Weaker rand fails to narrow current account
THE RAND is proving to be a double-edged sword for the nation’s current account deficit.
While the currency’s slump to a 13-year low this month against the dollar should be benefiting exports, that is being offset by rising import costs at a time when Eskom is buying more diesel to run emergency gas turbines because of a power shortage.
The weaker rand has pushed inflation to the highest this year and fuelled a sell-off in bonds. An index of local currency debt lost 3 percent for dollar investors this quarter, compared with average gains of 0.4 percent among 31 emerging markets.
The rand’s drop probably did not boost exports enough to narrow the deficit on the current account in the first quarter. A central bank report due today will show the shortfall unchanged at 5.1 percent of gross domestic product, according to the median estimate of 15 economists.
“With Eskom’s operation of diesel-powered stations, it definitely will push the oil import bill higher,” Isaac Matshego, an economist at Nedbank Group said on Friday. “The weaker rand is definitely putting pressure on the import bill.”
South Africa ran a R32.6 billion shortfall on its trade account in the first three months of the year, compared with R27bn in the same period last year, according to data from the SA Revenue Service.
Eskom says it will need an additional R10.9bn to import diesel in 2015 as it struggles to meet demand for electricity.
Power crisis
The utility is running diesel plants to augment power supply and limit blackouts. Eskom has increased rationing of electricity since November because of plant breakdowns and delays in bringing new facilities online. The power crisis is stifling factory production and curbing the ability of manufacturers to boost exports and take advantage of the weaker rand.
Finance Minister Nhlanhla Nene estimates the electricity shortage will limit economic growth to 2 percent this year, short of the 5 percent the government says the country needs to slash a 26 percent unemployment rate.
South Africa, and the rand, are also vulnerable to a reversal of the capital inflows that fund the current account deficit as investors prepare for the US Federal Reserve to increase interest rates this year.
Foreign investors reduced purchases of South African bonds to R128 million last month from R15.2bn in April. The yield on the benchmark rand bond due in December 2016 rose to 8.47 percent last week, the highest in 14 months.
“Speculation surrounding the start of Fed policy tightening has sparked a sell-off across emerging market assets, and sustained pressure on South Africa’s bonds,” Anisha Arora at London-based 4Cast said last week. “It is difficult to expect a narrowing of the current account balance when sentiment towards South Africa remains weak, given the persistent issues with power supply.” – Bloomberg STEEL Valley communities in the Vaal Triangle want Africa’s biggest steel producer to compensate thousands of victims of pollution and to rehabilitate the environment and aquatic ecosystem.
Steel Valley is the country’s steelmaking hub, south of Johannesburg, around Vanderbijlpark and Vereeniging, where steelmaking giant ArcelorMittal South Africa (Amsa) operates.
The Supreme Court of Appeal ordered Amsa to release the 2003 environmental master plan for its Vanderbijlpark steel plant to the Vaal Environmental Justice Alliance (Veja) in a hard hitting judgment in November.
Expert advice
“Veja is in the process of securing advice from international scientific experts and local legal experts on possible claims and remedies that arise as a result of Amsa’s pollution,” Samson Mokoena, the co-ordinator at Veja, said yesterday during a press conference in Johannesburg.
Mokoena said Amsa had a moral obligation to rehabilitate the area where residents had complained of traces of oil in borehole water, as well as a smell, as far back as 1996.
“The community does not have a way out of Steel Valley. The children became sick, people suffer from kidney failure and many have cancer from drinking the water,” he said.
Amsa’s manager for corporate communications and branding, Kesebone Maema, said the company had not had an opportunity to study the contents of the documents issued at
yesterday’s press conference.
Progress
“Only after we have studied the documents will we be in a position to provide a response. We are still hopeful that we will be able to work with the various stakeholders, including Veja and Groundworks, to jointly address the concerns that they may have. It also needs to be stated that good progress has been made to date in mitigating the risks that stakeholders were most concerned with at the time.”
Amsa, previously known as Iscor, had handed over the 8 000 page document to community lobby group Veja in December after a long wait, Victor Munnik, a senior researcher at the University of the Witwatersrand’s Society, Work and Development Institute (Swop), said yesterday.
“They have sat with information and kept it secret for 12 years. This court case shows the ability of communities to fight pollution,” Munnik said.
The master plan is a series of specialist environmental re-
Amsa refused to make its plan available claiming that Veja had not demonstrated its right to access the plan, and the matter was taken to the South Gauteng High Court in Johannesburg, where the court found in favour of Veja. Amsa refused to make the plan available and took the matter to the Supreme Court of Appeal.
Robyn Hugo, an attorney at CER, said Amsa’s main argument was that the master plan was not required for the protection of Veja’s constitutional rights. “Amsa also argued that the plan was outdated and irrelevant – compiled for the purposes of litigation that Amsa was involved in.”