The downside
February started on a sour (and rather dark) note. Shortly after achieving accolades for 300 days without load-shedding, Eskom was forced to ration electricity again, despite the re-introduction of Koeberg's Unit 2, which increased the country's electricity capacity by almost 1,000MW.
Consumers also received the bad news of a 12.7% hike in Eskom's tariff for the year ending March 2026, which will drop to 5.4% in the 2027 financial year. Landowners have noted with some alarm the signing into law of the Expropriation Act, which allows the local, provincial, and national governments to expropriate land in very specific circumstances with the possibility of zero compensation.
Fortunately, this Act is simply an update of the 1975 Expropriation Bill. It is essentially designed to prevent unnecessary delays in providing energy, water, and logistics infrastructure. According to researchers at the Agriculture Business Chamber (Agbiz), the definition of expropriation remains a concern. Still, it is important to note that the new Expropriation Act's provisions are subject to the provisions of section 25 of the Constitution, which has not been amended. This section requires that compensation be just and equitable.
The new Act contains many checks and balances, including guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. Jurisprudence regarding the interpretation of just and equitable may take decades to develop, and the nil compensation provision may never even become necessary. Until then, property ownership, in general, is secure and protected by a democratic Constitution that enshrines free enterprise principles.
The upside
Third rate cut provides relief to households
At the end of January, the Monetary Policy Committee (MPC) of the Reserve Bank lowered the repo rate by 25 basis points, following two similar rate cuts in September and November. The decision was unsurprising, as South Africa's inflation rate has dropped to the bottom of the MPC's target range of 3% to 6%. It is pretty evident that inflation is more or less under control, mainly due to the normalisation of energy and freight shipping charges after the COVID-19 lockdowns.
It should be noted that higher inflation was never caused by excess demand but was entirely due to cost-push factors beyond monetary authorities' control. Indebted households are now faced with a prime overdraft rate of 11%, better than the 11.75% that existed before September 2024 but still 100 basis points higher than the 10% before the COVID-19 pandemic. Hopefully, the MPC will not rely too much on uncertain factors such as the possible impact of US tariffs on exports but rather concentrate on the dire need to reduce the cost of capital and credit, thereby stimulating economic growth.
A welcome increase in real salary levels
After a lengthy period of decline, initially due to the COVID-19 pandemic and then restrictive monetary policy, average real salaries in the formal sectors may have started an upward trend. The new-found improvement in business confidence has already manifested itself in an increase in employment, with the construction sector faring exceptionally well—adding 176,000 new jobs in the third quarter of 2024.
The welcome lift in average labour remuneration (adjusted for inflation) is one of the key reasons for the recent uptick in the Altron Fintech Household Resilience Index (AFHRI), which gained 2.1% year-on-year in the third quarter of 2024. With a bit of luck and further interest rate relief, higher economic growth should ensue in 2025, undoubtedly leading to an increase in the demand for labour and salaries.
The motor industry ends 2024 on a high note
Following an erratic and subdued trend during most of last year, the Drive.co.za Motor Index (DMI) picked up nicely in the fourth quarter, especially due to increased new vehicle sales—both in the domestic market and for export. The DMI is a composite index that measures the actual percentage change in twelve key indicators of the motor vehicle industry.
During the last quarter of 2024, ten of the twelve indicators recorded positive year-on-year growth (in real terms), with the index gaining 3%. The quarter-on-quarter improvement was even stronger, climbing by 6%. In 2024, South Africa's vehicle & component exports amounted to R276 billion, with the key markets being Germany, the US, Belgium, the UK, Spain and Australia.
On Balance by Dr Roelof Botha deliberately emphasises positive news, which often emphasises the resilience of the South African economy and the immense scope for new business opportunities.
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