Youth wage subsidy going nowhere very slowly

Economic Development Minister Ebrahim Patel went to great pains in a debate on the youth wage subsidy in the National Assembly two weeks ago, to demolish any possibility of the notion becoming government policy. The wage subsidy had been implemented in the DA-ruled Western Cape, and the province had lost jobs.

Patel’s remarks came after Deputy President Kgalema Motlanthe assured members of the assembly the previous day that the matter would be appropriately dealt with in the debate by Patel.

Yesterday again, DA parliamentary leader Lindiwe Mazibuko said she was “not sure whether [the deputy president] had briefed [minister] Patel properly… because we didn’t get any answers there is more doubt about the subsidy now than there was before”.

Motlanthe chose his words carefully. He noted that it had been announced in the State of the Nation Address in 2010 by President Jacob Zuma. Then National Treasury had included it in its budget vote. As was normal it was referred to Nedlac, which was the forum which got business, government and labour together, to agree on policy matters.

When pressed on when this body was going to come to a conclusion about the youth wage subsidy – which led to a march by DA supporters on Cosatu’s headquarters earlier this year – the deputy president chuckled: “That will happen at the conclusion of the Nedlac discussions… that will happen. It may not be in the original form… it may be enriched… it may be in a more effective way.”

Sounds as if that policy is not getting anywhere very fast, very soon even though he thanked the DA for “embracing” a policy announced by the president. “That should be welcomed, thank you.”

Fracking

The nation will likely soon know officially what government’s attitude to hydraulic fracturing in the Karoo is.

Fracking is the extraction at great depths under immense water and chemical pressure of shale gas.

An announcement is expected to be made by Mineral and Resources Minister Susan Shabangu after a multi-departmental report is submitted on the potential of the industry. It is expected that an 18-month moratorium on exploration will be lifted.

Meanwhile, Chris Bredenhann, the PricewaterhouseCoopers (PwC) southern Africa energy leader, has released an analysis of the potential of the natural gas industry in South Africa. While he points out that Business Monitor International indicated that South Africa had only 0.7 trillion cubic feet (tcf) of proven natural gas reserves – which is very little – there were other estimates which indicated vast “albeit unproven” reserves. A study by the US Energy Information Agency on shale resources outside the US, concluded that there may be as much as 1 834tcf risked gas in place and 485tcf recoverable reserves of shale gas in the Karoo basin.

This would rocket South Africa into fifth position in terms of shale gas reserves outside of the US. The basis of this estimate was a desk-top study of the geological formations “and drawing conclusions on the potential reserves based on the geology and experience with the exploration of shale gas in the US”. While the Petroleum Agency of SA (Pasa) was unable to confirm the estimate, it referred instead to “a multi-tcf opportunity”.

“While the recoverable reserves estimate can be disputed, the fact remains that this more than likely represents the single biggest potential natural gas reserve in South Africa. To put this in perspective, the PetroSA Mossgas GTL plant was developed on the basis of proven reserves of 1tcf… shale gas could transform the South African energy industry,” Bredenhann said.

With Pasa saying this sort of thing, one can just guess where the fracking pendulum is swinging.

Lending

While credit providers and credit analysts argue over whether the unsecured lending market was a bubble, the National Credit Regulator (NCR) has warned that the majority of unsecured personal loans were given to consumers who were vulnerable to changes in economic conditions.

According to the NCR, should economic conditions deteriorate, this advancing of loans could have a significant impact on consumer credit health. Given the current uncertain environment, the deterioration of economic conditions is something that could happen at any time.

But more concerning, was that events such as severe illnesses could change the consumer’s ability to service the debt.

Unsecured personal loans were often given to consumers who did not qualify for other forms of finance due to their risk profiles. These consumers, classified “higher risk”, were charged higher interest rates and this contributed to such consumers having significant levels of impaired accounts with credit bureaus.

The report showed that many unsecured personal loans were written at close to the interest rate cap of 32.1 percent for higher-risk customers. Between 38 percent and 46 percent of consumers had accounts that had been in arrears for more than three months. And about 3.6 million of these consumers were “deeply impaired”.

The NCR said continuous high growth in unsecured personal loans would raise consumer credit sustainability questions.

At R120.8 billion, unsecured lending made up 9.1 percent of the respective debtors’ book in the first quarter of 2012.

This represented 49.4 percent growth year on year. Factors that have influenced growth in unsecured lending include the relative ease and speed at which these types of loans can be obtained.

Although unsecured personal loans had not fully replaced secured lending, the NCR said the recent increase in unsecured personal loan amounts to a maximum of R230 000 over a maximum period of 84 months by Capitec, consumers could finance more assets this way.

Edited by Peter DeIonno. With contributions from Donwald Pressly and Londiwe Buthelezi.