After the Bell: Don’t look now, but there have been some shafts of light financially

The most obvious shaft of sunlight was that last week SA’s inflation came down fast, which resulted in the Monetary Policy Committee halting the interest rate hike cycle. It was a close call, with a three-to-two vote against another increase, but personally, I think it was the right call. There is little power in the local economy, which means inflation is largely an imported effect. And inflation around the world was caused by an unhappy coincidence of a variety of factors, including Russia’s war on Ukraine, some logistics issues and the oil price.

All three have stabilised, though none is resolved, meaning that international inflation is coming down faster than was generally anticipated, if I’m reading the room correctly. Food inflation remains high and may stay that way, at least for the foreseeable future. But it is moving downward for a change, rather than up, which is a relief. 

As Old Mutual Wealth investment strategist Izak Odendaal points out in his newsletter, there was a big jump in the wheat price last week following the decision by Russia to pull out of the Black Sea agreement. But even after the increase, the price is still around half of what it was in March. The same, not accidentally, applies to oil.

It’s odd how international markets respond to events: sometimes they gyrate wildly on the barest of information, only to settle down even when there is no obvious change in the situation. There is something about being comfortable with the known unknowns, which is so much better than being surprised by the unknown unknowns.

Anyway, the second shaft of light was the announcement by Transnet that it has signed a joint venture partnership with Manila-headquartered International Container Terminal Services Inc (ICTSI) to operate one of the Durban container terminals. Don’t be fooled by the fact that this is a relatively unknown company from the Philippines; it operates all over the world and in many African ports. This is a pretty big deal — it’s a 25-year contract at Transnet’s biggest container terminal, which handles 72% of the Port of Durban’s throughput and 46% of South Africa’s port traffic.

There is some reason for caution about the contract: part of the deal, typical of government contracts with outsiders, is that there is little room for flexibility with staffing and the government maintains a 50% stake. That means all of the ANC’s cadre deployments are locked into the system.

As an aside, it was amusing to see that SARS noticed that one of its employees, who had reported sick, was filmed on television at an EFF march. It’s a case of the revolution definitely being televised. The employee apparently lied, the court found, about being sick, but, typical of SA labour legislation, got reinstated by the CCMA. Anyway, the finding was reversed by the Labour Court. My guess is that there is not a single employer in SA who has not had a comparable experience.

Despite the cadres, the ICTSI can hardly make things worse. Durban is SA’s busiest port, but in World Bank efficiency comparisons with major ports around the world, Durban and other SA ports are habitually rated right at the bottom. So, with any luck, this is a step in the right direction.

The broader significance of the deal is that it reflects an organisation that is making progress on its longstanding promise to engage in real public-private partnerships. Other deals for other ports are waiting in the wings, so that’s a plus.

Don’t expect fast turnarounds, though. On one of the Transnet Freight Rail lines that really matters, the coal line to the Richards Bay terminal, the corporation is estimating total shipments of around 49 million tonnes this year, compared with 2018 when the parastatal moved 77 million tonnes. The biggest cause of that thumping reduction was the lack of locomotives, which is why the public enterprises minister had to rush off to China a few weeks back. Even if the Chinese do provide the spare parts needed, Transnet will only get back to its 2018 performance, next year … maybe. Ah, well.

The other beam of light falls on the rand stabilising at around R18 to the dollar. Sadly, that is not a consequence of anything SA did or did not do; the dollar has been under pressure because capital is moving outwards again, as it often does when the US economy starts firing up. Still, as we often say about small droplets of rain in the Karoo: it wasn’t much, but we will take it. DM