The economic data due out this week — which includes manufacturing conditions, vehicle sales and electricity production figures — is likely to be overshadowed by the outcome of the local government elections.
The steady decay of services in many of SA’s municipalities, which predated the effects of the Covid-19 pandemic, has become a burden for businesses and a throttle on economic activity.
The parlous financial state of SA’s municipalities was again underscored in the auditor-general’s latest consolidated report on local government audit outcomes, which found that only 28 of the country’s 257 municipalities were able to achieve clean audits, a regression from the previous year.
The outcome of Monday’s vote is difficult to call, however, and investors will likely keep an eye on the extent to which local governments will have to be led by fractious coalitions.
This election will potentially produce even more hung municipal councils than the 2016 local government vote, where no single party has a majority and possibly leaving smaller parties in kingmaker positions, said Absa senior economist Peter Worthington.
But SA’s experience with coalitions in large metros such as Nelson Mandela Bay, Johannesburg and Tshwane after the 2016 local government elections has been discouraging, said Worthington. “Governance in such municipalities will therefore depend on the parties’ willingness to form stable coalitions with functional policy agendas,” he said in a note.
On Tuesday, the Absa Purchasing Managers’ Index (PMI) for October is due out. The PMI — released with Stellenbosch University’s Bureau for Economic Research — is a reliable monthly gauge of manufacturing activity and an early indicator of underlying economic activity.
The September PMI slipped to 56.8 index points from August’s 57.9 points, as business activity took some strain. The gauge has nevertheless sharply recovered back into positive territory after it plunged to an 11-month low in July on the back of civil unrest.
October’s print is expected to again decrease moderately to around 56.0, according to Investec economist Lara Hodes.
“Persistent supply chain disruptions and materials shortages globally, however, continue to hinder production and could push up the price gauge even further, reflecting accelerated input cost inflation for producers,” said Hodes.
“Based on the international ‘flash’ PMIs for the month of October, business activity in the Eurozone slowed notably, on Covid-19 concerns and supply chain constraints,” she said. “Accordingly, growth in new orders for the manufacturing sector slowed which could weaken export demand.”
New vehicle sales data for October from the Naamsa Automotive Business Council is scheduled for release on Tuesday.
September saw new vehicle sales rise 15.8% on the same period the year before. However Covid-19 related disruptions still hang over the local industry, notably global shortages of semiconductor chips used in many modern vehicle models. Nevertheless Absa is predicting a 12.6% annual increase thanks to recovering consumer incomes and slowly recovering tourism activity.
Electricity production has drawn renewed focus after power utility Eskom instituted deep power cuts last week, implementing stage 2 load-shedding that rapidly escalated to stage 4.
Though the utility suspended load-shedding on Friday evening — the power cuts were a reminder of the precarious state of SA’s power grid as Eskom battles to maintain its ageing power station fleet, even as its costly, new build power stations Medupi and Kusile remain unreliable.
On Thursday, Stats SA will release data on electricity generated and available for distribution for the month of September.
“Production and consumption of electricity remain reflective of the fragile South African economy, which has rebounded from lows experienced last year, but remains subdued,” said Hodes.
The utility’s energy availability factor — an indicator its plant performance — remains well below its target of 70%.
“Heightened rotational load-shedding continues to hinder business performance at a time when many are still trying to recover from the damaging effects of the pandemic,” she said.
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