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Forget El Nino – drought is already scorching southern Africa’s economies

In September, Zambian President Edgar Lungu said the country’s 2019 economic growth forecast had been halved to 2% from 4% in the face of a persistent drought that has hit crop production and hydroelectric power generation. 

In perennial basket case Zimbabwe, where decades of mad policies and outright looting have shattered the economy, gross domestic product (GDP) is expected to contract this year, as drought puts the finishing touches on Zanu-PF incompetence. Malawi has also experienced slower economic growth because of poor rains. 

For Zimbabwe and Zambia, a critical point may have already been reached on the power generation front. The Kariba Dam is a major source of power for both countries. According to the Zambezi River Authority (ZRA), which manages the dam, Kariba’s capacity at the end of September was 17%, compared to 74% at the same time last year – a dramatic decline that one assumes could almost be caught on slow-motion video. Curiously, the levels, which are meant to be updated daily, have not been updated since 29 September. Queries to the ZRA about this unusual state of affairs went unanswered. Perhaps their internet is slow because of power cuts. 

Closer to home, the water situation is also worrying, if not quite at the point where the lights might go out because of drought: Eskom is so stuffed up that they go out anyway, rain or shine. Minister of Water Affairs Lindiwe Sisulu on Monday 28 October outlined a worrying dam situation and water restrictions, saying: “There is no need to panic”, while urging consumers to curb their consumption as we are headed for “a long dry season”.

 
“Water shedding” is not seen imminently but is a possibility if consumers do not stick to restrictions. How much of this challenge stems from poor maintenance and planning and how much from climate change is an open question. 

Dam levels are lower in every province compared to the same period in 2018, according to data on the Water Affairs website. Gauteng’s levels are 85% compared to 98% at this time last year, which doesn’t look that bad at first glance. But one of the key back-up systems, the Katse Dam high up in the Lesotho Highlands, is down to 13.6% compared to 49% this time last year. The Eastern Cape’s dam levels are down to just over 51% from 65% last year, and many parts of the province are utterly parched. 

What are the economic implications? South Africa is not as exposed on that front as its northern neighbours, which have a heavier reliance on agriculture. Still, the economy will hardly be unaffected if the farming sector here also gets scorched. 

In the second quarter of 2019, the sector’s 4.2% decline accounted for a 0.1% decline overall on the GDP figure. That may not sound like a lot, but economic growth is widely expected to not even reach 1% this year. If the sector maintains a steady and significant contraction, overall growth will be lower at a time when the economy needs all the help it can get. 

The production of maize – the caloric staple for lower-income households – is a crucial area to monitor. For the past season, the government’s Crop Estimates Committee (CEC) has pegged the harvest at just over 11-million tonnes, up marginally from last year and which is (just) sufficient to meet domestic consumption. But the dearth of rains has lead to a steady increase in prices. 

White maize futures contracts are up 21% year-on-year to more than R2,800 a tonne. That, in turn, has triggered a scenario where farmers are expected to plant more hectares than last year to take advantage of rising prices. The CEC’s estimate on the “intentions of producers to plant summer crops” sees the area devoted to maize increasing by more than 9% for this coming season.

The problem is that it has generally been too dry for farmers to plant. The optimal period to plant in the eastern side of the maize belt is October 15 to November 15, in the west it is November 15 to December 15. This correspondent drove last week through parts of the eastern section and saw little evidence of planting, and farmers in the west complain that they cannot even begin preparing fields.

“It’s very dry and some of the borehole levels are even dropping and that’s a big concern. For maize planting, there is nothing on the horizon. We can’t even begin preparing the fields,” Tom van Rooyen, a large-scale commercial farmer in North West province, told Business Maverick. 

The long-range rain forecasts for mid-summer do look promising, but plantings may get off to a late start, which could have a negative impact on yields.

So far, food price pressures have been muted, but they have been accelerating from a low base. Food price inflation in September was 3.9%. A significant increase beyond these levels would take a heavy toll on lower-income households at a time when the unemployment rate is 29%. It will also fuel wage demands among lower-wage workers in sectors such as mining, which will have wider economic consequences. 

The one restraint on food prices is demand, given the generally dismal state of the economy. 

“I’m bearish on food price inflation. This is because of weak demand from households. The retailers know their customers don’t have money, so they have been absorbing higher costs,” Wandile Sihlobo, head of agribusiness research at the Agricultural Business Chamber (Agbiz), told Business Maverick. This, in turn, will eat into the margins of retailers in the food space. 

And all of this is unfolding at a time when there is no El Nino, a cyclical warming of ocean surface temperatures in the eastern and central Pacific which often brings drought to the region. According to a study published last week in the Proceedings of the National Academy of Sciences, climate change is triggering more extreme El Nino events, raising the spectre of more intense droughts and other weather events. 

This long, dry season may prove to be very long and dry, with profound implications for the domestic and regional economy. BM


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