South African Public Sector Shy on Infrastructure Investment

Data from 745 institutions provides an update on public-sector investment in infrastructure. 

Several institutions pulled back on capital expenditure in 2021, while others increased their spending.

Public-sector capital expenditure decreased by R6 billion between 2020 and 2021, to R198 billion, representing the fifth consecutive year of decline. 

Capital expenditure represents money spent on construction, machinery, equipment, land, buildings and other fixed assets.

The infrastructure investment contraction in 2021 was due to a sharp slump in spending by public corporations and national government (Figure 1).


Biggest South African Public Sector Infrastructure Movers

Eskom and Transnet recorded the largest decreases in 2021 (Figure 2). 

Eskom cut back on capital expenditure to R32 billion in 2021. 

This was a conscious effort by the utility to meet its liquidity requirements through effective cost management and deferral of capital expenditure. 

Capital spending in 2021 was mainly on the Medupi and Kusile power stations, and on large transmission projects.

Transnet cut back on capital projects by R3 billion, mainly due to disruptions caused by the COVID-19 lockdown.


How much does cocaine cost around the world?

Over the past few decades criminal gangs in Latin America have diversified their businesses. They no longer just smuggle narcotics from South America to the US, like in the 1970s and 80s. Now they also are involved in _illegal gold mining, human trafficking, synthetic-opioid production (particularly fentanyl), along with extorting those who operate in perfectly legal markets, such as farming avocados and limes.

Even so, drugs remain an integral part of their business model. In 2020, global production of cocaine hit a record high of 1,982 tonnes. The US remains the biggest consumer of the drug with 6m users. But the global reach of cocaine is spreading. Guinea-Bissau has become an important route for South American cocaine bound for Europe. An attempted coup earlier this year, in which gunmen attacked the presidential palace, was blamed on drug gangs. Much European cocaine is imported through Rotterdam in the Netherlands, which has led to an increase in gang violence there. The head of a Dutch police union has warned that the country risks becoming a “narco-state”.

Cocaine remains an important part of gangs’ revenues not because it is addictive but because it is so profitable. Estimates on how much a kilogram of the drug costs in various places vary because, as with any illegal market, it is tricky to study. The UNODC, publishes a range of estimates which show just how big the profit margins can be. In 2019, the latest year for which data are available, a kilo of cocaine in Colombia typically cost $1,491 at wholesale prices. In Mexico that kilo was $12,433 at wholesale prices. In El Salvador it is $28,873.

But the real profits come from outside Latin America. A kilo at wholesale prices in the US typically cost $69,000 in 2019. The farther it goes, the more expensive coke becomes. In China, where some Colombian gangs are reportedly hoping to boost their profit margins even further in the next decade or so, a kilo cost $69,380 in the mainland and $72,510 in Hong Kong. In Australia a kilo in 2017, the most recent prices available, typically cost $152,207.

So long as cocaine remains illegal in rich countries, gangs will continue to funnel their profits into recruiting members, buying weapons and corrupting officials. Legalisation would cut into the gangs’ main source of income and make the product safer. That is why The Economist is arguing that it is time to legalise the stuff. 

Source: The Economist


State of the South African electricity supply industry (2021)

SA’s national electricity supply has been the cause of intense concern for many years. 

Stats SA’s latest detailed survey of the industry provides updated data on finances, production and employment.

The 2021 survey continues from similar surveys conducted in 2006, 2010, 2013, 2016 and 2019. 

The time series provide valuable insights into how key characteristics of the industry shifted over the last 15 years.

SA continues to produce less electricity

According to the survey, SA’s electricity generation declined by 7,4% between 2019 and 2021. 

A quick look at the 2006 survey and SA produced less electricity in 2021 than it did in 2006.

Figure 1 illustrates how subdued electricity generation has been over time. 

Even though SA produced more electricity in 2021 than it did in 2020, the national level of production is still lower than it was in 2004.

In 2022 SA experienced extended periods of load shedding, with electricity generation significantly reduced. 

Economic growth becomes impossible in an environment where energy is so constraint and acts as a major deterrent to potential expansion.


Duty Free Access to China for Selected African countries

China will grant zero-tariff treatment to 98% of taxable items originating in 10 least-developed countries (LDC) effective 1 Dec 2022. The LDCs are:
• Afghanistan
Burkina Faso
Sao Tome and Principe

The policy will cover 8,786 items, including agricultural products such as olive oil, cocoa powder and nuts, as well as various chemicals and product materials.

Prior to this move, China announced plans to offer zero-tariff treatment for 98% of currently taxable products imported from 16 LDCs including Togo, Djibouti, Laos and Rwanda, which came into force on September 1, 2022.

The move will further promote China-Africa economic and trade cooperation, and help African products explore the Chinese market.

China earlier announced plans to set up a green lane for African agricultural products to enter China. And expand the range of products covered by zero-tariff treatment and import $300 billion worth of products from Africa in the next 3 years.

China-Africa economic cooperation has expanded rapidly in scale and extent. Over the past five years, China’s imports of African agricultural products have grown at an average annual rate of 11%.

This makes China the 2nd largest export destination for African agricultural products. In 2021 China imported $5 billion of agricultural products from Africa, a record high.

This is a quasi AGOA type of agreement.
Let’s hope the utilisation of it is higher vs that of AGOA.


Why Digital Fragmentation is on the Rise

The digital economy is inescapable, and, as is often the case, governments are turning to regulation to manage its complexities, according to recent findings by policy advisers Global Trade Alert and Digital Policy Alert. 

To reimagine the reports key message, see below an insightful infographic.

The internet was seen as a globally unifying medium at its inception. 

It ushered an industrial revolution that’s still underway. 

But there’s a big problem: the unifying medium is breaking apart.

Simon Evenett and Johannes Fritz, pioneers of two unique global databases that track state interventions in the digital world, wrote in a June 2022 paper

Governments have gone into regulatory overdrive in digital sectors since the start of 2020. Regulatory heterogeneity is growing, posing an ever greater risk of digital fragmentation. 

Commercial policy developments over the past decade have erected more and more barriers between national digital sectors. 

Subsidy races are breaking out in the digital economy.

To reimagine this message and among other things, they discovered a preponderance of interventions being carried out among the biggest economies of the world. 

The interventions occur across sectors ranging from content moderation to data governance, meaning state control of cross-border data flows.

Policy incoherence at home coexists with international regulatory divergence. 

And the mistakes matter: A fragmented internet and global digital economy deny users choice, reduce innovation, and exacerbate global tensions.

For all its role as a globally unifying medium, the world is getting more unequal in internet infrastructure. 

Measured by secure internet servers, a basis of protected communications and foreign trade and investment, disparities in access to adequate infrastructure are widening across the globe.

Compounding the market distortions, a subsidy race is underway among  governments, most notably in the semiconductor sector.

The perils of unilateral governance action are becoming clearer. 

Officials around the world should pay attention to these developments if they want to regulate and nurture their digital sectors.