South Africa’s Development Bank Dabbling
South African shares stayed at the main market rear as the BRICS annual reunion in Durban was unable to finalize capital and management arrangements for a joint development bank, although a shared $100 billion currency pool was agreed. Rivalry with the traditional industrial-country influenced Bretton Woods institutions was downplayed as participants cited trillions of dollars in unmet infrastructure needs as the prevailing rationale, despite state-run lenders for that purpose among the five members. The initial size proposed in the $50 billion range was just over double Brazil’s BNDES portfolio last year, and ignored the local DBSA’s difficulties in extending the cross-border electricity grid with monopoly Eskom’s shortages at home which have ravaged the mining sector along with strikes. Contingent liabilities for the government’s power, road, and airline holdings jumped 20 percent the past fiscal year and sent CDS spreads to 175 basis points, with the sovereign rating already on the downgrade brink for subpar growth and budget results described as “non-delivery” by S&P. Finance Minister Gordhan warned interest payments would soon be greater than important health and security outlays, and global houses have moved underweight on local bond positions which have leveled since entry into the biggest benchmark index. Stubborn inflation above 5 percent limits the central bank’s maneuver room as the current account deficit at 6.5 percent of GDP hurtles the rand toward 9.5 to the dollar as the worst-performing currency. Despite hosting the event, President Zuma with the re-election season approaching criticized the wave of low-cost Chinese imported goods undercutting domestic shops as “unsustainable.” The opposing Democratic Alliance has shown broader support in early soundings and a new party has been launched by disgruntled former ANC activists. The youth wing has now been purged of the top rung after the expulsion of its militant leader who stirred mine-worker anger and currently awaits trial on money-laundering charges.
With these pre-occupations the President did not weigh in strongly on the constitutional referendum in Zimbabwe, which got 95 percent approval to keep intact double-digit stock market gains. The draft changes were completed two years behind schedule and would allow octogenarian President Mugabe in power since independence to run for two more terms. The MDC headed by government co-chair Tsvangirai appealed for backing as a compromise document, which will also bolster parliament’s role and resources even as the finance minister reports empty coffers. Earnings from the Marange diamond fields have eluded tracking and are expected to be channeled to rural ruling party constituencies once a new poll is announced. Strong-arm tactics were employed during the charter voting as observers were detained, but the EU relaxed aid and commercial sanctions in the aftermath as signaled while preserving them against Mugabe and his allies personally. Despite passage he may still fear fate as an ex-president given the recent example of his former colleague in Zambia facing trial for corruption in the softer infrastructure.
