South Africa’s Tender Tipping Points
South African stocks and bonds took a beating as the deputy head of the ANC, on the eve of a critical part congress, warned of a “public tipping point” as mining strikes persisted and spread to other industries in criticism of pay and working conditions and favored deals for “tenderpreneurs” close to the government. The Johannesburg exchange index struggled to stay positive on heavy net foreign outflows while fixed-income support lingered precariously from recent entry into global bond benchmarks. The monthly trade deficit skyrocketed sending the rand toward 8.5 to the dollar as official unemployment again surpassed 25 percent. President Zuma faces internal discontent although a leadership challenge is unlikely for the remainder of his term expiring in 2014. Should the 70 year old incumbent seek reelection he may face candidates both from within his coalition and the opposition Democratic Alliance which has begun to attract backing beyond core white voters. His administration has been accused of inaction during the labor violence and mass layoffs at precious-metals producers and a belated bid to ease tensions risked further alienation with mixed signals on state intervention. In an effort to boost the economy generally a 3-year $100 billion infrastructure program was unveiled but the sovereign rating is already slipping on higher fiscal deficits. The public wage bill may still grow 10 percent annually according to the medium term budget strategy just released which raised immediate borrowing requirements. Trend GDP growth of 3.5 percent may not return until mid-decade when the debt portion is slated to stabilize at 40 percent. The central bank is reluctant to lower rates with inflation at 5 percent on energy and food prices which separately temper consumption, and with foreign portfolio allocation needed to bridge the over 6 percent of GDP current account gap. Listed gold and platinum miners also seek new capital after absorbing the unrest losses. Lonmin plans an $800 million London offering that will rely on its anchor Xstrata with a 25 percent stake and still trying to salvage a merger with commodity giant Glencore.
Automakers have experienced their own actions resulting in hourly salary rises, as the industry globally is suffering from economic slowdown and incentive program expiry. On the stock exchange resource firms are shunned in favor of retailers and banks expanding across the continent, while entry into Citigroup’s World index may channel $1 billion per month into government bonds. The latest budget contemplates $500 million in external issuance next year, as “switch auctions” are conducted to smooth the longer-term maturity profile. Primary dealers with the non-resident surge have fully participated in these swaps so far but the main public pension fund operates now under more flexible guidelines and banks may soon feel balance sheet cracks with leaning consumer and corporate loans.
