South Africa’s Hobbled Ability Abstention
South African banking shares were slammed despite overall MSCI index advance as unsecured consumer lender Abil was saved by a $1.5 billion central bank-orchestrated rescue split among big banks which wiped out shareholders and junior bondholders and spurred ratings agency industry downgrades. Big portfolio managers including the giant state pension fund were hit by the losses and demanded investigations into management and regulatory performance prior to collapse. Household debt remains high at an estimated 75 percent of disposable income, but the four major mainstream institutions have 15 percent capital adequacy ratios and cut uncollateralized personal borrowing to less than 5 percent of the total as the economy veers on recession. The chief executive of Standard Bank denied contagion but admitted to confidence and earnings shocks from the failure, the first since the late 1990s. Unsecured loans tripled since the 2008 crisis to 90 billion rand and Abil touted its aggressive business model which relied on wholesale lines rather than deposits to support credit extension routinely above the original customer application. It also diversified into retail furniture and could not ultimately pay for the acquisition, according to analysts. The end of a prolonged mining strike enabled positive Q2 output results but another 2 percent growth year is likely with unemployment unchanged at 25 percent despite President Zuma’s “jumpstart” commitment to a 5 percent annual rate. He cited vague “interventions” to accomplish the task but has yet to propose specific policies as the post-election parliament convened with the ruling ANC challenged by the new radical EFF party calling for capital controls and nationalization. His attention has also been diverted by a scandal over expensive home upgrades in the name of “security” with opponents demanding he reimburse the appropriation, and by a recent military ouster of the elected leader in Lesotho which was a homeland in the pre-apartheid era and still is contained within Pretoria’s orbit with close commercial and government links. It has been a major beneficiary of the US’ AGOA duty-free program with Asian textile exporters based there and has run a mirror monetary policy and been a South African Development Community member. Agricultural production has contributed to food price moderation as headline inflation fell to 6 percent keeping the Reserve Bank on hold, but additional tightening may be imminent should the current account deficit persist at 6 percent of GDP with the rand/dollar above 11.
Neighboring Botswana’s stock market has been sluggish with 4 percent growth on slowing diamond exports and an EU beef import ban due to disease. The President declared a moratorium on game hunting affecting tourism and electricity and water shortages continue despite top governance and natural resource management scores according to the IMF’s latest review. In Zambia and Zimbabwe as well the political outlook has soured as ill health triggers renewed presidential succession intrigue with President Mugabe receiving just one-fifth of the $10 billion Chinese aid package sought during a Beijing visit as commodity and actuarial tables collided.
