[Opinion] ROB ROSE: Smart money braces for stage 8

Investment pundits are no oracles, obviously. But with their fortunes on the line, their instincts are often an accurate leading indicator of where stress lies in the economy.

Which is why Bank of America Securities’ (BofA Securities) monthly survey of South Africa’s fund managers, released this week, is so alarming.

In particular, the survey, which was completed by 14 local fund managers between April 6 and 13, reveals that they expect load-shedding to peak at between stage 7 and 8 this winter.

John Morris, the analyst who wrote the report, tells the FM: “This was the first time we asked that question, but it’s clear many of the fund managers are concerned about what will happen to the economy, should load-shedding descend to levels 7 and 8.”

As they should be. Effectively, that would mean between 7,000MW and 8,000MW being cut from the grid — a really serious stage of affairs given that in April, total demand sat at about 30,000MW. Or, put another way, the lights in your home will be off between 11½ and 13½ hours a day.

These views highlight the vast chasm between what the politicians are saying and what many who are actually navigating the economy believe is possible.

Just this week, mining minister Gwede Mantashe declared on 702 that “technically, it is possible” to end load-shedding this year, reiterating his claim in early January that “it will take us six to 12 months to sort the issue, if we pay attention”.

It’s a sentiment expressed by other cabinet officials too, even if new electricity minister Kgosientsho Ramokgopa has now conceded, in contrast to his early fighting talk, that load-shedding will still be with us by the end of the year.

The fund managers are far less optimistic. The survey shows they believe the time frame for eliminating load-shedding, through renewable and self-generation projects, is at best five years.

Article originally appeared here.

Equally, 64% of the fund managers do not see “an operational solution” to Transnet’s woes in the next two years — a finding roughly in line with the 65% who felt there was no such solution to Eskom. In other words, without any private-public partnership, or lightning bolt from the god of logistics, we’re stuck.

Again, this underscores the gulf in optimism between the private sector and the state.

On this point, Morris tells the FM: “There may be a void between what the fund managers are saying, and what the politicians are saying, but the views that came out in this survey accord with what the energy experts believe, which is that there doesn’t seem to be much chance of a quick turnaround.”

This prognosis also accords with that of the Centre for Risk Analysis (CRA), a risk advisory firm which said last month that a “long dark winter” loomed, with the country likely to be hit by 43 weeks of severe blackouts this year.

“Since the beginning of 2023, there has been only a single 24-hour period free of rolling blackouts in South Africa,” wrote CRA director Chris Hattingh. “Eskom’s latest energy outlook [up to March 20] suggests this is likely to continue, with the state electricity company being unable to meet the demand for electricity during any week through to at least March 2024.”

Speaking to the FM this week, Hattingh says the fund managers’ views corroborate what’s happening on the ground. “It’s the inability to keep up with the maintenance schedule, as well as the unplanned outages. The open cycle gas turbines are not designed to run 24/7, so with the best will in the world, people can’t keep up — it’s an avalanche,” he says.

But, he adds, when cabinet ministers provide clearly unrealistic time frames for fixing the issue, it only adds to the risk premium placed on the country, while simultaneously knocking the government’s credibility.

“If the politicians told everyone how bad it really is, and what the diagnosis is, people could plan for it, even if they’re not happy. But constantly shifting the goalposts reduces the level of trust in the political leadership,” he says.

The imperative to rebuild trust is also vital if President Cyril Ramaphosa hopes to come close to hitting his lofty plan to woo R2-trillion in investment over the next five years.

On this note, BofA Securities has held an annual investor conference at Sun City for many years, which it resumed in March after a three-year Covid-induced hiatus. This time, about 300 people attended, and of the fund managers who arrived, about 45% were from overseas firms.

Morris says that, as expected, much of the conversation revolved around Eskom, and the implications for growth. “For a lot of the foreigners, who haven’t been back since 2019, it was a bit of an eye-opener to see where South Africa is right now. Clearly they’re interested in South African companies, but they want growth. That’s why, structurally, we need to get economic reform, we need to sort out our electricity, and we need to fix our logistics.”

Despite the country’s problems, foreign investors haven’t thrown in the towel on South Africa, which represents a clear opportunity for Ramaphosa’s government.

Of course, to seize that opportunity, the country’s political leaders need to make reality their friend, rather than sparring with it at every turn.

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