Tag Archives: South Africa

Some Positive light for South Africans.

by Wandile Sihlobo

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Many of us South Africans have been feeling a pinch in our pockets since the 2008/09 economic crisis, but the pain worsened last year, May 2013, when the US Fed announced the tapering of the quantity easing (QE), which is basically “an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective”. This announcement resulted in a significant weakening of the Rand value against the US dollar, meaning that it became more expensive to import goods. On the other hand, there were hopes that this will result to an increased competitiveness of South African goods to export markets, and even economic growth. However, weak global economic climate curbed these gains. Nevertheless, this article will attempt to highlight some few expected positive news for South African citizens this festive season and early 2015. In doing that, we’ll highlight a brief overview of the major event “2013 to 2014” which happened in the in food (grain) markets.

In November 2013, South Africa’s maize (corn) prices, which serves as an input/feed in milk, meat and poultry production, increased by more than 20% per ton (from R2200/ton of white maize to R3200/ton). Meaning that South Africa’s meat, milk, eggs, poultry, maize-meal etc prices also increased significantly. All this added a burden to fellow South Africans, especially the poor, who consume a large part of the above-mentioned commodities. These maize price increases were mainly due to unexpected demand from Zimbabwe, which resulted to a sale of about 240 000 tons of South Africa’s white maize to Zimbabwe, as well as increased buying by Mexico.

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However, in the beginning of March 2014, South Africa’s great agriculture saved us all, as the early harvest started to get into the markets and prices responded to normal levels. Nevertheless, these gains were not as quick to reach consumer’s pockets, due to high fuel prices (Petrol and Diesel) which were mainly supported by high Brent crude prices, at the back of unrests in the Ukraine-Russia region, Libya, as well as the weak Rand.

Recently, Brent crude prices have weakened to levels below $80 per barrel, and this has started to filter in on South Africa’s fuel prices. As a result, on the 3rd of December 2014, petrol and diesel prices are expected to respectively decrease by 79 and 57 cents per litre. This is going to come in handy during festive season, as many families will be driving long distances to holiday resorts, as well as on food prices.

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In January 2015, South Africa might see further relief on fuel prices, as the “Organization of the Petroleum Exporting Countries (OPEC)” will continue with its elevated oil supplies (It was decided on the OPEC meeting held on the 27th of November that oil supplies won’t be decreased). Moreover, on the 27th of November, South Africa’s annual Producer inflation came out at 6.7% in October, from 6.9% in September. Additionally, 2014 South Africa’s maize production reached a record of 14.3 million tons. However, the country did not see large exports (white maize) as the previous years, owing to soft demand in the traditional African markets. In 2015, the International Grains Council (IGC) expects South Africa’s maize production to easy around 13 million tons. Currently, maize prices (spot price) are at low levels of R1900/ton, and expected to remain at low levels owing to available good stocks and expected normal weather conditions for the rest of the season. On the International markets, there is a lot of maize (mainly United States, South America and the Black Sea region) which will continue to put pressure on the international maize (corn) prices. On the continent, Zambia is expected to have a good crop, and will possible supply Zimbabwe, which will lessen South Africa’s export demand.

All the aforementioned aspects will translate to low inflation, which is already within the Reserve Bank’s target (3-6%), at 5.9% in October 2014. In conclusion, if spending is managed properly, Christmas time and January 21 might not be as bad as expected. There’s more exciting news in the food markets, which will indirectly translate to other gains in the economy.

The South African Rand and Brent Crude Oil Forecasts.

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There have been some arguments that the weakening of the South African Rand against the US Dollar will somehow stimulate the economic growth. However, this is rather a misleading advice as rand weakness raises inflation and so results in increased strike action (labour unrests) and higher wages. This article will give a snapshot of the exchange rate outlook (ZAR/USD), as well as the Brent Crude Oil outlook.

Exchange rates (ZAR/USD) Insights

The South African Rand has been one of the most volatile currencies amongst its peers, and continues to be rated amongst the “worst performing” currencies within emerging markets. Of course, there is no consensus on what a best performing currency is. The main driving factors behind this volatility have been ranging from domestic (i.e. labour relations) and international environment (i.e. US quantity easing and slow global economic growth) (Investec, 2014). The discussion relating to the level of the exchange rate has been around for a long time, with different financial institute sharing different views on future outlooks (see table 1 and 2).

The global economic outlook is still lacklustre; the IMF (2014) lowered the prospects for world economic growth for 2014 from an expected 3.7% earlier in the year to 3.4%. This decrease was mainly due to lower growth in the United States, China and emerging markets (SACCI, 2014). Additionally, the IMF expects this year’s domestic economy to grow by 1.7%.

There have been some arguments that the weakening of the exchange rate will somehow stimulate the economic growth. However, Investec (2014) reckons that this is a misleading advice as rand weakness raises inflation and so results in increased strike action and higher wages.

 

 

Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug15 Sep15
10.84 10.87 10.91 10.87 10.84 10.80 10.78 10.76 10.75 10.82 10.89 10.96

Table 1: Exchange rates outlook (ZAR/USD)

Source: (Nedbank, 2014)

 

Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug15 Sep15
10.25 10.05 9.85 9.80 9.90 10.00 9.65 9.75 9.85 9.45 9.55 9.65

Table 2: Exchange rates outlook (ZAR/USD)

Source: (Investec, 2014)

Brent Crude Oil Insights

For some time, the world oil prices have been quiet volatile. In the last two month, unrests in Iraq added upward pressure on the world oil prices, pushing the Brent crude oil prices to levels of $115/barrel (bbl) (EIA, 2014). However, oil prices are expected to soften in a medium term, owing to expected increase in supplies (see table 3).

The US Energy Information Administration (2014) projects world petroleum and other liquids supply to increase by 1.5 million barrel per day (bbl/d) in 2014, and by another 1.2 million bbl/d in 2015. Large part of production growth is expected to come from countries outside of the Organization of the Petroleum Exporting Countries (Russia).

At the same token, world oil consumption is expected to grow by an annual average of 1.1 million bbl/d in 2014 and 1.5 million bbl/d in 2015 (EIA, 2014).

However, it is worth noting that the geopolitical tension in North Africa, Black Sea and the Middle-East adds significant uncertainty into oil production outlooks.

Q1, 2014 Q2, 2014 Q3, 2014 Q4,2014 Q1, 2015 Q2, 2015 Q3, 2015 Q4, 2015
108.17 109.70 111.33 109.00 106.00 105.00 104.67 104.00

Table 3: Brent Crude price Outlook

Source: (US Energy Information Administration, 2014)

Further Reading:

EIA, 2014. Short-Term Energy Outlook, Washington: US Ernegy Information Administration.

IMF, 2014. World Economic Outlook, Washington: International Monatory Fund.

Investec, 2014. Economic Review and Outlook, Johannesburg: Investec Bank Limited.

Nedbank, 2014. Economic Outlook, Johannesburg: Nedbank Group Economic Unit.

SACCI, 2014. Business Confidence Index, Johannesburg: South African Business Chamber.

I’m Too Sexy For My Farm.

images-149Research by various institutions, such as the United Nation’s Food and Agricultural Organisation (FAO) suggests that global food demand will increase significantly in the next 30 to 40 years. Population growth is expected to be the main driver behind forecasted global food demand; which is reckoned to reach about 9 billion by 2050, with 6 billion being the developing countries.

At this time, the greater number of people are likely to be wealthier, hence creating demand for various value added, high quality (nutritious) products. The positive thing is that South Africa and other African fast growing economies such as Nigeria, Angola, and Botswana etc are more likely to be part of the countries with large middle-class population, hence high demand. South Africa and Nigeria are large African economies and likely to continue experiencing a high level of urbanisation; and of-cause putting increased pressure to agriculture (high population growth and demand).

However, the best part of knowing these expectations is that large part (more than 65%) of African population is under the age of 30. This gives hope that Africa can be the next economic powerhouse in the world. Nevertheless, given the historic incidences of the continent, which most are still visible even today, developing Africa will need inspired, motivated young Africans. Most African countries largely depend on Agriculture. Given the land availability and the expected global demand, that makes agriculture a cornerstone to development.

It should be acknowledged that currently, there’s a wide range of barriers to land accessibility, almost in all African countries. One of the problems that should also be highlighted, at the same time being the motivation behind this treatise is attitudes, “young African’s attitudes towards agriculture; Yes, food production”.

Having had conversations with many young Africans and bringing the subject of agriculture on the table, the attitude that one experiences are those of “I’m too sexy to be a farmer, to be in agriculture”; some people usually utter those words while having beer etc, forgetting that what they are eating, drinking, wearing is actually agriculture.

The reason behind this behaviour is the confusing of thinking that anything agricultural is “cows, tractors etc”, young people forget that agriculture needs scientist, economists, etc that are mainly trained to focus on agricultural issues.

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However, this treatise does not intend to point fingers or anything negative but to open conversation about African future, and the opportunities that she has for her people and the world. Given, African population is younger than the age of 30, this is a right time to re-think the way agriculture is viewed, inspire more to get involved, learn and get ready to feed the world. Thomas Jefferson ones wrote “Agriculture is our wisest pursuit, because it will in the end contribute most to real wealth, good morals and happiness” , lets always keep these words close as we move forward to better Africa.

With such greatness ahead, “I should say, it feels good to be an AFRICAN and I’m too sexy for my farm.

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Wandile Sihlobo is a South African Economist and the International Afromadu Editor; his main interests are Agribusiness, International Trade and Public Economics. 

A Drastic Fall of South African Maize (Corn) Prices.

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In the South African grain markets, the fourth quarter of 2013 and the first quarter of 2014 were largely dominated by high (white and yellow) maize prices, and there were steaming worries of rising food prices. On the 11th of March, yellow maize prices were in all time high of R3 850/ton; at the same time white maize reached R3 765/ton. However, from April 2014, the situation turned around; on the 15th of May Safex yellow maize traded around R2 072/ton and white maize traded around R2 089/ton.

These price hikes were mainly driven by increasing demand in the world market, and tight stocks in the domestic market. The leading importer in 2013/14 white maize was Zimbabwe with quantity at 246 692 tons, followed by Mexico at 190 097 tons, the rest mainly went to the BLNS countries (Botswana, Lesotho, Namibia and Swaziland), Angola, Mozambique and Cameroon. For 2013/14 yellow maize, Japan was the leading importer with quantity at 596 315 tons, followed by Taiwan at 168 680 tons, the rest went to the BLNS countries, Zimbabwe, Mozambique, Angola, Cameroon, South Korea, Madagascar, North Korea and Nigeria.

Some producers might have hoped that the high maize prices were going to last for a prolonged period, but the early deliveries/harvest pressure have significantly decreased the domestic prices. There is also a weak demand in the international markets, especially for white maize. The largest importer of the previous season “Mexico” is reported to be having a favourable producing season, hence expecting an increase on domestic white maize production. This will mean there are limited chances that South African 2014/15 white maize will reach the Mexican market.

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Most African countries such as Malawi and Zambia a said to be having favourable 2014/15 production season, with production expected to reach 3.9 million tons and 4 million tons, respectively. Malawi is having 1 million tons for export market, which might serve the rumoured expected 2 million tons demand from Kenya. Zambian 2014/15 maize production is mainly driven by increasing fertilizer subsidies by their government, hence an expected significant increase of 700 000 tons. This significant increase in Zambian maize production might pose a strong competition to the Zimbabwean market.

According to the Crop Estimate Committee, South African 2014/15 maize production is also expected to reach 13 million tons, with white maize expected to be at 7 million and yellow maize being around 6 million tons. This significant increase in production is also among the factors that are currently keeping maize prices on the low levels.

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Furthermore, in the United States maize production is expected to reach 13.9 billion bushels, up slightly from the 2013/14 record with higher expected yields more than offsetting the year to year reduction in planted area. On a global view, maize production for 2014/15 is expected to reach 979.1 million tons, which almost unchanged from 2013/14’s production. Expected decreases for Ukraine, Brazil and India are mostly offset by increases for China, Argentina, Russia, and Mexico.

For the rest of the year, South African maize prices might continue to trade at low levels. Good planting progress in the United State, expected large domestic crop, domestic harvest pressure will continue to suppress the prices.

However, even though this might be putting a strain on South African farmers, it is good news for the consumers. Stats SA reported in April that Agricultural commodities’ price inflation has dipped to 8.0% year on year from 13.3%, owing to a bumper maize crop; with the cereals and other crops price inflation rate falling to 9.7% year on year from 26.5% year on year in March. This means that in a month or two (leg effect), South African consumers will start to see low prices of grain related products on their retail shelves. Furthermore, Grain South Africa’s Supply and Demand figures show that the country still has more than 1.7 million tons of maize for export market. So, given the weak demand on the traditional South African export market, this is going to continue suppressing prices for a prolonged period.

 

1236455_10201166193989847_169122925_n  Wandile Sihlobo is a South African Economist; his main interests are Agribusiness, International Trade and Public Economics    

Nelson Mandela Hospitalized..

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Former South African president Nelson Mandela was hospitalized last night in Johannesburg for a battling lung infection. Over the past year Mandela has been in and out of care because of both lung and gallstone problems back in December.

Nelson Mandela, 94, is an influential leader in the world who took on presidency after the apartheid era in South Africa.

World leaders are asking everyone to pray for Mandela’s healing while he going through these tough times.

Kayamandi Fire: What’s next?

Over the weekend, a small township in the Western Cape of South Africa, Kayamandi, was burned down by a small stove that was left on in a house and ended up spreading across the town. An entire township burned down, thousands of people are left homeless, two dead, and a lot of unanswered questions. 

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Although situations happen ever so often in townships, this current event hit so close to home because I stayed really close to this township during my 6-month stay in South Africa, while visiting a few people that i knew in that village. I can’t possibly imagine going back and not seeing the village the same way i left it, let alone the thousands of people who don’t have any homes there as well.

DSCN0358Stellenbosch is known to be one of the richest towns in the Western Cape that used some of the people who lived in Kayamandi to do temporary work in that area. Because these two towns are so near to each other, you would expect Stellenbosch to openly give a helping hand to the burned down community, right? WRONG.

The day after the fire, a statement was released from the council members of Stellenbosch reporting what specifically happened, but there was nothing that the Stellenbosch fire department can do, considering the fact that Kayamandi was “too hazardous” for their trucks to help put out the fire. Meanwhile, the residents of these homes were  putting out the fire themselves with towels and scarce amounts of water.

Considering the fact that this community is the backbone to the one of the richest communities in that province, why does the council of Stellenbosch thinks it is okay to turn their backs on Kayamandi?

Of course their are small groups and organization working towards rebuilding this community, BUT WHERE IS STELLENBOSCH?

If this doesn’t seem like the American government’s reaction to New Orleans during the catastrophic hurricane, then I don’t know what does.  We’ve got to do better.