After the Bell: The two important questions facing SA’s economy

I was chatting recently with Mike Brown, who is departing as Nedbank CEO in just over a month. (A story on his decade-long stint as CEO of the bank will appear in DM168 this weekend). He had an interesting take on the above conundrum.

The two main factors holding SA back are, he says, undisputed: power and logistics. Quite how much they are retarding SA’s economic growth, though, is something of a mystery. But technically it’s possible that without load shedding, SA might enjoy a three percentage point rise in GDP per year. And if Transnet were operating at capacity, then it too could add three percentage points to GDP growth. Then we’d be cookin’ with gas!

So let’s suppose, Brown says, that SA only manages to get both of these half-right, then it could get back to a 4% per year growth rate. And if that happens, everything changes. At a 4% growth rate, you will see appreciable differences in a whole host of things; there will be more investment, increased government revenue and a decline in the unemployment rate.

It’s possible to ask the question differently: is it conceivable that SA could solve half the problems at Eskom and Transnet? Just half the problems. Can’t be that difficult.

I don’t know, but honestly, I’m not so sure. Just to take one example, Transnet appears to have given a contract to a consortium consisting of three entities — Servest, Amahlo Consulting and Advanced Aerial — to secure the 1,800km coal line which stretches from the Waterberg in the north to Richards Bay in the south. Sadly, it turns out that Amahlo Consulting has only a single employee. I am not making this up.

So what happened, according to a News24 report, is that the five-year contract was terminated in March when it became noticeable that security incidents were soaring instead of declining after the JV took over in August last year because, for one thing, too few people were deployed to do the actual securing. This happens when you hire companies with just one employee to secure thousands of kilometres of railway line.

Of course, Amahlo is taking Transnet to court for breach of contract. But the weird thing is that this is not Amahlo’s first brush with consummate failure. The company made headlines in 2018 after it secured a R59.7-million contract from the Gauteng Enterprise Propeller — a government agency — to create 75,000 job opportunities, but delivered only 142 skills-training opportunities. Earlier this year, a court ordered Amahlo to repay the Gauteng provincial government R55-million, News24 reported. Do the people making these decisions not know how to use Google?

So I have a new target for SA’s wondrous parastatals, which I think could help us reach the “half-right” target. Everybody makes mistakes; it’s understandable. But would it be possible to only make mistakes which are not so bad that they are funny? Could we try to make mistakes which don’t make people laugh in astonishment? I think that might help.

On the other hand, Eskom appears to be maintaining a rather extraordinary run of no load shedding and is close to attaining its longest period of sustained power provision in three years. Of course, after making the announcement, many responders made the point that it doesn’t seem accidental that load shedding has been reduced in the six weeks before the elections. Eskom’s two open-cycle gas turbine generators, designed to deal with peaking power, must be going hell for leather.

But less cynically, the huge reduction in utilisation — as businesses and the middle class install solar systems — is having a positive effect, allowing Eskom more downtime to maintain its plants. That is gradually improving the energy availability factor. And of course, it helps that a huge chunk of Eskom’s debt has been taken over by the government, which allows the company the financial resources to conduct the maintenance effectively.

These changes of course are not yet visible in the data. The IMF reduced SA’s GDP growth by a smidgeon to 0.9% in its latest World Economic Outlook, even though it slightly increased its expectations for global growth.

However, the consequential number, inflation, was slightly better than forecast when it was released on Wednesday morning. Consumer prices rose by 5.3% from a year earlier, compared with 5.6% in February, while the median of 18 economists estimated in a Bloomberg survey inflation came in at 5.4%. This is not enough to prompt speculation about an interest rate cut.

All of this seems very static, and my guess is that we’re in the middle of a broad “wait and see” approach by investors, local and foreign, in the run-up to the elections. There are enough imponderables there to make investors pause — and only the election results can change that. DM