Fuel relief for a while as key sectors fail to lift SA’s sinking boat

● As economists lower SA’s GDP forecast for the year, the Western Cape agricultural sector, which was a significant contributor to the surprise plunge in second-quarter growth figures this week, is bracing itself for a possibly dire start to next year.

“I expected it to be worse,” said Carl Opperman, CEO of Agri Western Cape, about the sector and SA’s GDP growth, which Stats SA published this week.

The Western Cape has between 4,500 and 5,000 farmers, who farm wheat, deciduous fruit, wine, meat, wool, milk, vegetables, rooibos tea, honeybush and ostriches.

“We expected this to be quite a devastating year,” Opperman said.

Severe drought conditions starting in 2015 brought water restrictions. Vegetable production was halted as water was prioritised for humans, animals and long-term crops. Grain farmers who have defaulted on debt were unable to secure finance for the planting season. On the west coast wine route up to Vredendal, some farmers did not have grapes to deliver to buyers due to the drought but still had to pay overheads.

Opperman said livestock herds dipped by as much as 50%. A reduction of 600,000 ewes, at R4,000 each, translates into a VAT loss of about R360m. The loss of the lambs that might have been born to these ewes — at about R2,000 a head — brought a resultant VAT loss of R180m.

“So the government has also lost a helluva lot of money on this drought,” he said.

The sector is anxiously awaiting better rainfall and the lifting of restrictions on irrigation to bring recovery. Even though the Karoo areas, the west coast from Vredendal up to the Northern Cape, Oudtshoorn and the Overberg area from Bredasdorp to Plettenberg Bay remain under drought, the government has recalled drought relief.

Agricultural economist Wandile Sihlobo forecast a “rebound to positive territory in the third quarter of 2018” for the sector as a whole, which contributes only 4% to GDP but significantly affects the economy and inflation. A large maize harvest was expected, including a record soybean harvest and improvements in sugarcane and livestock.

Farming production plunged 29.2% in the second quarter, weighing on the GDP’s 0.7% contraction that sent SA into recession, its first since 2009. Mpumalanga’s agricultural sector also contributed negatively to GDP as crops were damaged by severe hailstorms.

Credit ratings agency Moody’s lowered its 2018 growth forecast for SA to between 0.7 and 1% this week.

Weaker-than-expected GDP “adds to the fiscal and monetary policy challenges posed by the 20% depreciation of the rand against the US dollar so far this year. On the fiscal side, we had already anticipated the government would miss its fiscal targets this year due to low tax performance, higher-thanbudgeted interest payments and wage bill. Slower growth will further challenge the task of the National Treasury,” it said.

The woes in the agricultural sector have contributed to rising food prices, which Absa economists said are subject to some upside risk towards the end of this year and next year as an El Niño, associated with drought, is brewing.

El Niño is a series of climatic changes affecting the globe every few years, characterised by the appearance of unusually warm weather or, in some regions, unseasonably heavy rain.

Food constitutes 17.2% of the inflation basket. This year consumers have also endured higher administered prices, a VAT hike and fuel price increases.

Consumer spend, contributing 60% to GDP, shrank in the second quarter.

Energy minister Jeff Radebe’s intervention this week to cap the fuel price hike at 5c instead of 25c was aimed at relieving consumers. The move, though, has been criticised as populist pandering and one that should have been a policy discussion involving the cabinet.

The intervention will cost the state about R500m, which will be paid out of the fuel levy account. This fund is used to balance over- and underrecovery of the petrol price. It is unclear how the government will replenish the fund.

Absa economists Peter Worthington and Miyelani Maluleke said the government had no fiscal room to cut fuel taxes or subsidise fuel prices and “in the long run it will ... have to revert back to full cost recovery”.

Moody’s said heightened inflationary concerns meant the Reserve Bank faced “increasingly challenging decisions from an acceleration in inflation, driven in part by petroleum prices and rand depreciation”.

The Reserve Bank’s monetary policy committee meets from September 18 to 20.

I expected it to be worse. We expected this to be quite a devastating year

Carl Opperman

CEO of Agri Western Cape

Slower growth will further challenge the task of the National Treasury

Moody’s

Credit rating agency