South Africa’s Explosive Mine Misery
South African stocks and bonds reeled with paltry Q3 GDP growth at 0.7 percent due to auto and mining strikes and soft consumption with unsecured credit pullback, as Eskom power outages reappeared and the ruling ANC party suffered further union and political splits as President Zuma prepares a re-election bid. A coalition wing is promoting a more business friendly candidate as the metal workers leader associated with the main labor federation is an avowed Marxist. Early polls show the opposition paring the margin to 60 percent with inflation and unemployment respectively at 5 percent and 25 percent a multiple of anemic 2 percent economic expansion. Collective wage settlements after initial demands for double-digit annual increases were moderated but rand depreciation at a 20 percent pace against the dollar hurts costs. The fiscal and current account deficits are both in the 5 percent of GDP range through next year, and short-term debt/reserves is steep at 65 percent. Capital outflows resumed in November with the Johannesburg exchange off 10 percent and ratings agencies signaling a possible downgrade early in 2014 compromising benchmark world index inclusion. The central bank has resisted calls for currency intervention but diversified holdings into Chinese renimbi to reflect closer trade and financial ties. The budget in turn envisions restraint in generous official perks as corruption scandals proliferate among the government and its allies heading into two decades post-apartheid and the release of a new Mandela global film tribute.
Nigeria in comparison has outperformed both on the MSCI frontier and JP Morgan local bond index, with foreign ownership up fivefold since it joined the latter a year ago. Treasury bills are also popular, with total portfolio inflows at $10 billion through Q3 on GDP growth near 7 percent. Central bank head Sanusi has kept the benchmark policy rate at 12 percent and tightened FX rules prior to departure as he stressed the importance of paring inflation to single-deficits and pre-election spending into the 2015 contest, with the PDP leadership already showing succession fissures. The excess crude account has dropped below $5 billion as a 2 percent of GDP budget deficit on $75 per barrel oil is forecast for 2014. Power utility privatization has completed a first phase with $3.5 billion in sales including to the biggest exchange listing Dangote, but the petroleum industry bill remains stuck in legislative limbo with future taxation a major sticking point. The $1 billion sovereign wealth fund began operation and several banks accompanied the sovereign in issuing external debt. Private pension plans are diversifying into equities as the AMCON central resolution agency floats paper to handle another bank cleanup round. Boko Haram terror attacks continue in the North, but within the ECOWAS regional group star status has been gained at Ghana’s expense, with a recent Fitch downgrade to “B” on domestic and foreign liability minefields also detected by the Mahama administration.
