Operation Vulindlela (OV) released by the Presidency yesterday shows further reform progress in various sectors since the last update in December covering the period up to Q3 22. Specifically, the update reports that 10 of 32 listed reforms have been completed, while one has been completed but needs some further intervention. Meanwhile, the report argues that 10 reforms have either not commenced or are facing significant challenges, including a number of critical reforms to the electricity supply and transport logistics industries (our italics):
· Improve Energy Availability Factor to over 70% (from around 55% currently);
· Address institutional inefficiencies in municipal electricity distribution (no specific measures have been announced);
· Address institutional inefficiencies in municipal water distribution (no specific measures have been announced);
· Improve efficiency of ports (private partners for the big infrastructure upgrade were to have been announced much earlier this year, but now the deadline is end June); and
· Implement third-party access to freight rail network (some measures have been implemented but the problems facing freight rail are huge and multifaceted)
Additionally, the OV goal of introducing a ‘fit-for-purpose’ procurement regime for state-owned companies, which was announced at the last OV update, has also not commenced. However, the update also noted some important progress in Q1 23, including (our italics):
· The issuance in late March of an RFP for the procurement of an off-the-shelf mining rights administration system (which as we have previously reported is now projected to complete by end year);
· cabinet approval of a switch-off date for analogue broadcasting (to free up spectrum, but which has yet to be gazetted); and
· Tabling of the Electricity Regulation Amendment Bill in parliament (though with no indications of how long it will take parliament to pass this key legislation, without which much of the proposed reform of the energy sector cannot happen).
Furthermore, the OV update provided some information on reforms to be completed in the near term. However, most of the necessary reforms are complicated, multi-step, and time-consuming, and it is only on completion of the reform in question that businesses and the economy, in general, derive most of the benefits. South Africa continues to make progress but it remains slow on a number of fronts, and certain reform imperatives – for example to labour markets – are omitted.
The National Treasury yesterday reported that the main budget deficit was R67.5bn in April. This is broadly in line with Absa forecast of R68.4bn and sharply higher than the deficit of R45.2bn a year earlier in April 2022. The big budget deficit materialised as revenues shrank 8.8% y/y in April from 10.6% y/y growth in March, even though expenditure growth eased to 10.2% y/y from 14.6% y/y. Amongst the key tax categories, PIT receipts rose 4.9% y/y, while VAT receipts declined 10.1% y/y. April is the first month of FY23/24 and one should not draw firm conclusions about the full fiscal year from just April’s data alone. That said, even counting the Eskom debt relief below the line, Absa group forecast that the main budget deficit will be 5.2% of GDP in 2023/24 compared with the NT’s target of 3.9%, given the likely revenue shortfall and spending pressure from the public sector wage deal and one-off spending exigencies (see South Africa Quarterly Perspectives: No growth without power, 2 May 2023).
Yesterday, the SARB reported that the growth of bank lending to the private sector slowed for the third consecutive month from 7.2% y/y in March to 7.1% in April – the lowest since July 2022. This outcome is higher than the company’s forecast of 6.9% y/y but below the Thomson Reuters consensus of 7.3% y/y. Lending to both households and corporates slowed and suggests that rising interest rates are beginning to bite. Interestingly, however, there are signs of household distressed borrowing. Specifically, credit card lending to households rose 1.0% m/m sa, taking the y/y growth rate up 9.1% y/y in April from 8.4% in March, even though overall household borrowings from banks decelerated to 7.0% y/y in April from 7.2% in March. Meanwhile, corporate credit growth eased by 0.1pp to 7.1% y/y in April.
According to April international tourism data released by Stats SA yesterday, which showed tourist arrivals falling 5.5% m/m after partially rebounding by 1.5% in March from the 2.6% decline in February. Inbound tourism was 57k smaller than pre-pandemic levels (i.e., 2019). The subdued overseas tourist arrivals bode ill for net travel receipts of the current account, supporting Absa’s view that the current account deficit will widen in Q2 23 (see South Africa Q2 23 Quarterly Perspectives: No growth without power, 2 May 2023).
SARS is due to release the April merchandise trade balance data today at 14:00. According to absa group’s projection that the merchandise trade surplus narrowed to R4.9bn in April (Thomson Reuters consensus: R5.0bn) from R6.9bn in March partly reflecting seasonal factors in the data. That said, there is a high degree of uncertainty around the company’s forecast due to the hard-to-quantify effects of the ongoing load-shedding shock on economic activity and supply chains.
