KZN Business Sense - SA (multi-year) Drought Cees Bruggemans, Bruggemans & Associates, Consulting Economists
KZN Business Sense - SA (multi-year) Drought Cees Bruggemans, Bruggemans & Associates, Consulting Economists

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KZN Business Sense - SA (multi-year) Drought Cees Bruggemans, Bruggemans & Associates, Consulting Economists


After a few days of sporadic thunderstorms, and good rains in places in the interior (100mm in places) in mid/late November, it was back to dry hot weather in too many places. Despite hopeful statements that
this may merely prove to be a late start to otherwise still normal rain year, we seemingly continue being
confronted by hard-biting drought in far too many places, calling forth memories of 1992, 1982 and even earlier.

Large parts of KwaZulu-Natal are reportedly in the grip of their worst drought since 1900. It also raises the spectre of multi-year general drought in SA, even on a par with a century ago (and experienced again for instance in parts of Aussie in recent years).

There remain therefore historic benchmarks worse than the present. This isn’t (yet) an all-time record-breaking phenomenon. And with the metrological record rather young (not even a few centuries), in a region generally recognised as poor and volatile in rainfall, it should not come as a surprise to encounter these historic breaks in the record.

During such discontinuities, agricultural production can plunge by 30%-50% for a year as critical crops like maize and others fail, cattle and sheep run out of grazing pasture and need to be fed, and farmers are forced to unload part of their herds, distorting the meat cycle.

Such agricultural production and farming income decline is mirrored in fewer products and services being bought from suppliers, including for instance tractors and harvesters whose sales this year are badly down (25% in October yoy, and nearly 11% so far this year). It remains one of the oldest traditional barometers of SA farming health.

Any food shortages can usually be met from imports. But the general impact is one of sharply higher food prices, considering the much weakened Rand, especially over the summer months into next year, impoverishing households, especially poorer ones with little negotiating power over their real income.

Thus farming output losses and higher food prices get mainly reflected in dwindling real household incomes and declining growth of retail sales volumes.

Besides forcing yet more consolidation in agriculture, with the larger, stronger surviving farming operations buying out the smaller failing ones, and with credit becoming yet scarcer, such general droughts also tend to show up the general unpreparedness of the water infrastructure. Thus the hardship multiplies, as much in rural as in many urban settings, where additional water supply has to be laid on for needy communities, competing for limited distress funds with many commercial farmers.

The economic data is likely to register the drought this coming year in even slower GDP growth estimates (2016 now expected being as low as zero to 0.5%), and inflation in 2016 being higher than expected in a 6%-7% range.

SARB will likely respect the spreading and deepening economic hardship but nonetheless will still pass the ammunition, as seen two weeks ago when it raised rates by 0.25% with its focus firmly on keeping inflation expectations anchored (a matter defined by Rand, food and electricity prices, and labour union demands), and likely further increasing interest rates in 2016, possibly by another one or two increments of 0.25%.

Imports will be getting a boost as agricultural exports suffer, worsening the current account deficit over the balance of payments.

The Minister of Finance will be approached for more financial relief, and some will be forthcoming, but probably not close to what will be required, in already severely straightened fiscal circumstance where there is much competition for limited funds, especially from the many public corporations and other state-owned entities desperate for more support.

Also, it remains to be seen how the government will choose to distribute such limited relief in what promises to be another milestone (local) election year. Clearly, many households (by some reckoning over 20% of the national total) may need some kind of (water) assistance.

The farming community, farmers as much as farm workers and their many suppliers and their workers,
will feel the pain of reduced means. In addition, there may be more community unrest, if water resources fail too frequently, or rising food prices lead to increased hardship.

This drought, if it continues through autumn 2016 as hinted at by the SA weather service on account of the extensive El Niño phenomenon in the eastern and central Pacific, would come at exactly the wrong moment in our national life when already greatly weakened by other events this decade. And this is before having to consider a multi-year drought lasting to the end of the decade.

We are already under siege from global strains (stressed commodity export earnings, reduced capital inflows and Rand weakness) and our many self-induced domestic strains (infrastructure, labour market, regulatory impositions, tax burdens, higher interest rates).

One hopes government will exert itself in providing relief and otherwise follow policies that will serve to ease the plight of the many in need rather than making things yet more difficult than they are already. Less foreign travel and more local focus could be a start. It might even start to affect the political election cycle, as the jockeying for position escalates.

KZN Business Sense - SA (multi-year) Drought Cees Bruggemans, Bruggemans & Associates, Consulting Economists

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