Violence indicates what is wrong with SA’s economy
THE worst antiimmigrant violence in South Africa in seven years has highlighted the woes of an economy hit by power shortages and unable to create enough jobs to bring down poverty.
Two weeks of mayhem last month in townships around Johannesburg and Durban left seven people dead and thousands of mainly African migrants fleeing their homes.
Television screens and newspapers were splashed with images of mobs armed with knives and sticks, targeting foreigners and looting their shops. Many of them are seen as competitors for jobs in a nation with a 24 percent unemployment rate.
The tension underscores deteriorating prospects for an economy that has suffered 40 days of rolling power blackouts this year and worsening labour relations characterised by violent strikes. It also highlights the ruling party’s failure to do enough to improve the lives of millions of black South Africans.
“Such attacks are not good and the general reputation of the country is impacted,” Mark Mobius, the executive chairman of Templeton Emerging Markets Group in Singapore, said.
“They are symptomatic of the general unemployment situation, the lack of investment, the inability of the government to make labour laws more flexible.”
The riots occurred almost a year after mineworkers ended a five-month wage strike that shut the largest platinum mines, followed by stoppages that forced car makers such as General Motors to halt production.
Rivalries between labour unions might contribute to further violent industrial action this year, Robert Besseling, an Africa analyst at IHS Global in London, said last week. This is symptomatic of the unemployment, lack of investment and inability to make labour laws flexible.
Credit-rating companies, such as Moody’s Investors Service, have warned for years that social tensions are a risk to the economy and restrict the sovereign rating. Moody’s downgraded South Africa in November to Baa2, the second-lowest investment grade level.
“South Africa’s growing reputation for social volatility is deeply troubling,” said Charles Laurie, the head of Africa at global risk analysis company Verisk Maplecroft in London.
The business environment “is already reeling from the country’s third-rate electricity system, volatile labour pool and rancorous political environment”, he said.
Parliament has been disrupted several times since President Jacob Zuma won a second fiveyear term in May last year, with opposition groups demanding he repay public funds used to renovate his private residence.
Zuma has denied wrongdoing and said several investigations had cleared him.
Investors’ perception of risk in South Africa has increased. The rand has slumped 14 percent against the dollar in the past year, while credit default swaps have climbed 29 basis points to reach the fourth-highest among 24 emerging and major markets.
The rand rose 0.1 percent to R12.0276 against the dollar in the afternoon on Friday.
The most immediate risk facing the economy this year is an electricity crisis that has cut production at firms such as Sibanye Gold and Hulamin. Eskom is implementing almost daily rolling blackouts as it struggles to meet demand.
The energy crunch threatens investment and puts the government’s growth target of 2 percent at risk. Last year’s expansion of 1.5 percent was the slowest pace since the 2009 recession.
“Eskom, from an investor standpoint, that’s probably our main concern right now,” Rune Hejrskov, a senior portfolio manager at Jyske Invest, said from Denmark.
Sporadic protests by mainly poor township residents against a lack of houses and services are another problem. Last week, police used tear gas and rubber bullets to break up crowds during three days of demonstrations in Soweto. – Bloomberg