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Expanded BEE rules set to bleed the masses – Anthea Jeffery

Setting things to rights without serious consideration of the cost of the present context will inevitably aggravate an already very pear-shaped BEE public procurement policy. That’s essentially what Dr Anthea Jeffery, Head of Policy Research at the Institute of Race Relations, is saying here about the ‘upgraded’ BEE requirements of the Draft Public Procurement Bill, now out for public comment. She juxtaposes intended broadened access to the estimated R950bn in annual state procurement of goods and services, with statements that directly contradict the skewed and hugely expensive outcome of BEE policies – made by the actual guardians of the fiscus. Something is seriously amiss when once again, we witness ANC policies that embolden and encourage inflated quotes and sub-standard services and products in the name of corrective action. Or as Jeffery says, making rules that ‘benefit the few and harm the many.” It’s almost as if there’s a deliberate double standard at play in government behaviour; on one hand appoint all manner of commissions to uncover graft, corruption and fraud that peaked in the Zuma years, while on the other enacting laws that create the perfect environment for it all to continue. One could almost say they’re choreographing a macabre ballet. First published on The Daily Friend. – Chris Bateman

More BEE rules to benefit the few and harm the many

By Anthea Jeffery*

BEE public procurement policies have long harmed the millions of unemployed and disadvantaged South Africans heavily dependent on the state for vital goods and services. But instead of ending costly ‘tenderpreneurship’, the National Treasury is intent on ratcheting up its BEE requirements under the Draft Public Procurement Bill of 2020 (the Bill) – gazetted last month for public comment by 31 May, 2020.

The government is well aware of how badly preferential procurement has gone wrong. In 2010, for instance, Pravin Gordhan, then finance minister, lamented that the state was paying more for everything than a private business would: ‘R40m for a school that should have cost R15m, R26 for a loaf of bread that should have cost R7’.

In 2016 Kenneth Brown, then chief procurement officer at the Treasury, warned that between 30% and 40% of the state’s total annual procurement budget had become ‘tainted by fraud and inflated prices’.

In 2018 Mr Brown’s acting successor, Willie Mathebula, told the Zondo commission of inquiry into state capture that ‘the government’s procurement system was deliberately not followed in at least 50% of all tenders’. Moreover, once the usual tendering rules had been suspended on some spurious basis (a claimed emergency, for instance), ‘a contract which started at R4m was soon sitting at R200m’.

These abuses had a huge impact on service delivery, added Mr Mathebula, for the government was ‘the biggest procurer of goods and services, spending an estimated R800bn a year’. That figure has since risen to close on R950bn.

As far back as 2012, Gwede Mantashe (then ANC secretary general) urged BEE companies to ‘stop using the state as their cash cow by providing poor quality goods at inflated prices’. He also urged a halt to the procurement policies under which the government commonly paid R27 for a R7 bottle of water in its attempts ‘to create a middle class person who must have a business’.

Enormous uncertainty

Far from being halted, however, these policies are being greatly extended under the Treasury’s Bill.

The Bill creates enormous uncertainty about the new rules and how they may shift from time to time. The Preferential Procurement Policy Framework Act of 2000, which the Bill replaces, at least laid out the key principles. In essence, it gave BEE firms 10 or 20 empowerment points (depending on contract value), while stating that the remaining 90 or 80 points had to be allocated on price and efficiency.

By contrast, the Bill allows the finance minister to ‘prescribe a framework for preferential treatment’, which must include ‘a preference point system and applicable thresholds’ in order to advance black people, along with ‘women, youth, and people with disabilities’. No one knows how large these preferences might be, but 50 points for price and 50 for BEE are clearly feasible.

Under the minister’s framework, contracts will also be set aside for local service providers, domestic manufacturers, township and rural enterprises, and various SMEs. Bidders outside these categories will be barred from consideration, irrespective of how efficient and cost-effective they might be.

Under the Bill, the minister has major discretionary powers to change the preferential framework at any time by regulation. Though he must first publish a draft and invite written comments, allowing the minister to decide on the substantive rules bypasses Parliament and undermines the separation of powers. It also contradicts the Constitution, which says the framework for preferential procurement ‘must’ be set out in national legislation.

 

The Bill will make it even more difficult for businesses to predict how preferential procurement rules may change from time to time. Yet already firms find the uncertainty around BEE a major barrier to investing and doing business in South Africa. As the local subsidiaries of American companies pointed out in 2017, ‘no one plays a game where the goal posts keep shifting’ all the time.

In addition, the Bill will prohibit firms from contracting with the state at all unless they ‘comply with the Employment Equity Act’ (EE Act) of 1998. The EE Act is soon to be amended to give the minister of labour and employment the power to set binding racial targets for companies in different sectors. These targets are sure to be based on demographic representivity and to ignore the limited skills and experience of the black population, almost half of which is under the age of 25.

Powers not explained

Under the Bill, the minister will also be empowered to make regulations setting ‘market-related price ceilings for goods and services’. This power is not explained, but the wording suggests that the minister will be able to impose price controls in many contracts with state entities, including SOEs.

The minister’s power might thus be used to set the ‘developmental’ prices for Eskom coal that the government has failed to achieve under its proposed amendments to mining legislation. (These amendments were put before Parliament in 2013, but never successfully enacted.) Again, this would allow the executive to bypass the legislature and further undermine the separation of powers.

In addition, the Bill seeks to reduce spiralling procurement litigation by adding more layers to a mandatory dispute-resolution process. A dissatisfied bidder must first ask the relevant state institution to reconsider its decision. Thereafter he must apply to a new Public Procurement Regulator to examine that decision. Only once this has been done, may he seek relief from a new Public Procurement Tribunal. And only after the Tribunal has made its ruling may he approach the courts for judicial review under the Promotion of Administrative Justice Act (PAJA) of 2000.

The minister will appoint all the members of the new Tribunal, which will lack any vestige of institutional autonomy. Its hearings will be conducted as informally and ‘expeditiously’ as possible, and it will not be bound by the normal rules of evidence (despite their importance in securing credible testimony).

Dissatisfied bidders will need deep pockets to traverse all these steps in the dispute-resolution process before they can finally seek relief from the courts. In practice, many are likely to give up along the way.

Who will benefit from Bill? A host of township, rural, and other small enterprises are clearly to be given access to the R950bn public procurement pot as well. A broader range of people may be drawn in, but political connectivity will doubtless still largely determine to whom state contracts are awarded.

A narrow group of BEE ‘tenderpreneurs’ will draw lucrative ‘rents’ from the additional preferences. Price inflation will escalate, leaving less revenue available to fund delivery. The poor, as ever, will suffer the most, while the constitutional requirement for ‘transparent, competitive and cost-effective procurement’ will recede still further. So too will any realistic prospect of increased investment, growth, employment, and prosperity.

Article by BizNews

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Joburg’s R3bn wasteful spending revealed in auditor-general’s report

Johannesburg – A massive R3.5billion in unauthorised, irregular, fruitless and wasteful expenditure has highlighted the alleged dire state of Joburg’s finances.

The auditor-general revealed that Joburg’s wasteful and irregular expenditure worsened by R758million in the 2018/19 reporting period, compared to the previous year.

The city has also been flagged for not paying its creditors within 30 days, which is a repeat offence that the auditor-general has highlighted in his previous report, including that there was a lack of competitive bidding processes for Joburg contracts.

The auditor-general revealed that goods with the value below and above R200000 were procured without inviting competitive bidders, in line with supply chain regulations.

The finding by the auditor-general appears to corroborate what Joburg mayor Geoff Makhubo alleged about the dire state of the city’s finances.

At a briefing last month, about two months after he succeeded Herman Mashaba as mayor, Makhubo claimed the city was on the brink of financial ruin and blamed the DA-led coalition government for the situation.

Makhubo formed an ANC-led coalition government in December, following the resignation of Mashaba from his mayoral position and the DA.

“We can confirm with certainty that the DA-led administration in the City of Johannesburg has brought the city to near financial collapse and created an environment where maladministration bordering on fraud and corruption has thrived,” Makhubo said at the time.

Mashaba, however, slammed these claims, saying Makhubo had been predicting collapse since August 2016, when the DA took over Joburg.

“Contrary to these allegations, the pre-audit financial statements for the 2018/19 financial year reflected a significant improvement in the City’s financial health and liquidity, with its closing cash balance increasing from R2.2billion at the end of 2017/18, to R5.3billion by the close of 2018/19,” Mashaba said.

But alleged maladministration was also revealed by the auditor-general, where a supposed lack of consequences and repercussions for bad financial management in the city was highlighted.

Joburg spokesperson Nthatisi Modingoane acknowledged that the city was not paying all its creditors within 30 days, but said that it was remedying this anomaly.

“The City of Johannesburg currently pays 90% of its creditors within 30 days. There are several reasons for non or delayed payment, which include queries and disputes with suppliers on the delivery of goods and services; incorrect invoices; and incomplete documentation for payment processing.

“The city is actively alert to the impact of non or delayed payment on creditors – specifically small and medium enterprises – and is continuously looking at improving all its supply chain management processes,” Modingoane said.

“The city is implementing several remedial actions. These include the re-implementation of a system to streamline processes – making them more effective and efficient.

“This will be coupled with city-wide training of finance staff on the improved payment systems.”

On the action to be taken to stop wasteful spending, Modingoane said: “The city has already implemented consequence management through investigations and enquiry of fruitless expenditure.

“Where individuals are found guilty, disciplinary action is implemented – including the recovery of monies deemed irregular, fruitless and wasteful expenditure.”

@khayakoko88

The Star

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New ‘rule changes’ South African drivers should know about

The Competition Commission has published Draft Guidelines for the Automotive Aftermarket Industry.

The automotive aftermarket industry is the market for motor vehicle spare parts, tools and components after the vehicles are sold to consumers. This market also includes maintenance and repair services sold by dealerships to consumers.

Currently, most new vehicle owners in South Africa are locked into using a vehicle manufacturer’s service centres, repair shops and parts in ‘embedded’ motor and service plans.

If these owners decide to use an independent service or repair provider of their own choice, vehicle manufacturers punish them by voiding their warranties.

This has also locked out independent workshops and service centres, thereby limiting small-to-medium-sized enterprises’ abilities to transform and grow the sector.

“The guidelines have been labelled as controversial by some bodies, with some claiming that the guidelines could have serious negative consequences for consumers and the country’s road safety initiatives,” said law firm Cliffe Dekker Hofmeyr.

“Whilst the guidelines are not binding, they seem to stipulate a set of ‘rules’ that will apply to Original Equipment Manufacturers (OEMs), service providers (i.e. those who service and maintain motor vehicles); dealers; insurers; and independent service providers or ISPs (i.e. those service providers not appointed by an insurer or OEM).”

Below Cliffe Dekker Hofmeyr outlined the biggest changes and what it means for motorists.

Your choice of mechanic

The guidelines aim to create choices for consumers when selecting a service provider to carry out in-warranty services and repairs.

In terms of the guidelines, manufacturers and insurers must approve any service provider who meets required standards and specifications.

Further, the approved dealers and service providers must not be prohibited from carrying out work for other manufacturers/insurers.

Manufacturers must also inform customers that they can conduct in-warranty services at service providers, but the manufacturers are not obligated to pay for in-warranty services at these ISPs.

Your choice of spare parts

In respect of spare parts (i.e. replacement parts for worn, defective or damaged components of a motor vehicle), manufacturers and dealers must allow customers to fit spare parts which are not manufactured by the OEM (so called “non-original spare parts”) in instances where the warranty on that specific part has expired.

In such situations, the use of non-original spare parts may not void the warranty on other parts in the vehicle which are still under warranty.

Manufacturers and dealers must also make original spare parts available to other service providers (unless those items are related to the vehicle’s security systems) and manufacturers cannot restrict the ability of providers to resell spare parts.

No more bundling

The guidelines also restrict the “bundling” of value-added products (such as maintenance plans, service plans and extended warranties) with the sale of new motor vehicles.

This means that when purchasing a new motor vehicle, a consumer can opt not to take out a maintenance plan or can opt to purchase any maintenance plan or value-added products from another service provider, without voiding the warranty on the vehicle.

Consumers must also be allowed to select the duration of a value-added product and must be free to purchase such products at any time after the purchase of a motor vehicle.

Costs can’t be separated 

The guidelines also state that dealers will be required to set out separately the costs of the motor vehicle from the cost of each separate value-added product as well as the information regarding the service and maintenance for that motor vehicle.

In addition, the dealers must disclose their sales commissions with the manufacturers and other third parties.

These provisions will require dealers to ensure that all the necessary information is disclosed to the consumer.

Article by BusinessTech

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Land expropriation: Deadline to amend Constitution extended… again

The deadline for parliament’s ad-hoc committee to make amendments to Section 25 of the constitution and allow the expropriation of land without compensation, has been extended.

While the deadline to draft the amendment was initially due to be the end of March 2020, the National Assembly unanimously passed a motion on Thursday, 5 March 2020.

The final day for the submission will now be 29 May 2020.

The process has not been without challenges, since being passed in parliament in 2018. In January 2020, various political parties and organisations made requests to the committee, asking that the comment on the draft bill be extended by a month to the end of February.

Ramaphosa on compensation without compensation

“At the traditional leaders’ indaba in 2017, it was resolved that there should be a presidential summit on land. I’m pleased to say that this summit will take place this year”, he said when he opened the National House of Traditional Leaders in Parliament earlier this month.

“The date for the closing of submissions on the 18th Constitutional Amendment Bill, which seeks to amend Section 25 of the Constitution for our country, will soon be upon us. This in many ways, will be a crucial time for the land reform process. Traditional leaders were at the forefront of making contributions on this matter”, Ramaphosa said.

South Africans urged to participate in the hearings

In light of the sometimes low turnout at the hearings, the ANC’s chief whip Pemmy Majodina has urged South Africans to take part in the process and let themselves be heard.

“It is crucial that South African citizens have a say on how the expropriation of land should take place, therefore, we encourage the public to participate in numbers so that their voices can be heard”, Majodina said.

“We wish members of the ad hoc committee a successful and productive programme”

The committee is holding hearings in Winterton, KwaZulu-Natal on Saturday, 7 March 2020.

Both the ANC and Economic Freedom Fighters (EFF) have been pushing for the expropriation of land without compensation, however other parties, the Democratic Alliance (DA), Freedom Front Plus and African Christian Democratic Party (ACDP), have fiercely opposed it and are arguing that such a move would prove to be detrimental to the country’s food security and the economy.

Article by The South African

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ANC and EFF differ on which land should be expropriated without compensation

The ANC and EFF remain at loggerheads over which land should be expropriated without compensation, as the second round of public hearings gets under way.

ANC NEC member and spokesperson Pule Mabe was left red-faced on Thursday morning during a panel discussion hosted by the Black Business Council at its annual summit under way in Midrand.

A two-thirds majority — which the ANC and EFF collectively have — is required to amend the constitution, and in this instance the Bill of Rights as well, to allow for expropriation without compensation.

But Mabe was unable to articulate the ANC’s position when asked which land the party intended to expropriate, given that land owned by the state would not be sufficient to satisfy land hunger.

“There are public hearings under way. These hearings are important to allow us to give a fair undertaking on how the ANC views expropriation of land without compensation. There are areas where we agree across political parties. Political freedom without economic freedom is not complete freedom, we need to give people their rights to land so they can participate meaningfully in the economy,” Mabe said.

The known ANC position is that land would be expropriated under specific instances including: portions of farms with labour tenants, land owned by absent landlords, land held for speculation and land that is owned by the state or state-owned enterprises.

These circumstances are all outlined in the draft of the Expropriation Bill, which President Cyril Ramaphosa said must be speedily finalised during his response to the debate on the state of the nation address in June last year.

Ramaphosa said, “Expropriation is an important land acquisition strategy. It is important because it enables us to conduct land reform in a proactive and planned manner. This frees us from a wait-and-see approach dependent on market sales. Expropriation without compensation, in defined circumstances, allows us to do so at a cost that is reasonable for the South African people. But we must not lose sight that it is but one instrument in a much broader toolbox to achieve agrarian reform and spatial justice.”

Meanwhile, the EFF insists that all land must be nationalised. EFF leader Julius Malema told delegates at the Black Business Council summit that his party would not back down from its demand for all land to be nationalised.

Responding to a question, he said that an EFF government would not be deterred by threats of sanctions by the likes of the US government. He added that the EFF wanted a different model to that which was adopted in Zimbabwe.

“Land in Zimbabwe was not nationalised, it was given to politically connected individuals who were leaders of Zanu-PF; the state did not become the custodian of the land … so that which we are calling for is not the same as in Zimbabwe.

“Ours must be done within constitutional provisions, hence the call we made in parliament for the amendment of section 25 of the constitution.

“If America doesn’t like what people are doing with their constitution then it has (itself) to blame. You can’t sanction a democratic process, that would be an undemocratic process by America. We should not be threatened by what will be a democratic process. There can only be sanctions if there is an undemocratic process and violence,” Malema said.

Other panellists included UDM president Bantu Holomisa, DA policy head Gwen Ngwenya and IFP president Velenkosini Hlabisa. Parties were unanimous in their call for the energy crisis to be resolved as it worsened SA’s economic woes.

Article by Times live

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Government again spends more on VIP protection than land reform

South Africa will once again be spending more on protecting the president, former presidents, their spouses, the deputy president, “persons related” to the president and deputy president, and “local and international dignitaries” than on land reform.

This came to light in the national budget released by Finance Minister Tito Mboweni on February 26, which shows that the budget of R3.44 billion for VIP protection and related activities is larger than the R2.93 billion set aside for land reform for the 2020/21 financial year.

And the difference between the two allocations is expanding: the budget for protection and security has grown 9.34%, while that for land reform has been reduced by 5.8%.

Although the land reform budget is expected to increase over the medium term, it is not projected to overtake that of protection and security in the next two financial years.

This trend follows a pattern where the budget for protection and security has once again outsized that for land reform.

If the trend continues, the budget for protection and security will exceed that for land reform by just under R400 million in the 2022/23 period.

This is a big change from when the government spent about R487 million more on land reform than protection and security in 2016/17.

The rise in the bill to keep the president, the deputy president, dignitaries and related parties safe comes as the government is going through a period of belt-tightening.

Mboweni wants to cut R167 billion in spending and is pushing to do so through big cuts to the public wage bill.

The cut in the land reform budget comes as government is under concerted pressure to accelerate land reform.

Last month President Cyril Ramaphosa said in his State of the Nation address that addressing the land issue would be a priority for the government.

“This year, we implement key recommendations of the Presidential Advisory Panel on Land Reform and Agriculture to accelerate land redistribution, expand agricultural production and transform the industry.”

The controversial issue around changing the constitution to allow for land expropriation without compensation would also be addressed urgently.

“Government stands ready – following the completion of the parliamentary process to amend Section 25 of the Constitution – to table an expropriation bill that outlines the circumstances under which expropriation of land without compensation would be permissible,” he said.

Article by Money Web

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Eskom and SAA on road to recovery, says deputy president

Despite these debt-ridden SOEs potentially crippling the economy, David Mabuza is confident of turning both around

Deputy president David Mabuza says the government remains confident that Eskom and SAA can be returned to profitability despite the current challenges the two state-owned entities (SOEs) face.

During a Q&A session in the National Council of Provinces on Tuesday, Mabuza reiterated that the government has no intention of disposing of SAA, despite growing calls for the state to sell the debt-laden airline.

The crises at Eskom and SAA have put the government under pressure to show its intent on the restructuring of SOEs and reducing the financial burden on the fiscus.

In his budget speech last week, finance minister Tito Mboweni allocated R16.4bn to SAA specifically for the repayment of debt and interest. Eskom was allocated close to R44bn, which will also go towards debt costs. This was in addition to the R49bn the embattled power utility recently received.

While the government has resorted to putting SAA into business rescue, it faces potentially bigger problems at Eskom, the power utility that economists have identified as the biggest single threat to the economy. This is mainly due to its staggering debt of nearly R500bn.

The power utility could also cripple the economy through load-shedding and power outages. Ratings agencies have cited SOEs, including Eskom and SAA, which carry debts of close to R700bn between them, among the major risks to the sustainability of the nation’s finances.

Mboweni has previously suggested that SAA should either be sold or closed down as it does not have a future in its current form. “We are not looking at privatising SAA. We still think we can deal with the challenges faced by the airline,” Mabuza said on Tuesday.

The national carrier recently stopped flying to several domestic and international destinations in a bid to cut costs. It has amassed just more than R18bn in losses since the 2015 financial year and is seeking about R22bn in government bailouts over the next three years.

Mabuza said the cancellation of the routes is temporary.

“This too will pass, and SAA will be stronger. We will not give up routes … the business is about routes. Any cancellation of routes is temporary,” the deputy president said, adding that selling off SAA is not on the table.

“That is why we have [put in place] business rescue practitioners. That means the business is facing problems and must be rescued. We cannot abandon the business,” Mabuza said. “South Africans want this business; we do not think we have reached that point [of wanting to sell]. SAA belongs to the people of SA.”

Mabuza also said the government remains confident that Eskom can be turned around under its new leadership.

“The biggest challenge is the Eskom debt. This is being discussed at the National Economic Development and Labour Council (Nedlac) … the workers in our country are amenable to rescuing our public enterprises. If we deal with the debt issue then we are out of the woods. But I am worried about the culture of non-payment. People must pay for services.

Article by Business Day

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Opposition to expropriation without compensations grows

section-25-land-expropriation

Though there has been  a decline in public participation on the proposed amendment of the constitution to make it easier for the state to expropriate land without compensation, a majority of participants still oppose the amendment, according to an analysis by an NGO.

The land expropriation issue has polarised the country and spooked investors.

Parliament’s ad hoc committee looking into the matter has published the draft bill to amend section 25 to allow for expropriation without compensation. It aims to tackle skewed land ownership patterns dating back to the apartheid and colonial eras. The ad hoc committee is holding oral public hearings across the country.

According to the NGO, Dear South Africa, which has been facilitating public participation, input from the “in favour” camp has significantly decreased while the “opposed” group has grown. Of the 190,573 who participated in the latest round of public hearings via written submissions, 171,655 (90%) oppose the amendment, 14,870 support it and 4,048 support it partially.

“Though we have seen a concerning overall decline in public participation in this third round, we do note an increase in opposition to the constitutional amendment,” said DearSA MD Rob Hutchinson.

“In the first round in June 2018, we received over 100,000 public comments in favour of amending the constitution — 44% of the total participants. This latest third round has seen only 14,870 (8%) directly supporting the amendment,” Hutchinson said.

The ANC recently proposed a drastic change shifting the arbitration powers from the courts to the executive in terms of compensation to be paid. The ANC’s Mathole Motshekga, who chairs parliament’s ad hoc committee on land reform, said in January that if the courts are to determine compensation “it will take another 25 or 50 years to sort out land reform”.

The ad hoc committee will return the bill to the National Assembly after considering all the public input. The members of the National Assembly will then vote on the proposed constitutional amendment. If passed, the bill will then be brought before the National Council of Provinces (NCOP) for concurrence.

article by Business Day

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Virgin Active doesn’t want an ‘unprecedented internationally’ fitness regulator in SA

  • Gym giant Virgin Active says South Africa doesn’t need a proposed Fitness Industry Regulatory Authority – and consumers shouldn’t have to pay for it.
  • The government is proposing a specialist regulator with the ability to accredit personal trainers and gyms, and shut them down.
  • But the idea is “unprecedented internationally”, Virgin Active says, and self-regulation plus enforcing existing laws is a better idea.

South Africa does not need a fitness regulator, gym giant Virgin Active South Africa says, and consumers shouldn’t have to pay for “further unneeded government regulation”.

The company, which operates 136 gyms and says it has 800,000 members in South Africa, published the broad strokes of its objection to new legislation that is currently in draft form.

The National Sport and Recreation Amendment Bill proposes giving the minister of sport more direct control of sporting codes, seeks to create new sporting bodies (including one to regulate “combat sport”) – and would create a Fitness Industry Regulatory Authority.

That body would have dominion over anyone who helps others get and stay fit in exchange for money, and the power to classify and close down anything resembling a gym.

Why, exactly, gyms would be closed down is not clear from the draft legislation, but the implication is that the regulator would be concerned primarily with safety.

Such a body would be “unprecedented internationally”, Virgin Active says, and is unnecessary.

“There already exist numerous other laws which comprehensively govern the industry and protect the consumer,” Virgin Active said in a statement on its submission about the draft law.

“Industry specific regulation provides no additional value to the consumer or the industry, but will instead add more cost for government, the industry, the individuals that operate within the industry, and ultimately the consumer.”

The company argues that smaller operators in particular will suffer from an administrative burden under the proposal. It also says government should be encouraging investment in the fitness field, to counter a rise in lifestyle diseases such as obesity and diabetes.

It wants self-regulation instead, “combined with proper enforcement by existing state agencies of legislation already in place”.

Virgin Active did not say whether it had commented on the proposal that the fitness regulator create a dispute-resolution mechanisms, which is anticipated to deal with complaints that difficulties cancelling gym contracts.

Article by BusinessInsider

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ECONOMIC WEEK AHEAD: Another recession is on the cards for SA

Economists forecast GDP contraction of 0.2% for the fourth quarter of 2019

The state of the economy will be at the forefront this week, with some economists forecasting that SA may have slid into another recession.

Stats SA is expected to release the GDP print for the fourth quarter of 2019 on Tuesday. A contraction of 0.2%  is the median forecast among 12 economists polled by Bloomberg. The economy, which the Reserve Bank expects to have grown by only 0.4% in 2019, shrunk 0.6% in the third quarter, its second contraction in 2019. The most recent time SA entered a recession was in the second quarter of 2018.

The persistence of load-shedding and the government’s battle to curb its debt and bring in revenue have worsened concern that the local economy could go further in its downward trajectory.

“We expect those sectors that are inextricably linked to load-shedding — such as utilities, manufacturing and even transport via crucial supply chain networks — to underperform,” FNB economists said in a note.

“Based on the high-frequency data from Stats SA, gold mining production on a sequential basis may well prevent the mining sector from being a detractor from economic growth in the quarter. Overall, economic growth remains lacklustre and only structural reform will be able to lift potential growth meaningfully over time.”

Lowered expectations

International bodies, including ratings agency Moody’s Investors Service, have slashed SA’s economic growth forecast for 2020. Moody’s recently lowered its outlook for SA from 1% to 0.7%, citing load-shedding and weak domestic demand as crucial issues. The ratings agency is expected to give a credit ratings review on SA in March, which could cause SA to lose its last remaining investment-grade rating.

The IMF and the World Bank have also lowered their growth expectations for SA to below 1%.

The IMF has warned that the coronavirus outbreak poses a threat to the recovery of the global economy. The number of cases reported worldwide had climbed to more than 85,000 by Sunday.

On the back of a grim domestic economy, conditions in the  manufacturing sector are expected to have declined in February. The estimate among economists polled by Bloomberg is for the Absa manufacturing purchasing managers’ index (PMI) to have declined to 45.1 index points in February from 45.2 in the previous month. This would make it the seventh consecutive decline.

“We expect another contractionary reading in the February release as the sector has been marred by intermittent power outages, weak domestic demand and a potential dampening of export sales amid the coronavirus outbreak,” FNB economists said.

The current account deficit as a percentage of GDP is expected to have narrowed further in the fourth quarter after decreasing to 3.7% in the third quarter.

Vehicle sales for February will also be released this week.

Artice by Business Day

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