The rand plunged to a seven-week low yesterday amid the risk-off environment over rising concerns about the impact of South Africa’s power crisis on the country’s outlook.
Investors are still concerned about the government’s plan to end load shedding as there is still no decision on declaring a national state of disaster on Eskom, following a Cabinet lekgotla.
The South African currency plummeted 0.4% to R17.61 against the US dollar around lunchtime, its lowest since mid-December, 2022 as a tangible solution to the energy crisis was still not in sight.
Rolling power cuts enforced by Eskom to curb a total grid collapse have increased across the country and continue to plague businesses and undermine economic growth, while also fuelling food inflation.
Last month, the South African Reserve Bank slashed its 2023 growth forecast for South Africa to 0.3% from the previous 1.1%, due to extensive and damaging load shedding.
Eskom has projected that sustained high levels of load shedding look set to continue for the next 12 to 24 months before additional capacity is brought into the grid.
Anchor Capital investment analyst Casey Delport said the increase in the frequency and intensity of load shedding had contributed to a weaker rand.
Delport said the relative strength of the rand and the extent of continued load shedding would also play a role among the factors influencing local food prices.
“The impact of load shedding on the economy and the food system is severe, to say the least. Load shedding increases cost directly and indirectly through higher rates of wastage and spoilage within food chains,” Delport said.
“Financial results from several food companies indicate that fuel expenses to run generators during blackouts are skyrocketing. These costs cannot be absorbed in the chain and are to a large extent passed on to consumers.
“As such, SA’s unique energy crunch will likely be the key reason why the economy may not follow global trends of decreasing food price inflation during 2023 – further exacerbating food insecurity within the country.”
The Cabinet has remained mum on the outcomes of its crucial meeting over the weekend ahead of President Cyril Ramaphosa's annual State of the Nation Address in Parliament on Thursday, and a looming Cabinet reshuffle.
Organised business has expressed surprise by the government’s consideration of the State of Disaster given that only a few months ago Ramaphosa said that legal advice sought was that it could not be implemented.
Business Leadership South Africa CEO Busi Mavuso yesterday said a state of disaster was a clear example of removing certainty over the rule of law, and equipping the executive with a great deal of discretion.
“Our electricity crisis is, however, certainly a crisis. It demands an extraordinary response,” Mavuso said.
“But I ponder whether a state of disaster is necessary to deliver that extraordinary response. And moreover, whether a state of disaster will create new problems that may cost more than any benefits.”
Meanwhile, stocks were also on the backfoot as the JSE All Share Index fell nearly 1% to 79 470 index points by 4pm, mainly dragged down by resource-linked sectors, financials and tech stocks.
Investors weighed prospects of continued monetary tightening by major central banks, renewed geopolitical tensions between the US and China and more corporate earnings.
However, TreasuryONE currency strategist André Cilliers said emerging markets seemed to have not been impacted by the devastating earthquake in Turkey as yet.
“We don’t think there will be an impact on the markets because of the earthquake in the short term,” Cilliers said.
“The market would rather take its cue from what happens with the dollar currently, as the dollar is rallying hard after all the good data from Friday,” he said.
BUSINESS REPORT