It is clear that after a number of decades of underinvestment, Eskom is now playing catch up. It is often said that, children pay for the sins of their parents. This is perhaps, never more true in underinvestment in fixed capital stock. Oh the principle of compound interest! Clearly the supply-side analysis and forecasts did not envisage the aggregate effects of changes in the level of demand in subsectors of the electricity market–particularly changes in household demand. This is a bit like with the sudden demand for road infrastructure. Where did all the traffic come from? This happens when a system designed to meet the needs of a small proportion of the population suddenly realizes that its supply capacity has to play catch up. What is the appropriate solution? Certainly not blank...
Are we surprised? No. The sense of uncertainty wrought by the crashes of financial institutions and the subsequent tightening of inter-bank, corporate and retail credit markets is still fresh in the minds of most investors. Debt is still expensive and equity ever more so. The large scale injection of liquidity agreed to by the G20 will take a long time to filter through the system. In the long-term (2 or 3rd quarter of 2010), the injection is likely to have a liquidity effect. In the short-term, there is some fear that the inflation costs will be much greater than the investment and fixed capital formation incentive. This is a somewhat valid, yet, second-order problem. The full economic cost (and in South Africa read large social cost) of unemployment and reduction in fiscal receip...
We have just read an interesting article in today’s Business Report, Daily Star, that research by Investec Asset Management suggests that an inappropriate index has been used to calculate the consumer price index – minus mortgage costs (CPIX). The authors of the research argue that had the revised Statistics South Africa (Stats SA) index been used, the inflation measure would be 8.7% as opposed to 10.9%. All well and good. And we’ll come back to the issue of the index momentarily. But having made the point that the components of the index used to calculate inflation are wrong, they then attempt to make the more tenuous link between that statement and the decisions of the Monetary Policy Committee (MPC) of the South African Reserve Bank. The two nee...
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