Hopes for an improved economic outlook in 2018 have been dashed with a downgrade to junk status now almost certain. With 2017 best described as dismal due to the ongoing political shenanigans in the country and a growth rate of less than 1%, the outlook for 2018 is not much better. “It is not about if we get downgraded any more, but rather when,” said economist Mike Schüssler. “I am about 99% certain that we will get downgraded and it could be as soon as November 24. We have a big problem on our hands and we are by far not out of the woods.”
He said junk status would have a detrimental impact on the country and recovery would take years. “We are also not going to see much more than 1% growth in 2018,” he said putting paid to Treasury expectations of growth of 2%. “We have not managed to address any of the issues highlighted by the rating agencies that could affect our downgrades,” he said. “All of the agencies said that 60% debt to GDP ratio was the line in the sand. It now looks as if we could go over 75% in a very short period of time and we are still not growing. Growth forecasts are still only about 1% next year. The downgrades are coming.”
Schüssler said rating agencies like Moody’s were extremely negative about the South African government’s ability to repay its debt. “That means they – along with the other rating agencies like Standard & Poor’s – are in all probability going to downgrade us to sub-investment grade or junk status. And it is all going to happen before March next year.” This, said Schüssler, would trigger the outflow of around $14 billion from South Africa from indexes that require non-junk ratings from global ratings agencies. “It will not happen immediately, but it will happen,” he said. “Undoubtedly investors willing to take on more risk will come intoour market, but they will want to see higher interest rates in South Africa before they buy in and they will wait for the rand to weaken more.”
He said the exchange rate forecast for 2018 was R15 to R16 to the dollar. “The rand is going to remain under pressure for some time,” said Schüssler. “The one positive is that the world economy is picking up and that bodes well for our export market. We should see some gains here and there for some of our export commodities. Bulk commodities like iron ore and coal have continued to do well and South Africa is seeing exports grow in several specialist fields like herbs and nuts.” According to Schüssler exporting is just about the only good news story at present. “Importers are going to be under tremendous pressure though as are many other sectors in the country. It is going to be another tough year – much like 2017.”
Agri SA welcomes electricity act licence exemptions
Agri SA has given a resounding ‘thumbs up’ to last week’s implementation by the Department of Energy of the Energy Regulation Act licensing exemptions. According to Agri SA head of economics and trade, Requier Wait, the exemptions will help farmers with existing solar power installations to connect to the Eskom grid without having to apply for licensing and will encourage farmers to invest in diversifying their energy supply.
“Until recently, most independent power generation projects were required to be registered with and hold a licence from the National Energy Regulator of South Africa (Nersa),” he said. “This placed an undue administrative burden on the regulator whilst imposing an administrative and financial burden on the project owner.” Wait said that this had hindered farmers with solar installations from connecting to the grid, while holding – and other – costs associated with being unable to lawfully connect to the electricity grid had caused significant financial losses to the agriculture industry.
Agri SA stated that the use of solar power held specific potential in the farming industry as farmers could install their own infrastructure to reduce their carbon footprint while saving on electricity costs. FNB agricultural economist Paul Makube, however, told FTW Online that the licence exemptions would not have much of an impact on the industry as a whole. “It will not have a large impact given the size of the allowance – 1MW [megawatt],” he said. “Only small farming operations may benefit as the larger commercial farming operations have higher energy requirements.”
Energy consulting firm Sonfin told Agri SA that investment in solar projects by their farmer clients amounted to around R200 to R350 million while Nedbank had provided approximately R50 million in finance for renewable energy projects in agriculture over the past three years. “The large-scale roll out of solar installations has helped to reduce the cost of solar technologies and improved cost competitiveness in recent years,” said Wait. He pointed out that the use of independent solar energy could contribute to the development of a domestic solar industry value chain.
SA-DRC commit to trade facilitation
South Africa and the Democratic Republic of Congo (DRC) have committed to removing barriers to business interactions between the two countries. According to DRC state economy minister Joseph Kapika, removing obstacles to doing business in both countries would increase trade and investment and allow for the sharing of expertise. “We also need to zoom in on the critical sectors where skills transfer and technology transfer must be fast-tracked,” said South African consul general in Lubumbashi, Andrew Maswanganye. He noted that businesspeople also needed to be encouraged to work with government to address factors hindering their ability to do business in either country.
Iata calls for strengthening of aviation security
The International Air Transport association (Iata) has called for the further strengthening of aviation security. Iata director general and CEO, Alexandre de Juniac, said this could be done by addressing four key areas, namely, government-to-government cooperation; universal application of global standards; better information sharing; and the efficient implementation of new and existing technology capabilities. “We cannot predict the next security challenge, but some things we do know for sure,” he said. “Our common defence is stronger when governments and industry work together and if we can avoid long-term extraterritorial measures, focus on global standards, share information and develop technology efficiently, our hand is strengthened even further.”