Markets are not convinced by the government’s response to the load shedding crisis.
January is typically a period of rand strength, says Investec chief economist Annabel Bishop – but this year, market players are punishing South Africa as the government has completely failed to allay investor concerns over the ongoing electricity crisis.
The reason for this is the ongoing power crisis in South Africa, which has put investors off the country, she said. With no solution in sight from the government – and“The persistence of load shedding has eroded investor confidence in the domestic economy, with no government solution to end the damaging effect on the productive capacity of the economy in the near term,” Bishop said.
Additionally, with Transnet’s inability to meet the demand for its rail and port transport services – which is deteriorating – investor and business confidence has been further dented, in turn afflicting the rand, she said.Consumers in South Africa are also coming under strain, Bishop said. Energy regulator Nersa has approved an 18.65% increase in electricity costs this year, which will likely have an adverse effect on inflation.
However, Bishop warned that the second half of 2023 – if not the second quarter already – risks seeing higher fuel prices on a rapid reopening of the Chinese economy, which would put upward pressure on inflation.
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