South Africa's investment conference yielded positive results, but persistent load-shedding and inflationary pressures continue to pose challenges for the economy.
South Africa’s fifth investment conference yielded investment pledges of c. R360 bn. Over the last five years, the cumulative investment pledges are estimated to amount to R1,5 trillion, exceeding the target the Mr Cyril Ramaphosa set out to achieve in 2018. The 2023 conference, however, was largely overshadowed by a backdrop of persistent load-shedding and inconsistent messaging from officials as to the most efficient way to alleviate the crisis. Two months after the announcement, government withdrew the state of disaster enacted to deal with the energy crisis. Deteriorating releases for activity in the manufacturing and mining sectors further reflected the challenges of the ongoing energy crisis.
Headline inflation for the year to March 2023 increased to 7,1% from 7,0% the previous month, with core inflation remaining at 5,2%. Both figures were higher than market expectations and reflected continued upward pressure in food prices. Producer inflation, however, continued to trend lower, surprising to the downside relative to expectations. The upside surprise to the inflation prints increased the market’s assessment of the probability of further interest rate hikes and weighed on the bond market. The South African Reserve Bank released a hawkish Monetary Policy Review, highlighting the more persistent components of inflation and quantifying the impact of load-shedding on price inflation at 0,5% for 2023. The FTSE/JSE All Bond Index declined by 1,2% in April. The Rand depreciated by c.2,7% against the US dollar in April, bringing the decline year to date to 7,4%.
Domestic equity markets rallied in April, supported by a recovery in resources and financials, while industrials continued to benefit from weakness in the rand. Within the resources sector, precious metals soared, with the sector returning 14,6%. While gold companies generally had a good month, platinum counters were not far behind. Platinum producer, Northam, gained 23,7% in April when the company announced the termination of its offer for Royal Bafokeng Platinum, a deal that had served as an overhang for the share price for several months. The property sector staged a recovery in April, returning 5,4% over the month. Investment and costs to alleviate load-shedding featured strongly in company results.
Climate models continue to indicate an increased probability of a potential El Niño developing later this year, bringing drier conditions to drought-stricken areas in South Africa. Capetonians will remember the prospect of 'day zero' a few years back during one such period that was thankfully avoided. This comes after several years of La Niña conditions, which typically sees higher rainfall locally, but also precipitated heavy rainfall and flooding in some provinces. Of course, not every weather event is equally severe, and the agriculture sector and households have made progress and changes to deal with lower rainfall and possible drought conditions. This is, nonetheless, another risk to the food inflation outlook in the medium term. Reforms and investment in infrastructure in the water sector and the interplay between water infrastructure and the electricity crisis, remains critical.
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