South Africa’s Trapped Power Pursuit

South African shares were flat as new finance ministry and central bank heads came on board and indicated harsher fiscal and monetary stances as state power company Eskom also on the cusp of ratings downgrade received an emergency rand 20 billion injection. Minister Nene halved the growth forecast to 1.5 percent with the budget deficit at 4 percent of GDP and consolidation a priority to avoid a medium-term debt “trap.” The gap will be reduced to 2.5 percent of GDP through spending freezes although tax rises may be the main strategy. He lamented structural lags in the labor market, energy and bureaucracy as the toll of the months-long platinum workers strike continued to hurt business sentiment. Civil servants have also demanded wage hikes at double current 6 percent inflation as the government threatens layoffs in response that will worsen 25 percent unemployment. The rand has tipped toward 12 to the dollar and although inflation has leveled central bank chief Kganyago is expected to tighten policy against exchange rate and price pressures. As a prominent deputy he was known for hawkishness and close ties to the ruling ANC party, which now faces centrifugal forces from within and outside as the rival Democratic Alliance gains diversity and credibility with mayoral posts and the Economic Freedom Fighters founded by dissident Malema draw supporters. The metalworkers union has withdrawn backing for the next election, as President Zuma contends with rumors of ill health and corruption and malfeasance charges from multiple episodes. His number two Ramaphosa is well-liked by the business community for his successful black economic empowerment deals but his political antenna and charisma are limited according to observers. The slower growth conforms to the IMF’s latest regional projection of 5 percent with commodity slowdown, disease outbreak and infrastructure defects, as both domestic and external African bonds were punished with the bad news combination in October. Ghana suspended local issuance and Uganda and Ethiopia indefinitely shelved international debuts. Kenya announced further tax-advantaged infrastructure bond floats to quell unease over President Kenyatta’s submission to The Hague International Court for human rights abuses. Nigeria was formally declared Ebola-free by the World Health Organization after physicians were infected from a Liberian traveler, but the Finance Minister admitted energy price weakness was hitting the currency and fiscal backstop ahead of elections.

The IMF visited Zimbabwe at the same time South Africa’s senior posts were reshuffled and agreed to extend the staff monitoring program through 2015 as shares were slightly negative on the MSCI frontier gauge. Mozambique’s presidential election was close but the post-independence dominant Frelimo candidate triumphed and promised to better manage hydrocarbon riches after numerous scandals and accumulated public debt at 50 percent of GDP. The head of another former guerrilla group was the main opponent and a third party emerged as a viable presence. Growth is again running at 8 percent as $50 billion in investment should arrive for gas discoveries which have caused tempers to flare among the bypassed poor.

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