South Africa’s Remorseful Birthday Gifts
South African shares and the rand were down 15 percent for the year as former head of state Mandela marked his 95th birthday still under hospital critical care and current President Zuma released a several hundred page development strategy envisioning 5 percent growth not seen since the immediate end of apartheid along with increased wage, subsidy and health spending not assigned a price tag for feasibility. The blueprint came in the wake of an OECD report on “longstanding economic problems” contributing to the estimated 5 percent of GDP fiscal deficit with energy waste high on the list as the state power producer again previews winter shortages. The IMF cut the growth forecast to 2 percent in its July update, as inflation remains at the upper target range with the central bank on hold and the benchmark bond yield at 8 percent. Along with currency depreciation, miners in biannual negotiations are demanding double-digit salary hikes and again threatening violence as gold output has tumbled 15 percent on an annual basis with per ounce costs now outstripping world value. Militant factions dominate the union and previous ANC youth head Malema seeks to organize them into a broader “Economic Freedom Fighter” party he announced while continuing to face corruption and money-laundering charges. Another opposition grouping was launched by a well-known transition figure and veteran World Bank executive, as the older Democratic Alliance has shown support beyond traditional white voters in advance of next-year’s elections where President Zuma will likely try to extend his tenure. Business confidence is at a decade low as the banking sector deals with a souring chunk of unsecured loans which has hammered consumer specialist listings on the Johannesburg exchange like Abil. In a recent review Moody’s described micro-borrowing as “severely bruised” as the fallout hits retail sales as well. The big 4 banks must gird for weakness in this segment as well as pullback in external funding lines as global and Sub-Saharan monetary and commodity conditions regroup. These pressures have slashed facilities for state-owned enterprises that now rely increasingly on the corporate bond market, with this year’s issuance up 70 percent.
The firms have tried to lure high-yield foreign investors whose government paper buying though mid-year was off 80 percent from 2012 despite narrowing of the current account gap. They still own over one-third the amount outstanding, with local pension funds and insurers the other big non-bank participants controlling half the total although allocation has also steered abroad with gradual liberalization. Further opening however may be delayed as gross foreign reserves continue to sink to $45 billion, amid populist calls for renewed capital outflow curbs. The massive government pension pool is embroiled at the same time in a shareholder action against the new management of pan-African Ecobank for unpaid and unreported personal loans as the leadership succession there is a mixed occasion.
