Firefighters grounded in risky season

Six weeks ago, the South African Civil Aviation Authority (Sacaa) suspended helicopter and small aircraft operating licences for the government-funded job creation programme, Working on Fire, for failure to comply with legal requirements for holders of an air operator certificate.

Working on Fire is an expanded public works initiative employing more than 5 000 firefighters. Trading as Forest Fires Association (FFA) Aviation, it is also known as Kishugu and operates 47 aircraft and supplies more than 95% of South Africa’s firefighting aircraft.

August winds bring increased fire danger to Mpumalanga, where the forestry sector is crucial for the province’s economy. A runaway fire can, and has, destroyed millions of rands’ worth of timber in minutes.

The aviation authority said the licence suspension followed a spate of incidents and accidents involving aircraft operated by FFA Aviation, which prompted it to intensify its oversight and audit obligations.

Earlier this year, two incidents in the Cape saw three Working on Fire crew members die when their helicopters crashed.

In a July 16 statement announcing the suspensions, the aviation authority said: “Recent surveillance conducted on FFA Aviation yielded various findings, which according to Sacaa were serious … a certificate holder has a duty to ensure the organisation operates safely and its aircraft are properly maintained in line with the manufacturer’s manual and applicable regulatory prescripts”.

Naranda Leeuwner, Kishugu’s spokesperson, said its ground-based firefighting teams are not affected by the suspension and are operational. “We have subcontracted additional aerial resources. We have two subcontracted spotter aircraft and three subcontracted helicopters on duty. Our fixed-wing aircraft are operational on another AOC [air operator certificate].”

Sappi, the world’s largest manufacturer of dissolving wood pulp, procures aerial firefighting resources through local fire protection agencies. During fire season, any failure or incapacity of resources remains a concern for fire protection associations, and for Sappi and the forestry industry, said Duane Roothman, general manager for Sappi Forests Mpumalanga. He added that private land owners spend about R2-billion on proactive fire management.

Sappi in Mpumalanga alone has deployed more than 750 firefighters. “It is essential we remain self-reliant in managing our fire risk. Similarly for the other corporate timber growers. Working on Fire resources are seen as supplementary and focused on managing the risk in neighbouring communities,” Roothman said.

Over the past five years, there has also been a consideration of fire protection associations in Mpumalanga to procure resources and services from various operators to limit the risk of exposure to a total failure of a supplier to deliver resources, he said.

In the Lowveld and Escarpment Fire Protection Association July newsletter, its manager Andre Scheepers said that as of August 1 plans were in place to use alternative aerial support during the fire season and an additional 10 firefighting teams were sent from the Cape and North West provinces to assist the Lowveld teams, because of the “dangerous nature of the area’s fire risk”.

Leeuwner said Kishugu is undergoing a five-phase re-evaluation process of its certificate by the authority. “Sacaa is doing its utmost best to expedite the process but it still remains a time-consuming task.”

Sacaa spokesperson Phindiwe Gwebu said Working on Fire had given its full co-operation and has shown commitment to rectifying all the concerns raised by the authority.

“Sacaa will continue to provide the necessary guidance to the operator until such time [as] the regulator is satisfied that safety is no longer adversely affected,” she said.

Rand's spiral offers no real silver lining

Amid poor economic data, most notably poor gross domestic product (GDP) numbers and a weakening currency, the low oil price is a reminder that things could be worse.

While commodity prices continue to fall as China falters, South African motorists rejoice because a lower oil price likely means a drop in the petrol by as much as 70c next week. Of course, the price drop would have been higher had the weak rand not offset some fuel-price benefits. The rand traded from between 12.95 to 13.67 this week – weaker than 11.27 in January, or 10.62 last September.

A weaker currency is not all bad news. It may make imports costlier, but would see South African exports become cheaper globally – a boon for export-oriented sectors.

As energy constraints dragged economic growth in the second quarter, it may prevent export-orientated industry from taking advantage of the weak currency through expansion.

Said Azar Jammine, chief economist at Econometrix: “Possible benefits for the real economy could transpire for this kind of situation, but we don’t want to overstate that: there is a lot of industrial action in mining and manufacturing, and issues with tourism, preventing us from capitalising on the low rand as we should.”

Tourism numbers released by Statistics SA this month show a slow growth of 0.1% between 2013 and 2014. New, stricter visa regulations introduced recently by home affairs, critics say, will have a negative effect on tourism. India, whose currency trajectory against the United States dollar is similar to that of the rand, last week reported a 1 000% growth in tourism since it introduced a fuss-free e-visa nine months ago.

Economists believe farming benefits from a lower fuel price, which constitutes about 11% total variable costs of grain production.

According to Grain SA economist Wandile Sihlobo, the lower price is welcome – but would have been a larger drop had the currency not weakened as it had. The weaker rand is negative for agriculture in other ways, especially at this time of the year when farmers start preparing their soil for the next season, he said.

“South Africa imports roughly 70% of the domestic fertiliser consumption and 98% of agrochemicals, so a weaker rand worsens the inflationary effects in these products,” he said. “Fertiliser constitutes roughly 30% to 35% of total variable costs of grain production, so an increase in prices will lead to increased input costs and add pressure to farmers.”

Mining incurs costs on domestic currency but it earns in dollars and benefits from a weaker currency.

René Hochreiter, an analyst at Noah Capital Markets, said not all platinum group metals miners would benefit from the current economics. By calculating the last reported costs of a company, the spot rand price and platinum group metal (PGM) prices, Hochreiter determines how many out of 15 PGM companies are working at a loss at any given time.

“At the beginning of the year, when PGM prices were higher and the rand was stronger, we had four mines working at a loss. If we go back to 12.50 to the dollar, and a lower PGM price, five mines were working at a loss.”

For every mine’s margin to be positive, the rand must go to R15, he said. The inflationary pressures coming with that kind of exchange rate would affect wage demands.

Nedbank chief economist Dennis Dykes said the inflationary effect of the rand at the moment was not coming through as it normally would. This is clearest in durable goods inflation, which grew 2.4% year on year. This, Dykes said, is an indication producers cannot push price increases through to consumers. “There is no demand-led inflation. It’s been a very bizarre time.”

Jammine was reluctant to adjust his inflation forecast. “Oil prices have fallen dramatically, but that is part and parcel of the same story of the rand falling, which is weak Chinese demand, which resulted in weak commodity prices more generally.”

It’s likely the weak currency’s downward trend will outperform the benefits from the oil price, he said, noting that the weighting of petrol in the consumer price index basket is 5.68%, whereas imports played a more substantial role in the economy and, as such, rising import costs will have more of an effect.

According to Dykes, current circumstances may translate into a narrower current account deficit, but for the wrong reasons. “The deficit could come in smaller than expected, but for reasons related to less imports and no export response. As far as fiscal deficit is concerned, the circumstances only make things worse. If GDP growth is weak, it will have an impact on business and then income tax won’t be as high as expected and sales tax will also be affected.”

GDP figures are not just at risk of simply being weak; the latest numbers have ignited concerns over a recession when numbers for the second quarter of 2015 showed a decline in growth by -1.3%. Year on year the economy grew by 1.2%, which was well below market expectations.

“There is a real risk South Africa will experience outright economic recession over the coming quarters,” said Stanlib chief economist Kevin Lings, adding it was crucial that economic policy leaders find ways to encourage business investment. He said this could be achieved with firmer implementation of the national development plan, targeted infrastructure development and labour market stability.

“Government should increasingly adopt a more practical approach to resolving key infrastructural bottlenecks,” he said.

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