Transitioning
South Africa outlined its transition plan to achieve the target of lower levels of carbon emissions, including funding requirements at the UN’s Climate Change Conference, COP27. While some concessional funding (much of which is loans) with attractive terms has been secured to start the journey, much more is required. One party’s funding requirement is another’s investment opportunity – the country certainly hopes that its partners and the private sector will also see it this way. 

It was a mixed month for embattled state-owned enterprise, Eskom. With government’s commitment to a debt transfer confirmed, S&P revised the outlook for Eskom to stable from negative. Energy regular Nersa delayed a pronouncement on new electricity tariffs for Eskom until December, which would apply for the next two financial years. Eskom has applied for tariff increases of 32,0% in 2023 and 9,7% in 2024. This comes in the wake of a restatement of the entity’s 2021 losses (increased to R25,3 billion) and a delay in publication of financial results to December as they appoint a new external auditor. In addition, it has become clear that diesel costs to run open-cycle gas turbines (used to alleviate load-shedding) has already exceeded the budget for this financial year. Recent comments from Finance Minister Enoch Gondongwana suggest that calls for additional funding to run these turbines would not be forthcoming, implying little to no buffer in the load-shedding schedule.

Headline inflation for the year to October 2022 delivered an upside surprise of 7,6% relative to market expectations for a lower figure, and above the 7,5% recorded in September 2022. 
 

Producer inflation, however, continued to trend lower. The South African Reserve Bank (SARB) increased interest rates by 75 bps, the third consecutive hike of this magnitude. Three members voted in favour of a 75 bps hike and two were in favour of a 50 bps hike, signalling that smaller hikes may be considered at the next meeting. Credit ratings agencies S&P (positive outlook) and Fitch (stable outlook) reaffirmed the country’s current credit ratings, but Moody’s opted not to use the scheduled date. A weaker US dollar and rally in global bond markets helped the FTSE/JSE All Bond Index gain 3,9% with the rand benefitting even more, appreciating by c.6,1% against the US dollar. Local equity markets recovered in line with global trends, with the FTSE/JSE All Share advancing 12,3%. A recovery in bellwethers Naspers (38,7%) and Prosus (39,0%) contributed, spurred by an update on the buyback programme, constructive financial results from Tencent and an announced distribution of Tencent’s Meituan stake. Resources rallied 17,3% with notable gains from industrial and precious metals, while the property sector continued to gain traction, advancing 6,3% over the month.