South Africa’s imminent private-sector power generation investments and the completion of repairs to Eskom power plants give hope for better times ahead in 2024, as the current economic environment, marked by high inflation, continues to fuel low business and consumer confidence.
This is according to the Bureau for Economic Research’s Weekly Review released on Monday, which noted the financial commentary of SA retailers who last week highlighted the pressure they were facing amid softening consumer demand and escalating load-shedding-related costs. May passenger car sales data also reflected the strain on household budgets.
The mood was not helped when the SA Reserve Bank (SARB) warned that the potential of secondary sanctions being imposed on SA, particularly by the US, regarding its stance on Russia’s war in Ukraine, was a risk to domestic financial stability. The SARB warned that the financial sector would be severely constrained if it was not able to make international payments in US dollars.
However, the economists noted that Minister in the Presidency, Khumbudzo Ntshavheni’s release of the Operation Vulindlela (OV) progress report last week provided some cause for optimism about the future. Operation Vulindlela is a joint initiative of the Presidency and National Treasury that aims to unlock growth-boosting reforms.
“Of particular importance is that the pipeline of new private-sector energy generation projects tracked by the OV Embedded Generation Task Team has increased from around 4 000MW in March 2022 to a combined capacity of just over 10 000MW,” BER economists said in the report.
The 108 projects have an expected fixed investment requirement of more than R200 billion. “Importantly, around 3 000MW worth of projects are expected to be operational next year. Along with the expectation that Eskom should return several major generating units from long-term outages by late-2023/first half of 2024, this suggests that the power situation could potentially improve a lot in 2024,” the economists said.
“Therefore, we are cautious not to extrapolate the current very poor domestic business conditions into 2024. Although slow going, there seems to be more progress being made behind the scenes to alleviate the debilitating power constraint than is generally appreciated.”
Economists noted that another major growth constraint where work was being done is the poor performance of the freight logistics sector. This was again in the spotlight last week when Transnet had to temporarily shut the iron ore export rail line from Sishen to Saldanha Bay after yet another incident of cable theft.
Ramaphosa has directed the establishment of a National Logistics Crisis Committee (NLCC) to ensure a dedicated focus on addressing challenges in the rail network and ports. The NLCC will oversee the implementation of a Freight Logistics Roadmap, which is being developed by OV in coordination with the departments of transport and public enterprises.
On the international front, BER economists noted that the mood had improved and that there was already feverish debate about the next US central bank (Fed) policy interest rate move ahead of the release of better-than-expected US jobs data on Friday. In addition, comments by New Federal Reserve vice chair, Governor Philip Jefferson, fuelled expectations that the Fed could leave the policy rate unchanged at its mid-June meeting. However, this does not necessarily imply that the Fed is done with rate hikes.
“Besides taking heart from Fed pause expectations, investor sentiment was also boosted on Thursday when the US Senate approved a deal between the White House and congressional Republicans to lift the US debt ceiling for two years in exchange for cuts to government spending,” the economists said.