Latest news with #IzakOdendaal
IOL News
22-07-2025
- Business
- IOL News
Small businesses brace for Trump tariffs, rising costs and funding hurdles
South African small and medium-sized enterprises (SMEs) are facing mounting pressure from global and local headwinds, including looming US tariffs, rising fuel and electricity prices, and uneven access to funding. As of 1 August, a 30% import tariff on all South African exports to the US will come into effect, a move that could particularly impact SME exporters. Although only about 8% of South African exports go to the US – largely minerals and metals, which may be exempt – key sectors like citrus farming and automotive manufacturing are at risk, said Izak Odendaal, Investment Strategist at Old Mutual Wealth. 'This is bad news for many South African SMEs who currently export to the US, particularly those involved in the agricultural, automotive, and mining sectors,' said Miguel da Silva, Group Executive of Business Banking at TymeBank. 'The tariff increases will also have repercussions for the broader economy, with commentators saying the move could lead to thousands of job losses across the affected sectors.' The tariff order, signed by US President Donald Trump on July 7, follows a suspension of his April 2 'Liberation Day' tariffs, which he placed on pause following an extremely negative market reaction in America. 'The only difference seems to be rounding, so that South Africa gets 30% instead of 34%,' said Odendaal of the new tariffs when compared to the April announcement.
Daily Maverick
03-07-2025
- Business
- Daily Maverick
Currency of credibility – Sarb nationalisation debate in Parliament opens a legacy hornet's nest
The SA Reserve Bank is still partly privately owned, a legacy quirk shared by only a handful of countries. Now, as Parliament reopens old calls to nationalise it, critics warn the real risk isn't who owns the shares, but whether new resolution powers and deposit insurance can protect ordinary savers – and whether the political signal could shake confidence in the rand. South Africa's central bank is an anomaly: part-private, with somewhere between 800 to 1,000 shareholders. In reality, those shareholders have no real say over monetary policy, but are largely a legacy from the early days of central banking – a relic that's survived global reform and local battles alike. That quirk has come before Parliament with public comment regarding the proposed, EFF sponsored, South African Reserve Bank Amendment Bill, which aims to nationalise the SA Reserve Bank (Sarb) – buying out its private shareholders and shifting the shares fully to the state – has resurfaced alongside the Financial Sector Laws Amendment Act, which arguably does far more to rewrite the country's bank failure rulebook. 'What is the problem with government being the sole shareholder on behalf of the 61 million people of South Africa?' asked EFF MP Omphile Maotwe during a Standing Committee on Finance hearing on 2 July 2025. 'If you say there will not be any change, so what is the problem when we want this thing to be in the state?' Old Mutual Wealth's chief investment strategist Izak Odendaal is blunt in his comment to Daily Maverick: 'The real shield for credibility isn't a share register but the constitutional guardrails that keep the Sarb's policy boring – on purpose'. That view clashes with economists and market watchers who say the real safeguard isn't who holds the shares, but whether the backstop works when it matters. What does history tell us? Dawie Roodt is an economist and a Reserve Bank shareholder, a fact that for transparency he declared to Daily Maverick. 'I use it for my work… but to be really honest, I have not been [to] an AGM for many, many years as well.' The dividend, he adds, is fixed and around R8 annually. 'Almost all central banks started off as privately owned banks,' he explains. That legacy has shifted in most countries, but not fully here. Private shareholders still appoint half the Sarb's directors, a governance guardrail Dawie believes still matters. 'I think that's a very good idea… you get this extra set of eyes. See what happened to Eskom or the Post Office – there was no private sector oversight.' New powers, old questions The deeper reform sits in the Amendment Act. It hands the Reserve Bank resolution authority status: power to step in if a bank fails, override insolvency, push through rescue or wind-down. It also launches the Corporation for Deposit Insurance (Codi), South Africa's first explicit deposit insurance fund – R20-billion funded by the banks themselves, not taxpayers. But that parachute remains untested. Odendaal argues that while Codi aligns South Africa with global norms, the real stress test is when confidence wobbles. 'A banking system runs on trust,' he told Daily Maverick. 'If that breaks, no insurance fund is big enough – so the signal from Parliament really does matter.' Defending the founding papers The Institute of Race Relations (IRR) argued a nationalisation-related point to Parliament that the Bill risks overstepping constitutional lines. '[This Bill] effectively provides for expropriation without compensation, which is not constitutional… Compensation has to be borne by agreement… No compensation can never be agreeable, and it must be just and equitable,' IRR representative Gabriel Crouse told MPs during the hearing. Treasury also raised somewhat adjacent nationalisation concerns. Chris Axelsson, Director-General for Tax and Financial Sector Policy, said during the hearing: 'The main point in terms of the amendment Bill that we are concerned about is the rights of the current shareholders… There's no recognition of what will happen if from one day they hold the shares and the next day the state owns those shares. It would be a forced takeover – like an expropriation of those shares.' He warned of 'bilateral investment treaties' that could drag South Africa into international legal fights. 'Changing the composition of ownership doesn't result in any material change in the current role of government… The current structure doesn't have any impact on the mandate and the independence of the Sarb.' For now, the cost of buying out shareholders remains unknown, but any forced expropriation could invite protracted litigation and ripple through foreign investor sentiment, a risk flagged repeatedly in hearings. Credibility is the currency For Roodt, that's the point. 'The only thing that changes is the signal – and that's not a good signal because what we have currently works very, very well,' he said. 'You don't even have to change policy. You just have to change the ownership… the market is going to lose confidence.' The myth that shareholders can steer monetary policy doesn't survive contact with how the Sarb works. 'As a shareholder, I have absolutely no say [in monetary policy]… the governor and deputy governors are presidential appointments,' Roodt said. 'The argument that shareholders influence policy is completely incorrect.' Despite the heat of the debate, no concrete timeline for the nationalisation amendment has been confirmed. Odendaal warns that drawn-out political noise alone can bleed credibility fast, even before a vote is called. Meanwhile, markets and savers watch whether the Sarb's resolution powers and its new insurance backstop can survive the first real test unscathed. The currency of credibility Odendaal's line on the real backstop remains verified: 'Deposit insurance is the parachute – don't panic, your money's safe,' he said. Odendaal says the Reserve Bank's real currency is credibility. 'You want your central bank to be dull and dependable,' he says. 'Once it becomes political theatre, you risk paying that cost in the currency.' Roodt's bigger worry is whether the Sarb stays ahead of the next wave: stablecoins, central bank digital currencies and the new money landscape. 'Money plays a crucial role in a modern economy… there are new kinds of money… the landscape could change completely,' he said. 'If the Reserve Bank doesn't stay on top of new technology… they risk becoming irrelevant.' 'Leave it as it is. If it's not broken, why fix it?' Roodt said. The test for South Africa's central bank won't be its share certificates, but whether the resolution powers, deposit backstops and credibility hold when the next wobble hits. DM
Daily Maverick
27-06-2025
- Business
- Daily Maverick
SA's sentiment split — rich rebound, poor left behind
Depending on who you believe, consumer confidence is back, but with one crucial qualification — it's still negative. After plunging in Q1, South Africa's Consumer Confidence Index (CCI) is back up, but only for some. A sharp rebound in middle- and upper-income sentiment signals short-term resilience, but low-income households are still squeezed. The CCI isn't just sentiment – it's about who spends, and who can't. Wait, what is the CCI? The quarterly CCI compiled by First National Bank (FNB) and the Bureau of Economic Research (BER) is meant to measure how South Africans feel about three key questions: The country's economic outlook. Their own household's financial situation. Whether it's a good time to buy big-ticket items such as furniture or appliances. Each quarter, 500 adult South Africans are contacted via phone interviews across representative demographics to ask these questions – and the result reflects the net balance: the percentage of those who feel optimistic minus those who feel pessimistic. Old Mutual Wealth's chief investment strategist, Izak Odendaal, summed up the current sentiment succinctly: 'The economy is growing – but people don't feel good about it.' Rebound from close to rock-bottom In Q1 of 2025, the CCI plummeted from -6 to -20, a downturn driven by a mix of domestic political instability and international pressure. The proposed VAT hike and subsequent withdrawal, Budget-related infighting between ANC and DA partners, a short but sharp return to Stage 6 loadshedding and Donald Trump's revived tariff aggression towards South Africa all contributed to the collapse. By Q2, the CCI had recovered to -10 – a marked improvement, but still well below the historical average of -1. A May rate cut helped lower debt servicing costs, inflation on durable goods was subdued and political tensions calmed. But sentiment remains fragile, and, like the economy itself, uneven. At -10, the index is still far below its 30-year average – and firmly in negative territory. The recovery, as detailed in the FNB/BER release, mirrors the structural realities of South African inequality. Confidence didn't rise evenly across the board, but rather tracked closely with income. 'People are basically saying everything around me is falling apart, but my own finances are okay,' continued Odendaal. 'That's the kind of dissonance we're seeing – and it might explain why they're still spending.' Why this matters In a low-confidence environment, people tend to cut back and spend less, prioritising essentials such as food and debt servicing. In a high-confidence environment, people spend more – especially on discretionary goods – and tend to make greater use of available credit. The CCI is less of an economic mood ring and more a real-time proxy for spending power and economic activity on the ground. One index, three economies Among high-income households – those earning above R20,000 a month – sentiment surged from -30 to -11. While that's a significant gain, it's still not back to late 2024 levels. A lack of inflation-related tax bracket adjustments or new credits in Budget 3.0 may have capped the recovery. Middle-income earners, between R5,000 and R20,000 per month, showed the strongest recovery: confidence climbed to -7, matching late 2024 levels. This group likely benefited the most from the two-pot pension withdrawals, a 25 basis point rate cut, and lower fuel prices, alongside increased affordability of newer vehicle models. Low-income households – those earning under R5,000 – barely moved. Confidence ticked up only two points, from -17 to -15. These households, the majority in South Africa, have little access to pension withdrawals or formal credit, and continue to feel the brunt of rising food inflation, unemployment and climate shocks such as the Eastern Cape floods. 'Given the deterioration in both the global and domestic economic outlook in recent months… it's not surprising that high-income confidence settled at a lower level,' said FNB Chief Economist Mamello Matikinca-Ngwenya, in the Q2 CCI release. Despite the bleak sentiment data, consumer spending appears more resilient. 'Retail and vehicle sales are holding up – even though the CCI is currently lower than it was during the 2009 recession,' Odendaal noted. Retail echoes and spending signals What does a rebound in sentiment mean for the real economy? Retail sales rose 5.1% year-on-year in April. New vehicle sales jumped 30% in May. Middle-class consumers are spending again – cautiously. But this recovery comes with caveats: The two-pot pension bump is a once-off. Inflation is edging upward. The bottom third of households remain under economic strain. Confidence is not income – and that gap could widen if price pressures accelerate. But what does this mean? The latest CCI tells a story of fragile optimism, but only for those with buffers. If you're middle or high income, you may be feeling more secure, and the data suggests you're already spending more. But if you're among the country's lower-income majority, those gains are unlikely to feel real. Inflation, unemployment and rising food costs continue to erode financial confidence, while access to credit and relief remains unequal. For policymakers, the message is clear: sentiment is recovering, but unevenly. Without equitable relief or targeted support, confidence may return only to those who need it least. 'The question is: is the economy growing? Yes, slowly. Are people happy? No. These are two different questions,' Odendaal said – a reminder that in economics, feelings and fundamentals don't always align. DM
Daily Maverick
24-06-2025
- Business
- Daily Maverick
National Treasury secures R26bn World Bank loan in strategic move for infrastructure reforms
South Africa has secured a R26-billion loan from the World Bank to modernise our infrastructure – without adding to sovereign guarantee burdens. But favourable terms mean little without delivery. Can South Africa finally convert reform pledges into real power, rail, and fiscal performance? In a bid to shift our faltering economy out of low gear, the National Treasury and the World Bank have inked a $1.5-billion (R26.5-billion) Development Policy Loan agreement aimed at unlocking long-promised, but long-delayed, structural reforms across the country's infrastructure backbone. Sweet deal, soft start The loan, which was finalised on Monday, 23 June 2025, comes with some pretty good terms — definitely better than if South Africa had just gone to the open market: We have 16 years to pay it back. So, it's a long-term plan, not a quick smash-and-grab. We don't have to start paying anything back for the first three years. This is a 'grace period' that gives us some breathing room to get things in order before the first instalment is due. The interest rate isn't fixed. It's a 'floating rate', which means it will change over time. It's tied to something called the six-month SOFR, which is a very stable and trusted international benchmark rate for US dollars. On top of that, we pay an extra 1.49%. 'If the borrowing is associated with capital investment, then there's the opportunity to generate a return that will help service the debt,' Old Mutual Wealth strategist Izak Odendaal told Daily Maverick. 'Borrowing to fund recurrent expenditure is much harder to justify.' Spreading the spending power Political and economic analyst Daniel Silke said the real issue is how it will be spent. 'Will it be spent credibly, efficiently, and without graft and corruption? We've gone through a decade or two where we have not invested in domestic capital formation. The backlog in infrastructure… now ultimately has to be funded, certainly in part, by external loans like this.' According to the National Treasury, the deal is designed to 'enhance the efficiency, resilience, and sustainability' of South Africa's public infrastructure services. The main focus: policy reforms in the energy and freight transport sectors that can enable broader infrastructure modernisation and private investment. 'This agreement reinforces the strong and constructive collaboration between the World Bank and the government of South Africa,' the National Treasury noted in the release announcing the loan's approval. Show me the money It's important to distinguish the loan's structure and purpose. This is a Development Policy Loan, meaning the funds are not project-specific. Instead, they are general budget support disbursed in tranches conditional upon meeting agreed reform milestones. The Treasury says these reforms centre on: Improving energy security. Boosting freight transport competitiveness. Advancing the just energy transition. Unlike project loans, this money won't directly pay for power stations or rail upgrades, but is aimed at incentivising reform across state institutions like Eskom and Transnet — and unlocking further capital by stabilising policy conditions. Disbursements are tied to measurable regulatory or governance benchmarks — such as unbundling electricity transmission or enabling third-party rail access — designed to unlock future private capital inflows. Reform or rewind The loan lands at a time of acute public finance strain: sluggish growth, surging debt service costs, and deep political gridlock following the collapse of a proposed VAT hike. With fiscal consolidation plans fraying under coalition tensions, the Development Policy Loan becomes not just a financial tool but a litmus test of South Africa's political capacity to implement reform. South Africa's history with reform-tied financing is mixed. From unbundling Eskom to fixing port backlogs, targets are often missed, deferred, or diluted. The Treasury insists this loan aligns with its broader fiscal strategy: to avoid contingent liabilities, limit market borrowing and crowd in private capital. Transmission tangle — another $500-million While the Development Policy Loan grabs headlines, it is part of a broader ecosystem of multilateral support. Reuters reports that the World Bank Group is also weighing a $500-million contribution to a proposed credit guarantee vehicle meant to underwrite South Africa's planned $25-billion transmission build-out. This facility would be a stand-alone fund, absorbing project risk and unlocking private sector participation without drawing on sovereign guarantees. The goal: unlock up to 20GW of stalled renewable energy capacity, particularly in remote provinces like the Northern and Eastern Cape. The Treasury plans to contribute $100-million in junior capital (first-loss tranche), eventually scaling to $500-million. Discussions are under way with partners including Miga, the International Finance Corporation, DBSA, AfDB, KfW, and British International Investment. While discussions remain at the proposal stage, the Treasury expects to finalise initial commitments before the 2026 Budget, contingent on co-financier alignment. Can we afford this? On paper, the Development Policy Loan offers low-cost, flexible financing. But it's still dollar-denominated debt in a fiscus under pressure. Repayments begin after three years (on principal), but interest accrues and must be made in hard currency, exposing the Treasury to forex volatility. With a floating rate (SOFR +1.49%), repayments will rise if global interest rates increase. The Treasury already spends over 20% of its main budget on debt service, and gross loan debt is projected to exceed 75% of GDP. Odendaal notes that this loan remains within the Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason. Odendaal notes this loan remains within Treasury's foreign borrowing limits, but South Africa must tread carefully: most debt is rand-denominated for a reason. Reform isn't optional While the World Bank does offer oversight and monitoring, Odendaal warns that no loan is immune to governance risk. 'There's no guarantee that the money is going to be allocated 100% efficiently,' he said. 'But it's probably a better option than trying to raise money in the market.' For now, the $1.5-billion is a breath of fresh air that, with luck, will offset short-term fiscal pressure and offer credible support to reformists inside the Treasury. The key to whether it will be maximised effectively, however, will have to come squarely from State-Owned Enterprises and Prasa and Eskom will benefit financially, but in order for South Africa to do so, governance will need to improve correspondingly to make the loan less a windfall, and more a structural change. DM
