of load shedding, especially stage 4, which allows for up to 4 000 MW of the national load to be shed,” added Ntuli.

The South African Photovoltaic Industry Association (SAPVIA) said that up to 2 000 MW of small-scale capacity could be added to the energy mix over the next 12 months. However, while the Integrated Resource Plan (IRP) 2019 had identified small-scale generation as the means to bridging the electricity supply gap, SAPVIA stated that it believes the bureaucracy associated with the licensing and registration of embedded generation facilities would hamper the rapid absorption of this much-needed supply source into the generation mix. SAPVIA also called for municipal bylaws to be amended to better clarify the requirements for grid connection, to reduce the timelines and uncertainties associated with grid access.

The association explained that, while facilities generating less than 1 MW only require municipal or Eskom technical sign-off to supply their owners or feed into the grid, facilities above 1 MW still need to undergo the strenuous National Energy Regulator of South Africa (Nersa) licensing process, which can take between nine months and a year to run its course, before the facilities can be commissioned.

SAPVIA believes the cap of 1 MW is “arbitrary” and said it “has no technical or commercial basis”.

According to the association, in most developed power markets, self-generators can develop their own embedded facilities and these can connect to the grid if they technically meet the relevant grid codes, without any cap on the size of the facilities. Consequently, SAPVIA proposed that 10 MW be set as an initial cap on projects, as long as the use of system approvals are granted.

The official opposition, the Democratic Alliance (DA), said the government could easily solve the electricity crisis by removing regulatory hurdles.

“The most efficient immediate step is using Section 34 of the Electricity Regulation Act (4 of 2006) which allows the Minister of Mineral Resources and Energy to issue a determination that allows qualifying municipalities to bypass Eskom and procure electricity directly from Independent Power Producers (IPPs).

Contrary to the President’s views, this can be done overnight and would go a long way to resolving energy shortages and pressure on the grid. Introducing IPPs into the mix is now a necessity. In fact, right now Minister Mantashe is sitting with at least seventeen section 34 applications for private generation and purchase of electricity on his desk waiting to be signed – from municipalities, mines and corporations,” DA leader John Steenhuisen said.

New Eskom CEO André de Ruyter has warned South Africa to expect increased load-shedding over the next 18 months, as Eskom will no longer defer required maintenance, and will aggressively move to prevent the deterioration of its power plants.

“As Eskom continues with the problems, we must have a fail-safe. We must continue to ensure that we get back to the days when we have a surplus of energy and when we lower the price of electricity,” Mantashe said.

Minerals Council of South Africa CEO, Roger Baxter, welcomed Mantashe’s comments as
mining companies have a project pipeline of some 600 MW for self-generation, but this could grow to 1,500 MW once there was regulatory certainty.

Helmo Preuss in Cape Town, South Africa for The BRICS Post

Chinese demand key uncertainty for seaborne coal market in 2020

Demand expected to decline by 3 million tonnes (Mt), but it could drop by 20 Mt

Coal trader Noble Resources head of research Rodrigo Echeverri Cardozo had penciled in a 3 Mt drop in Chinese import demand for 2020, but it could drop by 20 Mt depending on how long the disruption caused by the so-called “Wuhan flu” continued, he told the 15th Annual Southern African Coal Conference in Cape Town, South Africa.

“I normally have my presentation ready at least one week before the conference, but this time, I have had to update on a daily basis, as the number of cases is spreading so fast. The bad news is that the first quarter of 2020 is going to be pretty poor, because Chinese traders hold back from buying as they wait for the economic impact to stabilize,” he said.

The coronavirus outbreak, which originated in Wuhan, China, has exceeded a grim comparison milestone, as the number of confirmed cases in mainland China has now surpassed that of the severe acute respiratory syndrome (SARS) during the 2002-2003 epidemic.

It took six months for the number of SARS cases to exceed 5,000 in mainland China and the coronavirus surpassed that in just one month. SARS infected more than 8,000 people and killed some 800, resulting in estimates of global economic costs from disrupted trade and travel of R400 billion to R1.4 trillion.

“European coal burn has been on a downward trend for more than three years and this will continue in 2020, so the only good news is that we are unlikely to see the export supply surge from Indonesia that we saw last year, as domestic demand ramps up, so there will be less extra supply coming for that quarter,” he added.

“From my point of view, South African exports are the easiest to forecast as they have been flat for the past few years. I have got a small 0.4 Mt increase for this year,” he concluded.


The South African coal industry mines some 260 Mt of which some 72 Mt is exported and employs more than 86,000 miners who get R25 billion in salaries.

Richards Bay Coal Terminal (RBCT) achieved an annualised throughput of 95 Mt in December 2018 when they loaded 105 vessels, even though for the year, RBCT coal exports fell to 72.15 Mt in 2019 from 73.47 Mt in 2018 and a record 76.47 Mt in 2017.  The rail line to RBCT has a current capacity of 81 Mt, while the port has a capacity of 91 Mt.

South African coal producers will need to boost productivity as competition intensifies in coal export markets, Mike Teke, CEO of coal mining company, Seriti Resources, said.

“The drive to be efficient and best in class regarding exporting coal is imperative,” he said.

Helmo Preuss in Cape Town, South Africa for The BRICS Post

 

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