South Africa’s Stalwart Alliance
South African shares slid clearly into the negative column after the opposition Democratic Alliance held the ruling ANC to a 60 percent popular vote in local elections and diversified its support base beyond better-off white citizens. National opinion surveys revealed routine dissatisfaction with public service delivery which DA control in Cape Town had worked to rectify, and poor marks assigned to President Zuma’s anti-poverty and unemployment record since taking office. The ANC’s Youth League has mounted its own attack on the government for shrinking from stronger state economic intervention including nationalization and capital controls, while the labor union federation has assailed its “corruption and greed” as it presses for wage rises above current 4 percent inflation. Planning Minister Manuel has openly warned of reverse racism affecting business policy, with black majority interest groups accusing successful Indians of “colonial” behavior. Despite the commodity boom in gold, platinum and other minerals, GDP growth at 4 percent lags Sub-Saharan neighbors as household debt and lackluster private investment weigh on prospects. The PMI hovers at 55 with ample slack in manufacturing capacity, although auto activity has recently picked up in contrast with the moribund clothing sector. The rand remains a favorite carry currency with benchmark bond yields at 8 percent, but has tumbled to 7 against the dollar as the current account deficit is set to widen to 3.5 percent of GDP. Inflation, pushed by oil import costs, is due to touch the upper 5-6 percent target range, but the central bank has paused in its hiking cycle. Europe’s and Japan’s difficulties are choking exports, as trade and financial ties with fellow Brics deepen following the country’s debut at an April summit in China. Local fund managers have already redirected debt and equity allocation to these outside big emerging market destinations following capital account liberalization in the last budget.
Firms have also signed up for a major foreign investment conference in Zimbabwe as octogenarian President Mugabe calls for fresh elections to end the teetering coalition and immediate implementation of the indigenization law mandating 51 percent ownership of multinational operations. Discussions with Western official lenders on clearing $7 billion in accumulated debt are at a standstill, as domestic banks also grapple with non-performing portfolios at one-third the total. The central bank itself had to be recapitalized and no longer manages exchange rate policy with the multiple circulation of the dollar, euro and rand. Despite the political push by ZANU-PF loyalists, economic officials have questioned whether the $500 million estimated expense of new polls is affordable as democracy and free-market campaigners are crushed by mounting bills.
