Companies hoard cash as SA’s business environment deteriorates

The pandemic and other fiscal difficulties are undermining South Africa’s ability to continue to grow the black middle class as it has in the past. Photo: Getty Images

South African businesses and households held more cash in the third quarter as power outages hit an all-time high.

Gross business savings rose to 15.9% of nominal gross domestic product from 10% in the previous quarter, South African Reserve Bank Quarterly Bulletin data released on Thursday showed. This has brought the national savings rate in the three months to September to 15.6%, the highest in two quarters.

While the increase in corporate savings is largely due to changes in seasonally adjusted operating surpluses and tax payments, it comes as shutdowns occurred nearly half the time in the third quarter. That is likely to further weigh on investment in an economy where reformist President Cyril Ramaphosa faces a challenge to his bid to lead the ruling party for another five years, and as Eskom grapples with a leadership vacuum.

Private companies have been wary of committing large sums of money to national projects due to the country’s electricity rationing, the slow pace of reforms, high crime levels, state graft and instability that last year culminated in the worst civil unrest since the end of apartheid.

South Africa is suffering an energy crisis as power company Eskom, which produces almost all of the country’s electricity, struggles to meet demand. The load shedding reached 1,054 hours, or 47.7% of the time in the third quarter, central bank data show. Outages have now been imposed for a record 189 days through 2022, according to Bloomberg calculations.

André de Ruyter, Eskom’s chief executive who is well-regarded by investors, tendered his resignation on Wednesday after facing opposition from politicians. He tried to clean up the utility that became synonymous with corruption during the tenure of former president Jacob Zuma.

Although South Africa avoided a technical recession in the third quarter, it remains stuck in its longest downward cycle since World War II, with the economy entering its 109th month of a weakening cycle in December, according to central bank data.

The current downward phase has lasted about twice as long as the previous major weakening cycle between 1989 and 1993, when the apartheid government renewed the state of emergency and the country prepared for its first elections democratic

The central bank is working to determine whether a turning point in the cycle has already been reached and plans to publish the results in the Quarterly Bulletin scheduled for March, it said in an emailed response to questions. The end of the downward phase will be backdated to when the tipping point occurred, and the current phase is likely to be shorter, he said.

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