Stage 6 load shedding gut punches South Africa

 ·27 Nov 2023

The sudden escalation to stage 6 load shedding last week sent the rand surging past R19 to the dollar, and soured investor sentiment towards South Africa along with the country’s stacking crises.

In what ended up being a highly volatile week, the rand breached R19.00/USD a couple of times last week, reaching R19.14/USD at its worst, as the country again reached stage six load shedding.

This was exacerbated by a risk-off environment in markets, which saw foreigners being net sellers of South African bonds and negative sentiment towards the country’s structural and policy issues.

According to Investec chief economist Annabel Bishop, as load shedding eased over the weekend – and even moved back to stage 3, albeit temporarily – market pressure also eased, somewhat, and the rand managed to pull back below the R19/$ mark and start the new week averaging around R18.80.

South Africa’s ongoing woes

Rand volatility is just another sign of South Africa’s struggle to get to grips with its various crises.

Diesel shortages added to electricity supply issues last week, with electricity minister Kgosientsho Ramokgopa, highlighting that emergency power from open cycle gas turbines (diesel generators) and pump storage had to be used.

While diesel deliveries – and the return of some units – mitigated some of the load shedding by the start of the week, Eskom very quickly escalated load shedding once again as demand pushed higher than expected on Monday.

At stage 6, the economy loses up to R1 billion a day, with Ramokgopa acknowledging the hundreds of thousands of jobs that have already been lost as a result of this wanted economic potential.

However, South Africa’s woes go beyond load shedding – and they’re starting to stack.

On top of Eskom’s failings, Transnet is another massive pain point for the economy.

“Problems at Transnet have negatively affected investor sentiment, with a newly introduced truck booking system also reported to be adding to logistical bottlenecks, which are likely to deter some exports as lengthy delays negatively impact demand,” Bishop said.

“The booking system has not been implemented at all ports but is set to be rolled out, adding to the logjams. The South African Association of Freight Forwarders (SAAFF) is reported to have said the blockages at Transnet cost the economy over R125 million a day.”

Transnet and load shedding are worrying foreign investors, Bishop said – and this is being compounded by populist policies, like National Health Insurance, which appears to be breezing through the National Council of Provinces (NCOP).

“The inadequate performance at Transnet and Eskom versus demand has increased economic growth concerns, and so negativity for investors. Foreigners sold R1.1 billion in government bonds on Friday, as sentiment towards South Africa soured,” she said.

Bloomberg highlights that the rand is an outlier in its basket of 23 EM currencies, “missing out on the biggest monthly rally for the asset class since January”.

The rand had dropped below R18.00/USD in the middle of the month, reaching R17.95/USD.

Currently, the rand has averaged R18.80/USD since the start of Q4.23, and trading between R18.84/USD and R18.62 on Monday.

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