South Africa’s Gripping Gordhan Knot
South African shares tumbled further as the central bank lifted rates half a percent for the first time in five years, and Finance Minister Gordhan unveiled the pre-election budget keeping the deficit at 4 percent of GDP despite better tax collection. To help address 25 percent unemployment he offered inflation-adjusted relief on lower-income brackets and a menu of job training and equipment upgrade measures, as the rand skidded through 11 to the dollar on heavy bond outflows in January. Fitch ratings noted that currency weakness could hurt transport and utility companies in particular borrowing abroad although many also export and can access local hedging products. Platinum miners repeated a stoppage that pared economic growth to 3 percent as they were courted by radical presidential candidate Malema pledging nationalization and executive punishment. The ANC ruling coalition is split on a Zuma repeat bid as surveys show it receiving an historic low 60 percent of the vote on corruption scandals and incipient opposition party efforts to unify. Independence hero Mandela’s death has evoked popular reflection on the two decades since apartheid’s fall and calls for a younger leadership generation to assume the mantle. A vocal lobby urges greater state intervention to control prices with 6 percent inflation and direct investment toward wider capital ownership and labor-intensive sectors, with the $150 billion public pension fund a main actor as it takes an activist position and expands its portfolio throughout the continent, such as the $300 million stake bought in Nigeria’s Dangote Cement last year. The stock exchange has slumped since and is off double-digits though February as the central bank head was summarily dismissed before retirement for circulating allegations of missing oil billions the Finance Minister reacted to with a formal audit. The currency hit a record low on rumors the fluctuation band would be abandoned for depreciation as reserves again shrank to $40 billion. The North-South split was underscored by the action as President Jonathan mulls a 2015 re-election attempt, and Governor Sanusi decamped for a London think tank while vowing to fight his firing. His post will be filled by the CEO of Zenith Bank who is well-respected as rivals like Skye continue to raise money for stiffer prudential requirements. Amid the reshuffle the diaspora bond issue slipped from the calendar, as long-telegraphed neighboring sovereign debuts like Kenya’s also await positive market conditions.
South African firms have turned more fearful toward Zimbabwe, where MSCI performance so far this year is negative, as the Mugabe government reaffirms its indigenization policy of assuming minimum 51 percent stakes and the President spends long stretches in Singapore receiving medical treatment for unknown illness. The central bank is insolvent and banks are forced to subscribe to Treasury bills to cover large deficits from security force outlays. GDP growth was 3 percent in 2013 and the IMF recently extended its staff monitoring arrangement already twisted by loopholes.
