Upside risks to inflation

Central Bank Governor Lesetja Kganyago last week said that South Africa’s inflation outlook faces upward pressure. Despite El Nino’s impact on African weather, recent data showed no food price hikes. In March, inflation dipped slightly to 5.3%, coming in below expectations. The South African Reserve Bank anticipates hitting its 4.5% target by the end of 2025. Kganyago also cited risks from elevated oil prices due to tension in the Middle East and higher-for-longer interest rates in the US. The current global financial unease is reflected in South Africa’s weakening rand. Election uncertainties continue to add to economic woes, with reports suggesting the African National Congress could potentially lose its parliamentary majority after 30 years. This uncertainty affects various markets, including foreign exchange, bonds, and equities.

Private sector urged to invest R200 billion to expand South Africa’s electricity grid

South Africa’s electricity grid needs a R200 billion boost for renewable energy integration. The existing infrastructure lacks capacity, delaying the transition to renewables and perpetuating Eskom’s blackouts. Private sector involvement and investment have been proposed in a bid to confront the issue. Various funding models have been suggested, one being that private firms finance and operate the grid for 20-30 years before transferring it back. Independent power producers (IPPs) could also chip in, easing infrastructure costs. Municipal debt and Eskom’s financial losses complicate matters. Collaboration among government entities, including Eskom’s board and various ministers, is essential. National Treasury is considering private-sector funding to address the grid expansion. This move aims to alleviate strain on public finances and accelerate South Africa’s energy transition.

SAA seeks investors and loans for expansion plans

South African Airways (SAA) is again actively seeking investors and loans after its failed equity deal with the Takatso group (stalling plans for a 51% stake sale). SAA Chairman Derek Hanekom disclosed the airline’s revised expansion strategy, delaying international routes to London, Frankfurt, and North America. The collapsed deal, aimed at injecting R3 billion into SAA, led to a strategic reevaluation. Hanekom remains optimistic, eyeing minority investors, access to capital markets, and loans to fuel growth. The airline is currently growing at a slow but sustainable rate, with no government subsidies. It plans to expand its fleet from 13 to 21 aircraft within the next financial year.

Market moves

Market sentiment has improved as tensions in the Middle East ease, leading to positive territory for equity markets. Both gold and oil prices declined due to reduced geopolitical concerns. Gold is down 1.0% at $2,365, while Brent crude is quoted at $86.32. Platinum, Palladium, and base metals prices remain relatively flat. South Africa’s rand slightly weakened, trading at R19.09 to the dollar.

Looking at the week ahead

On the local front, the SARB Monetary Policy Review will be released this week. Investors will also be keeping a keen eye on upcoming economic data – like the PCE price index and US Q1 GDP – for clues on potential Federal Reserve rate cuts. The Bank of Japan’s monetary policy committee meets this week, while China’s People’s Bank keeps its Prime Loan Rate steady at 3.45%. In the US, four major companies, including Tesla, Alphabet, Meta Platforms, and Microsoft, are reporting this week, which will be sure to attract attention from investors.

The Week That Was 23 April 2023

Source: FundFocus. Data as at 19 April 2024. Past performance is not a reliable guide to future performance.
For illustrative purposes only and not indicative of any investment.