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Facing mounting debt and blackouts, SA to deliver budget3 minutes read

Net debt currently stands at around 2.28 trillion rand, or 48.6% of GDP, according to the treasury.

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South African Minister of Finance Tito Mboweni delivering his Medium-Term Budget Speech on October 24, 2018 - AFP

South Africa’s Finance Minister Tito Mboweni faces a balancing act ahead of his maiden budget Wednesday to reassure investors over the country’s troubled public electricity company without alienating union allies ahead of national elections.

He is under pressure to bail out the state power utility Eskom — along with its $30 billion mountain of debt — which is at the centre of the country’s mounting economic troubles.

Mboweni will deliver his maiden budget to parliament in Cape Town at 1200 GMT.

Analysts warn of tensions that may emerge should the restructuring lead to job losses.

President Cyril Ramaphosa announced this month that the utility would be divided into three, but unions have rejected that, saying it would lead to job cuts.

Over the past few weeks the utility has implemented a nationwide programme of rolling blackouts as it failed to meet demand. 

The scale of the power outages, unseen in more than a decade, has rocked the continent’s most industrialised nation, plunging businesses, homes and traffic lights into darkness.

But the ruling African National Congress (ANC) has been warned by its coalition partner, the COSATU trade union federation, that sackings could damage their alliance ahead of national elections due on May 8.

“We remain totally opposed to any restructuring plan that will benefit the capitalist class and increase prices for the working class,” said spokesman Sizwe Pamla.

Ramaphosa indicated last week that details of the government’s rescue plan, which will be designed to stave off another damaging credit rating downgrade, would be revealed in Wednesday’s budget.

Fears are mounting that if Eskom defaults on its massive debts, lenders would be entitled to call back other loans to different parts of the state including the troubled national carrier South African Airways.

Fraud, corruption and incompetence have gripped public sector businesses and compromised their credibility while mounting debts have spooked investors.

High unemployment and debt

“It has become clear that Eskom’s coal-heavy system is now a dangerous impediment to sustainable growth in South Africa,” said Jesse Burton, a researcher at the University of Cape Town’s Energy Research Centre.

Mzukisi Qobo, an associate professor at Wits Business School, said Mboweni would likely announce steps “towards eliminating wastage in government and offer a clue on whether government intends to increase taxes”.

Several taxes including VAT as well as levies on fuel and alcohol were hiked last year in an effort to raise 36 billion rand ($2.5 billion) to plug gaps in receipts at the tax collector.

Mboweni, who replaced former finance minister Nhlanhla Nene when he was forced to resign over meetings with the scandal-tainted Gupta brothers, took office in October.

His speech is also expected to address the country’s stubborn 27 percent unemployment rate as well as the overall sluggish economy which only returned to growth in December following a recession.

Net debt currently stands at around 2.28 trillion rand ($160 billion), or 48.6 percent of GDP, according to the treasury.

Michael Sachs, an economist at Wits University, said the government was being forced to borrow more to service its debts, creating a dangerous cycle.

He called for “an executive with clear and effective policies, that makes trade-offs, confronts those trade-offs and mobilises society behind those solutions”.

“Whether we will get there after the election, I am not sure,” he added.

Ramaphosa will be hoping Mboweni’s speech treads a fine enough line to help him win a sixth term for the ANC, in power since the dawn of democracy in the country in 1994.

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Masiyiwa to Bid for Ethiopian Telecoms License

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Zimbabwean Billionaire and founder of Econet Global Ltd, Strive Masiyiwa has disclosed his position on acquiring a telecommunications license in Ethiopia, which is opening up the industry to foreign investment for the first time.

The Horn of African country has announced plans to sell as much as 49% of the state-owned monopoly, Ethiopian Telecommunications Corp and to issue two new spectrum licenses.

Carriers including Orange SA, MTN Group Ltd. and Vodacom Group Ltd. have already shown interest in the country of more than 100 million people, which has a relatively low level of data penetration and internet access.

Econet, through a number of its subsidiaries, is actively developing interests in Ethiopia.

Econet has operations in Zimbabwe, Lesotho and Burundi, with investments in Europe and South America.

The government of Prime Minister Abiy Ahmed had scheduled the liberalization of the industry for early this year.

However, it is yet to provide guidance on the exercise, including any limits on foreign ownership.

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Nigeria posts highest quarterly GDP growth since recession

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Nigeria’s economic growth rose to an annual rate of 2.55% in the three months to the end of December, its highest quarterly growth since a 2016 recession.

Africa’s largest economy grew 2.27% in 2019 from 1.91% the previous year. The country has struggled to shake off the effects of a 2016 recession that ended the following year and has been grappling with low growth since.

Crude production hovered at around 2 million barrels per day throughout the year.

The non-oil sector, which the government aims to make the main growth sector, rose 2.26% in Q4.

President Muhammadu Buhari has pledged to revive the economy and diversify it away from oil over-dependence but investors have been waiting for policy signals that could lift growth.

Recently, the IMF cut its 2020 growth forecast for the country to 2% from 2.5%, citing lower demand for oil due to fears that the coronavirus outbreak in China will cause a slowdown.

Annual inflation in Nigeria rose for the fifth straight month to 12.13% in January, its highest in nearly two years.

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Absa Kenya signs almost 5 million customers on virtual platform

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Kenya’s Absa Bank , a part of South Africa’s Absa Group, has signed almost 5 million customers on its virtual banking platform, which it sees as a major driver for future growth, chief executive, Jeremy Awori announced yesterday.

When the bank first launched its virtual savings and loan app known as “Timiza” — Kiswahili for “Achieve” — in March 2018, it attracted 300,000 customers. By the end of the year it had 3 million users, with lending standing at 10 billion Kenyan shillings ($98.91 million).

The bank, formerly known as Barclays Kenya, also has a separate mobile-based banking service to process normal customer transactions such as deposits and withdrawals.

Absa Kenya, posted a pretax profit of 8.18 billion shillings in the first nine months of 2019, compared with 7.72 billion shillings in year-earlier period.

Kenyan lenders have in recent years , turned to technology as they try to counter competition from mobile phone-based financial services such as from telecoms operator Safaricom’s M-Pesa platform, which had 23.6 million users as of last September.

Absa’s virtual banking app’s competitors include those run by KCB Group’s, NCBA Group and Equity Group.

Pressure to use mobile banking services increased further when the government imposed a cap on commercial lending rates in 2016 that ate into bank profit margins forcing banks to search for new ways to grow their businesses. The cap was scrapped at the end of last year.

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