Things in South Africa aren’t as bad as you think: analyst

Amid weeks of load shedding, a water crisis and a severe lack of service delivery, South Africans are understandably frustrated and bleak about the future of the country.

However, when compared to its economic peers on the global stage, there’s a compelling argument to be made that things aren’t as bad as many think, says Intellidex co-founder and chairman, Stuart Theobald.

In a note published this week, Theobald said that investors often look to gauge the sentiment of any given market – but because of South Africa’s deeply-rooted cynicism, there’s no way to get an accurate picture from locals.

“South Africans tend to sport an ingrained cynicism, inflamed and encouraged by those who make their money selling offshore investments,” he said. “It is also influenced by myopia — the tendency to be overly influenced by what is most obvious, but thereby missing the bigger picture.”

However bleak the situation may seem when you’re sitting in the dark during load shedding, global markets are not driven by personal experience, he said, and South Africa in particular is just a small part of a much bigger marketplace.

“South Africa can change nothing and yet still be the beneficiary of international flows if competing markets suddenly look worse. For much of this year, that has worked in South Africa’s favour,” he said.

Russia was wiped off the investment map due to the war in Ukraine, which also caught Turkey in its wake; Brazil has only just emerged from a heated and volatile political situation; and China is facing immense political and economic uncertainty, he said.

“South Africa is relatively unaffected by the global energy price crisis given its negligible reliance on gas and has had good crop output limiting food inflation,” Theobald said.

The analyst also pointed out that South Africa’s standing problems – like the energy crisis and the government’s failure to deliver services – also have a long-term pathway out in the form of tangible changes to energy regulations that have opened the floodgates for new energy builds, and South Africa’s solid constitutional democracy which empowers voters to hold leaders to account.

And against the global backdrop, the country still appears resilient against global inflation and interest-rate trends, with a long-term outlook supporting commodity prices, particularly metals needed for the green revolution, of which South Africa is a major supplier, Theobald said.

Moving forward

South Africa is currently holding discussions around its Just Energy Transition, which is expected to yield long-term plans for the country’s move away from coal energy into renewables.

While coal will still be part of South Africa’s energy mix for the foreseeable future, other countries are pumping billions of rands in grants and loans to help South Africa transition to a greener, cleaner energy producer – while meeting local needs at the same time.

Eskom chief executive officer Andre de Ruyters said in October that South Africa needs to spend close to R1.2 trillion by 2030 to ensure it has enough generation, transmission and distribution capacity to meet the demand.

He said that renewable energy is the quickest and most cost-effective way to resolve the country’s crisis.

A push into renewables can already be seen in business, industry and private groups and households – but the state is not sitting idly by. On top of a huge R9 billion project to transform one of its oldest power stations into a wind and solar energy plant, Eskom also has several other builds in the pipeline to meet the country’s growing energy needs.

As more coal power stations go offline over the next few decades, the 33,000MWof energy will be met by new projects.

By the end of 2024, de Ruyter said that most of the shortfall would be covered by new projects, including:

• 3,500MW from the Seriti renewables projects
• 1,440MW from Kusile entering full operation
• 2,000MW from independent power producers (IPPs) on leased land
• 3,500MW from new pumped storage
• 1,500MW from municipal procurement
• 2,600MW from REIPPP 5 projects
• 5,200MW from REIPPP 6 projects
• 7,000+MW from other projects

Reflecting Theobald’s comments on crop surpluses, an analysis by FNB at the start of the month showed that South Africa is in store for a bumper crop season this year, which should ease anxieties over food prices.

“Early indications are that South Africa’s farmers intend to plant almost 0.2% more hectares under summer crops for the 2022/23 production year, according to the latest update from the National Crop Estimates Committee,” FNB said.

“The expected total summer crop planted area is seen at 4.351 million hectares with soybeans being the biggest gainer, and at a potential average production of 2.5 million tons, this is a record high for the crop.”

At 2.59 million hectares, the intended maize crop planted area is still higher than the 10-year and 5-year averages of 2.53ha and 2.57ha, respectively and likely to yield a sizeable crop of 14.59 million ha.

“This is still well above the 10-year and 5-year harvest averages of 13.12 million tons and 14.56 million tons, thus easily meeting the domestic consumption of 11.8 million tons and a good surplus,” FNB said.

The ramp-up in output will boost the domestic availability of soybeans and, subsequently, soymeal, thus reducing import dependency. “(This is) obviously, a positive development for the livestock market as it is a major protein source for animal feed,” it said.

Read: Another headache for consumers in South Africa this month – but there is a silver lining