Top business news: Recession, electricity hikes and credit cleansing

Fears of a full-scale recession, electricity hikes and debt forgiveness plans are some of the hot business news stories on Fin24.

SA enters recession as GDP contracts for a consecutive quarter

Gross domestic product contracted 0.7% for the first quarter of 2017, indicating that the country has entered into a technical recession, according to deputy director general of Economic Statistics at Statistics South Africa (Stats SA) Joe de Beer.

The latest GDP data was released by Stats SA on Tuesday.

The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016. In 2016, the economy grew only 0.3% for the year.

Recession shock knocks volatile rand

The rand has see-sawed backwards heavily after Stats SA revealed the country is in a technical recession for the second time in eight years.

The Madiba-clad currency erased gains made in a strong morning against the dollar, which saw the rand strengthen by 1% at 04:20 to trade at R12.69 to the dollar. By 12:25, it had reversed these gains, dropping 1.4% to trade at R12.89/$.

Yields on rand-denominated government bonds due December 2026 rose 6 basis points to 8.49%, the first increase in five days. The six-member banks index extended declines after the release, dropping 1.7% in Johannesburg.

Nersa and Eskom win appeal over interim tariff increase

The Supreme Court of Appeal on Tuesday upheld an appeal by energy regulator Nersa and Eskom, setting aside a high court judgment which had originally set set aside an interim tariff increase in 2016.

Eskom no longer has to pay back a part of the 9.6% additional tariff increase that Nersa approved in 2016.

It means that Regulatory Clearing Account applications have to be considered, former acting Eskom CEO Matshela Koko tweeted on Tuesday. “The rule of law indeed works in SA.”

The high court in Johannesburg had ruled in August 2016 that Nersa must review its decision to allow Eskom to increase prices from April 1, after a group of business people argued Eskom needed to be more open about its expenses.

Nersa, which sets prices Eskom can charge its customers, gave the power utility permission to recoup expenses it hadn’t budgeted for in fiscal 2014 by raising tariffs an average 9.4% starting April 1 2016, more than the 8% it had initially allowed.

Govt's debt forgiveness plan 'dangerous', warns CEO

Government’s intention to implement a debt forgiveness programme for over-indebted households poses a major threat to the financial sector, according to Neil Roets, CEO of debt management company Debt Rescue.

In a discussion document presented to Parliament, MacDonald Netshitenzhe, acting deputy director general at the consumer and corporate division of the Department of Trade and Industry, said the National Credit Act (NCA) currently makes no provision for the minister to provide any debt relief in specific circumstances.

If government decides to go ahead with its intention, which is currently in the planning stage, it will ultimately be the banks who will lose out when lenders are unable to service their loans, Roets said.

“The only way in which banks will be able to recoup their losses will be by charging higher interest rates for what will be perceived as high-risk loans.”

According to Roets, it would also make it more difficult for consumers to obtain loans because unsecured debt will be viewed as ultra-high risk if there was the possibility that it could be written off.