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Ok. Got itThe 2023 Budget Speech included debt relief for Eskom while South Africa was added to the Financial Action Task Force greylist, which could affect investment in South Africa.
Reflecting on a centenary
On 1 March power utility Eskom marked 100 years since its inception in 1923. February also marked the passing of 100 consecutive days of rolling blackouts, with seven consecutive days of stage 6 load-shedding. It is therefore hardly surprising that energy availability and the consistency of its supply featured prominently in the State of the Nation Address, 2023 Budget and state-of-disaster announcement, and are indeed a driver of market movements.
The 2023 Budget confirmed a gross tax revenue overrun of R93,7bn relative to the 2022 Budget, enabling improved fiscal metrics for the financial year. R9bn was earmarked for incentives to support residential and business investment in rooftop solar. Government announced a debt relief arrangement (with conditions) for Eskom of R254bn, which will service the state-owned enterprise’s debt burden over the next three years. The funding arrangement accounts for the existing support to the entity, with an overall outcome that decreases expenditure but increases government borrowing. This means that the debt trajectory peaks and consolidates at a higher level of 73,6% and only in 2025/26. The comprehensive information on the transaction was arguably more than many had expected, while the embedded trade-off seemed to be broadly palatable to investors. Expenditure risks, however, remain key and still the biggest risk to the fiscus over the medium term.
Local price gauges continued to moderate, although food inflation is still prominent as a pressure point with further risk from load-shedding. Headline inflation for the year to January 2023 moderated further to 6,9%, with core inflation unchanged. Producer inflation also continued to trend lower.
The Financial Action Task Force (FATF) decided to classify South Africa as a jurisdiction under increased monitoring, adding it to the so-called greylist. Eight strategic deficiencies have been identified for the country and must be addressed by January 2025. While largely anticipated, greylisting is expected to increase compliance and transaction costs, with the potential to hamper capital flows and impact the country’s appeal as an investment destination. Even though the overall view on the Budget was broadly positive, the local bond markets faced a myriad of headwinds, with the FTSE/JSE All-bond Index declining by 0,9% in the month. The rand depreciated by approximately 5,5% against the US dollar, bringing the depreciation in 2023 to 7,9%, securing the rand a spot among the worst-performing currencies thus far this year.
Domestic equity markets declined over the month as the energy crises worsened and global markets took a tumble. The FTSE/JSE All-share lost 2,2%, with mixed performance from underlying sectors as rand weakness and results season prompted divergences. Industrials and financials ended the month in the green, while resources declined by 13,2%, with precious and industrial metal categories under pressure. The property sector lost further ground, recording -0,7% for the month.
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Nedgroup Private Wealth (Pty) Ltd and its subsidiaries (Nedbank Private Wealth) issued this communication. Nedgroup Private Wealth is a subsidiary of Nedbank Group Limited, the holding company of Nedbank Limited. ‘Subsidiary’ and ‘holding company’ have the same meanings as in the Companies Act, 71 of 2008, and include foreign entities registered in terms of the act. There is an inherent risk in investing in any financial product. The information in this communication, including opinions, calculations, projections, monetary values and interest rates, are guidelines or estimations and for illustration purposes only. Nedbank Private Wealth is not offering or inviting anyone to conclude transactions and has no obligation to update the information in this communication. While every effort has been made to ensure the accuracy of the information, Nedbank Private Wealth and its employees, directors and agents accept no liability, whether direct, indirect or consequential, arising from any reliance on this information or from any action taken or transaction concluded as a result. Subsequent transactions are subject to the relevant terms and conditions, and all risks, including tax risk, lie with you. Nedbank Private Wealth recommends that, before concluding transactions, you obtain tax, accounting, financial and legal advice. Nedbank Private Wealth includes the following entities:
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A monthly market overview gives you access to monthly market commentaries and analysis of the current market situation, both locally and internationally.