South Africa’s Worn Windfall Welcome
South African equities rose 15 percent on the MSCI index in 2012 on positive foreign fund engagement despite the December ANC leadership battle where President Zuma was challenged by his former deputy, who was subsequently replaced upon defeat by wealthy business executive Ramaphosa as the gathering urged a “resources rent tax” previously put at 50 percent for strategic industries like mining. The party backed away from more aggressive expropriation calls and vowed not to be reckless with its “bold state intervention.” Ramaphosa’s seat on the board of beleaguered miner Lonmin was also attacked by labor activists who accuse the company of safety abuses and illegal dismissals after a lengthy strike. He is also chair of pan-continental telecoms giant MTN and Standard Bank, and while criticized for benefiting from black economic empowerment mandates his close relationship with Nelson Mandela, who experienced a sickness bout over the period, promoted the vice president candidacy. The President was dogged by a new controversy over home province spending as he appealed for unity after easily winning internal re-election ahead of the next national contest in 2014, when he may not seek another term as the century-old movement emphasizes fresh personnel and policies to ensure its legacy and age and investigations take their toll. After the vote he lambasted the notion that recent credit downgrades meant the country was “falling apart” and pointed to specific growth and job creation plans even as the wave of wildcat mine violence cost billions of dollars in direct and indirect losses. The sovereign rating is still investment-grade but the outlook is negative from the three main agencies on weaker public finances and increased social strife. Q4 saw recession and 2013 will repeat sleepy 2.5 percent GDP growth as official unemployment again teeters at 25 percent. Inflation remains stubborn at 5 percent on food and currency causes as the current account deficit is at a 5-year high near 7 percent of output. Fixed-income inflows have surged since entry into world bond indices, but public debt approaching 45 percent of GDP has introduced caution especially with a big infrastructure program underway to relieve housing, power, highway and sanitation shortages and provide employment.
The banking sector has come under scrutiny with almost half of consumers reporting impairment and the regulator describing a “ridiculous” expansion of unsecured lending which has tripled in recent years to one-tenth the total. Borrowing rates can be 30 percent and to collect banks have used court orders to attach worker wages in the absence of other relief measures. A range of smaller specialized providers have joined the “big four” in the personal, credit card and overdraft push. The problem could blemish the middle-class story propounded by the World Bank and private analysts ,with the continent’s per capita-income now estimated at over $1500 and average GDP growth leading developing regions at almost 6 percent in a good news windfall.
