The spike on fuel prices spells bad news for South Africans. Photo by SABCNEWS

By Staff Reporters

A president has an Ankole bull on the market. He will pocket R1.2 million for the prized beast. The buyer is the richest man in the country and the president’s brother-in-law. He goes on to splash a further R4.7 million for four heifers.

You would be forgiven to think this is a pitch for some thriller about the wheeling and dealings of the powerful in some fictitious country.

Well, it is happening under our noses, at the time economists warn of the dire effects of Covid-19 – and the raging war in Ukraine – on the economy.

Economists do not expect South Africa’s economy to recover from Covid-19 in at least another five years, heralding a spike in a massive unemployment rate.

Meanwhile, the World Bank has condemned South Africa for inequality and the war in Ukraine is set to hit hard on the country’s poor.

In shocking news, a week ago, Ramaphosa was reported to have sold an exotic Ankole bull to brother-in-law Patrice Motsepe.

These relatives are among the country’s tiny minority of super-wealthy blacks in a sea of poverty. Something that does not sit well with the World Bank.

South Africa’s poverty, which is racially determined, has produced the world’s worst unequal societies.
It says only 10%of the country’s white population owns more than 80% of the wealth and the majority blacks are impoverished.

“South Africa is the most unequal country in the world, ranking first among 164 countries,” the institution said in a report titled Inequality in Southern Africa.

This after almost three decades since the end of apartheid, “race remains a key driver of high inequality in South Africa, due to its impact on education and the labour market.”

Citizens are feeling the economic squeeze. Increases in the fuel price have taken petrol, inland, to over R21 a litre – a 60-litre tank now costs over R1,200 to fill up.

With the war in Ukraine sending the prices of oil, gas and coal sky-high, its impact is already being felt.
Business Tech reports that economists predict another huge petrol price increase in April and South Africa’s reliance on open cycle gas turbines for emergency power is a major risk. With an energy grid still largely reliant on coal, Eskom sees flames and its cost base will go up as the coal price surges and demands for exports rise.

The country is gripped by rolling power cuts as the power utility is battling to keep the lights on.

Last week, Eskom announced that 17 of its units were at risk and load-shedding was to be extended.

News24 has reported that Eskom CFO Calib Cassim said they were likely to reach a point where they can no longer afford to pay for the emergency diesel which keeps the turbines going.

Meanwhile, energy regulator Nersa has approved a 9.61% increase to Eskom from 1 April, but it had applied for a 20.5% increase. Eskom’s debt stands at R391 billion and is only due for restructuring by 2024.

Municipalities pose an additional surcharge (although they pay a slightly lower tariffs for bulk purchases), which means that, come July, households already buckling, will pay an energy tariff that is double the current inflation rate.

The SA Reserve Bank has indicated that it will increase interest rates to offset inflationary pressures, but this could push many households to the brink.

The Daily Maverick says small businesses – a sector that employs the highest proportion of South Africans – is taking serious strain due to load-shedding.

“Most small businesses use generators to keep going during power cuts. But the cost of keeping generators running is set to rise as the consequences of Russia’s war are felt across the globe,” it reports.

The cost of fuel is expected to sky-rocket in the next few days. Last week, the Brent Crude spot price was near $115/barrel, 17% higher than at 23 February, the day before the invasion.

The effects of the Ukraine invasion seem likely to add to the fuel price inflation. In addition, sanctions and boycotts against Russia, some allies and potential retaliation, can further exacerbate broader supply chain disruptions globally, which can be inflationary.

The IOL, spoke with agricultural economist Wandile Sihlobo who warned of a looming hike in food prices, Ukraine being a key agriculture producer.

With Ukraine’s ports closed and much of Russian grain supply frozen by Western sanctions, there are fears that tightening supplies would lead to shortages in importing countries.

The property market will follow. While it is too early to say how Russia’s invasion of Ukraine will impact South Africa’s property market in the long term, analysts at FNB have warned that the sector is likely to be hit by the obvious short-term economic factors, such as higher inflation rates and interest rate hikes.

The conflict appears likely to add to already troublesome global inflationary pressures, notably energy prices, said John Loos, property strategist at FNB’s Commercial Property Finance.

“For property, the main potential impact points are via upward pressure on cap rates, upward pressure on vacancy rates, downward pressure on rentals and thus property incomes, as well as possible additional upward pressure on operating costs.

For the residential rental market, recovery will continue, should the war impact be mild at worst, but the tenant population cannot handle too big an economic impact before rental payment performance starts to suffer again.” Loos told BusinessTech.

Economic recovery is not expected soon for the country. South Africa’s GDP may take at least five years to recover from the Covid-19 impact, says United Nations Development Programme (UNDP) study.

South Africa’s overall GDP is expected to decline by at least 5.1% and up to 7.9% in 2020 and recover slowly through 2024. This will lead to major setbacks in addressing poverty, unemployment and inequality, according to a new UNDP study on the socio-economic impact of Covid-19 in South Africa.

The study focuses on how the pandemic will drive temporary and long-term changes in poverty levels in South Africa.

The number of households below the poverty line increases as they fall from the lower middle class.
54% of households that have been pushed out of permanent jobs to informal or temporary contracts as a coping mechanism for businesses affected by COVID-19.

These are likely to fall into poverty after the six-month stimulus package is over. 34% of households are likely to exit the middle class into vulnerability.

“Inequalities within and among nations are exposed and exacerbated by Covid-19, as the poor and vulnerable are unable to protect themselves,” said UN Resident Co-ordinator, Nardos Bekele-Tomas.

“While government’s social protection grants tend to target the poorest, the study posits that care and support need to be provided to those at the borderline of the poverty line, such as the vulnerable middle class, to reduce their likelihood of slipping into poverty.”

Populations hit especially hard are already impoverished female-headed households, persons with only primary education, persons without social assistance, black populations and heads of households who have been pushed from permanent to informal employment.

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