South Africa’s Unsecured Loan Lemmings
South African shares continued to sputter and the rand breached 10 to the dollar as mine workers entered wage negotiations with hard compensation and nationalization tracks and African Bank and other unsecured lenders reported record impairments on downscale household lines. The industry’s main union demands a double-digit salary hike far outpacing the government’s inflation plus 1 percent deal last year. Another round of strikes has begun after recent violence as ANC ruling party activists press a “radical economic shift” to lift the 10 percent black ownership stake. The renewed confrontation comes as precious metals which account for over half of exports experience sudden world price reversal which could aggravate the 6.5 percent of GDP current account deficit, although lower oil import costs will steady the balance. Through April $12 billion in bond inflows have poured in to bridge the divide, a clip equal to all of 2012 which Finance Minister Gordhan regularly cites as a monitoring priority. The central bank is expected to ease on 3 percent Q1 growth and CPI inflation at 5.5 percent under a revised method with business and consumer confidence in the doldrums. In addition to the uncollateralized credit deterioration, mainstream mortgage activity is flat after a decade-long boom as the big four banks suffered high single-digit default rates. The bonds issued to support the franchise fell by half to R17 billion through April and looming power shortages for the imminent Southern Hemisphere winter will further hurt borrowers. State monopoly Eskom plans to schedule interruptions as it faces maintenance backlogs and new plant construction delays. Renewable energy got over $5 billion in investment last year but has been slow to join the grid, according to advocates who helped host the 2011 UN climate summit in Durban. The utility’s financial drain weighs on the sovereign rating as the fiscal deficit is stuck at 5 percent on output undermining traditional discipline as overdue health and pension reforms are prepared.
Neighboring Zambia may also have to rethink Eurobond objectives as one agency assigned a negative outlook on copper price correction and “policy uncertainty,” including introduction of capital controls as a nominal tax avoidance measure after kwacha use was made compulsory for routine transactions. Export proceeds above $10,000 must now be repatriated within two months and offshore transfers require full documentation. The Sata administration claims mining group manipulations deprive it of an estimated $2 billion as it also precluded South African bank takeover of a local unit. Foreign investment rose 30 percent to $1.7 billion in 2012 and has often been accompanied by controversies such as a labor dispute with Chinese operators ending in killing and investigation by the UK’s serious fraud office of London-listed ENRC’s acquisition of metal properties. The President himself with the nickname “king cobra” has been accused of strangling political opposition as the Commonwealth of former British affiliates has recoiled at practices.
