Tip­ping point looms for SA

Lesotho Times - - Africa -

JO­HAN­NES­BURG — Not since Nelson Man­dela walked out of Vic­tor Ver­ster prison 26 years ago have in­vestors been gloomier about South Africa’s econ­omy.

Money is pour­ing out at a record pace as in­flows dwin­dle. The rand has plunged and un­em­ploy­ment is the high­est among al­most 40 de­vel­op­ing na­tions tracked by Bloomberg. Drought is driv­ing up food costs. Hang­ing in the bal­ance is the in­vest­ment-grade credit rat­ing South Africa sweated to achieve in 2000, shortly af­ter Man­dela left of­fice.

South Africans are pay­ing the price not just for a col­lapse in com­modi­ties prices — me­tals and min­ing con­trib­ute more than 50 per­cent of ex­ports — but for grow­ing ques­tions over whether Pres­i­dent Ja­cob Zuma is up to the task.

Stok­ing doubts were the an­tics at the Fi­nance Min­istry in De­cem­ber, when Zuma re­moved Nh­lanhla Nene and re­placed him with lit­tle-known law­maker David van Rooyen. As bond yields soared and the rand crashed, he changed his mind four days later and in­stalled Pravin Gord­han, Nene’s pre­de­ces­sor.

“The coun­try still faces se­ri­ous struc­tural chal­lenges, and the changes at the top of the Fi­nance Min­istry just re­con­firmed the pol­icy risks,” says Vik­tor Sz­abo, who helps man­age R185bn of emerg­ing-mar­ket debt at Aberdeen As­set Man­age­ment. “Things could get worse.”

Gord­han has said the govern­ment will do ev­ery­thing nec­es­sary to avoid a down­grade to junk, in­clud­ing rein­ing in free-spend­ing state en­ter­prises and stick­ing to ex­pen­di­ture ceil­ings.

“The trust to­wards South Africa dis­ap­peared,” said Hakan Aksoy, a Lon­don-based bond fund man­ager at Pi­o­neer In­vest­ment Man­age­ment in Lon­don.

Since mul­tira­cial elec­tions brought Man­dela to power in 1994, the econ­omy has grown an av­er­age of 3 perecnt a year, en­abling the rul­ing African Na­tional Congress to pro­vide hous­ing, wa­ter and elec­tric­ity to mil­lions of house­holds and ex­tend so­cial grants to more than 16 mil­lion peo­ple, while cut­ting govern­ment debt. The coun­try’s bench­mark stock in­dex soared to a record less than a year ago, while bond yields fell to record lows.

Since then, the bot­tom has fallen out. The com­mod­ity rout could leave the econ­omy grow­ing at the slow­est pace this year since 2009. The coun­try nar­rowly avoided a re­ces­sion dur­ing the third quar­ter, post­ing an­nu­alised ex­pan­sion of 0.7 per­cent.

Fitch Rat­ings on De­cem­ber 4 cut South Africa’s credit rat­ing one level to BBB-, the low­est in­vest­ment grade, and in line with the as­sess­ment of Stan­dard & Poor’s, which low­ered its out­look to neg­a­tive from sta­ble on the same day.

Gord­han, and in­creas­ingly Zuma too, recog­nise the chal­lenge.

In the past month, Gord­han has held meet­ings with heads of the coun­try’s big­gest com­pa­nies to ask their ad­vice on ways to stim­u­late the econ­omy, while Zuma promised mea­sures to ap­pease the rat­ing com­pa­nies, in­clud­ing spend­ing re­straints and pri­vati­sa­tion of some state-owned com­pa­nies.

The rand has re­cov­ered some losses, gain­ing 3.1 per­cent against the dol­lar in Fe­bru­ary af­ter plung­ing 27 per­cent in the pre­vi­ous 12 months, and bond yields fell.

While Gord­han’s state­ments since tak­ing of­fice have been “good sig­nals,” they may not be enough, ac­cord­ing to Kon­rad Reuss, S&P’S man­ag­ing di­rec­tor for Africa.

South Africa’s “dis­mal” growth is the rat­ing com­pany’s big­gest con­cern, while pol­icy will re­main un­der close scru­tiny fol­low­ing the re­place­ment of the fi­nance min­is­ter, he said.

His scep­ti­cism is re­flected in ac­cel­er­at­ing cap­i­tal flight. Do­mes­tic in­vestors more than dou­bled the amount sent over­seas to R24.2bn in the third quar­ter from R10bn in the pre­vi­ous three months, ac­cord­ing to cen­tral bank data.

For­eign in­vestors sold a net R43bn of stocks and bonds in the fi­nal five months of 2015; there’s no sign they’re re­turn­ing, with net out­flows this year at R19bn as of Fe­bru­ary 12.

While South Africa’s hardly alone among emerg­ing-mar­ket na­tions that rely on com­mod­ity ex­ports — Brazil and Rus­sia, among oth­ers, have seen their cur­ren­cies tum­ble and rat­ings re­duced to junk — the pol­icy bun­gles came at the worst pos­si­ble time. And with lo­cal elec­tions loom­ing this year, Gord­han will have to con­vince in­vestors he can with­stand political pres­sure to in­crease spend­ing.

“We are likely to re­main quite cau­tious at cur­rent prices,” said Kieran Cur­tis, the Lon­don-based di­rec­tor of in­vest­ment at Stan­dard Life In­vest­ments, which over­sees about R6.7trn and is un­der­weight South African debt.

“The wish list of things that in­vestors have is quite long and not re­ally very achiev­able with the cur­rent political dy­namic.”

— fin24.com CAIRO — An Egyp­tian court has sen­tenced an au­thor to two years in jail for pub­lic in­de­cency af­ter ex­cerpts of his sex­u­ally ex­plicit novel were pub­lished in a lit­er­ary news­pa­per.a chap­ter from Ahmed Naji’s novel Istikhdam al-hayat, or Us­ing Life, was se­ri­alised in a state-owned lit­er­ary news­pa­per and a case was brought against him last year by a pri­vate ci­ti­zen who claimed the ex­cerpt caused him dis­tress and heart pal­pi­ta­tions.

Naji was ini­tially ac­quit­ted in Jan­uary but the pros­e­cu­tion ap­pealed the rul­ing and he was sen­tenced to two years in prison in a re­trial on Satur­day, his lawyer said. The ver­dict can be ap­pealed. In the ini­tial rul­ing the court said it ac­quit­ted Naji be­cause free­dom of ex­pres­sion was en­shrined in the con­sti­tu­tion, adding that moral­ity was sub­jec­tive. The se­cond court is yet to an­nounce its rea­sons for over­turn­ing that rul­ing.

The news­pa­per’s editor was or­dered to pay a 10 000 Egyp­tian pound (about M20 000) fine. The sen­tence was viewed by fel­low au­thors, jour­nal­ists, and hu­man rights ac­tivists as an af­front to free­dom of ex­pres­sion. Sev­eral noted au­thors, some of whom tes­ti­fied in Naji’s favour at court, and hu­man rights or­gan­i­sa­tions, re­leased state­ments in sol­i­dar­ity. — Reuters

Pres­i­dent Ja­cob Zuma.

Newspapers in English

Newspapers from Lesotho

© PressReader. All rights reserved.