Press review: South-African economic news from the 28h of July to the 15th of August.

Here is a short summary of the major economic news of the past two weeks in South Africa.

The Cap40 team will now regularly publish news from the French consulate in Pretoria in order to give you fresh insights on the most important economic matters in the country and region.

 

NERSA to approve further electricity tariff increase.

Given the significant financial difficulties faced by Eskom, and after NERSA disclosed that the national company had under-recovered R7.82-billion in revenue between 2010 and 2013, electricity tariffs are expected to increase by more than the 8% per year already acted. An adjustment in the tariff increase for the financial year 2015/16 is expected to be implemented, ranging between an additional 2 to 5 percentage points.

Eskom welcomed the decision but has not communicated on the topic yet, as the decision regarding the liquidation of the R7.82-billion under-recovery is still to be made, and will have an impact on the additional tariff increase.    

 

The strikes in the metal and engineering sector has officially come to an end.

After a four-week long strike, NUMSA (The National Union of Metalworkers of South Africa), the main trade union of the sector, has eventually accepted the offer made by the employer’s organization SEIFSA (the Steel and Engineering Industries Federation of South Africa). The agreement entails a 10% annual increase in the workers’ basis wages.

The agreement between NERSA and SEIFSA puts an end to a strike followed by 200,000 workers in the metal, engineering and automotive industries. This strike has proved critically detrimental to the South-African manufacturing sector. Indeed, some assembling plants have been obliged to close-off, and critical national-interest projects such as the construction of the Kusile and Medupi power plants have been delayed.

 

General automotive market sales to decrease, Renault sales to rocket.

The sales of new automotive vehicles have decrease of 1.5% in July 2014, compared to July 2013. This is mainly due to the increase in interest rates and the subsequent tightening of credit conditions.

In spite of this negative trend, Renault’s sales have substantially increased during the first semester (+83% year-over-year), with a market share of 2.6%. After having successfully entered the bottom-end market, Renault is now aiming at competing with Volkswagen, Mercedes and BMW in the high-end market, with the new generation of Mégane.

 

South African company Exxaro Resources Ltd to acquire 100% of Total Coal South Africa.  

The French multinational announced on July 25th that an agreement had been reached with Exxaro for the transfer of its participation  in TCSA. The transaction is estimated to have amounted to USD 472M. Exxaro being the second largest coal producer and fourth largest exporter, the transaction is yet to be approved by the Competition Commission of South Africa.

Total noted in its communiqué that it wished to focus its activities in the country on gas exploration and production, petrol distribution and marketing and solar power plant construction.

 

South African mining production has decreased in May and June.

The overall production of the mining sector has decreased of 6.4% in May and 5.7% in June. This contraction is not only due to major faults in the electricity and water supply affecting the whole economy but also to the aftermaths of the strikes that hit the platinum and chrome production sectors.

However, pushed by the growth in sales of coal (+9%) and nickel (+97%), the turnover of the mining industry has increased of 1.9% in May.

Nevertheless, the expected downturn of the Chinese and Euro zone demand could affect the sector in the next few months.

More information and figures on the mining sector on StatsSA’s publication:

http://beta2.statssa.gov.za/publications/P2041/P2041June2014.pdf

 

Ernst & Young’s views on the mining sector’s trends in South Africa.

In its annual report “Business Risks Facing Mining and Metal 2014-2015”, Ernst & Young emphasises that the major faults in electricity and water supply is one of the critical hindrances to South Africa’s mining sector’s growth.

The report further highlights that most of the production companies do not operate at 100% of their capacities, therefore hampering new investments in the sector.    

Finally, Ernst & Young notes that the current switch from labour-intense production to capital-intense production could be an indirect consequence of the strikes regularly affecting the sector.  

Access the full report:

http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-m...

 

Gibela consortium officially launched by Alstom and BEE partners.

The joint-venture between the French producer of trains (owning 61% of the stakes) and its South African partners Ubumbano Rail and   New Africa Rail has officially been launched in Johannesburg on the July 30th. The Vice-Minister of Transports Ms Lydia Sindisiwe Chikunga, Gibela’s Managing Director Mr Marc Granger and Prasa’s CEO Mr Lucky Montana were present among other personalities. The assembling plant will be set in Ukurhuleni, in the South of Johannesburg.

The design of the trains, the launch of the construction works of the assembling plant, the building-up of partnerships with more than a hundred locals providers and the procurement and training of the employees are the main challenges faced by Gibela to honour its R51-billion contract.     

 

Transnet secures the financing of its purchase of 233 locomotives to General Electrics.

The American export credit agency Exim has secured a R6 billion funding guarantee, therefore allowing Transnet to borrow on the international financial markets with favourable conditions. Transnet should indeed be able to contract an export credit with a three-year grace period and spread the reimbursement over 14 years.

The purchase of the 233 diesel locomotives will be financed  with two third equity and one third debt without guarantee of the South African state.

The operation forms part of Transnet’s locomotive fleet renewal programme, a significant element of the company’s R312bn investment programme spread over seven years. The majority of the locomotives will be built at Transnet’s manufacturing plants in South Africa, and will follow the government’s stringent rules on local content and skills transfer.

 

 Beira coal harbour’s concession granted to New Coal Terminal Beira.

The joint-venture is owned at 70% by the Indian company Essar Port and at 30% by the public operator CFM. The planned extension of the port’s capacity will enable the transit of 20Mt of coal per year, as opposed to the current 6Mt.

 

International Coals Ventures Limited (India) to acquire Rio Tinto Coal Mozambique.

The Anglo-Australian multinational has reached an agreement with the Indian group for the cession of its Mozambican subsidiary, comprising 100% of the stakes in the Zambeze and the Tete-East projects and 65% of the stakes in the Benga mine.

The transaction amounts to an estimated USD 50 million, those assets having been acquired in 2011 by Rio Tinto for USD 3.69 billion.

Rio Tinto chose to withdraw from those projects due to significant losses of USD 73 million during the second semester of 2013 and USD 53 million during the first semester of 2014. Those losses are mainly due to the dysfunctional rail and sea transport infrastructures, a drop in the coal market price and a decrease in the estimated reserves of the Benga mine.   

 

Brazilian mining group Vale to seek a partner in the Nacala corridor and Moatize mine.

The Brazilian multinational currently owns 80% of the shares of the Nacala corridor (the rest belonging to the national operator CFM). The Nacala corridor project consists in the construction of a railway line linking the Tete province and the Nacala deep water harbour and entails an investment of USD 4.4 billion. The first GE locomotives have been delivered and the railway line should be operational end of 2014 and reach its maximum capacity of 22 Mt per annum by 2018.

With this operation, Vale seeks to spread the investment and operating costs in a context of deflation in the coal market.     

 

Norwegian Group Statoil to give-up exploration activities in the Rovuma basin, Mozambique.

After the expiry of its exploration contract in June 2014, the Norwegian multinational chose to withdraw from the block 2 and 5 of the Rovuma basin, jointly owned with the British company Tullow, the Japanese INPEX and the national company ENH.

The negative results of the preliminary exploration activities of the consortium have lead to the cessation of the activities of several major stakeholders in the Rovuma basin, for the first time since major discoveries placed Mozambique among the top-ten countries in terms of proven natural gas reserves.

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