11 Apr

South Africa Growth Could Pick Up Faster Than Expected

South Africa’s economic growth could pick up faster than forecast if the right structural reforms are implemented, the Reserve Bank said.

That means the economy could expand faster than the 2 percent for 2020 the central bank projected last month, a rate it hasn’t exceeded since 2013.

While last year’s 1.3 percent advance beat predictions, this doesn’t equate to a good performance, the Reserve Bank said in its six-monthly Monetary Policy Review released Tuesday in the capital, Pretoria.

Cyril Ramaphosa replacing Jacob Zuma as head of the ruling party and president boosted sentiment and the currency on hopes of structural reforms in Africa’s most-industrialized economy.

While Ramaphosa has since changed the cabinet to remove some Zuma appointees who were seen as compromised, overhauled the board of the state power utility and pledged to root out corruption, confidence indexes show business and investors now want to start seeing real reforms.

“The pickup in growth is not especially strong,” the central bank said. “This is mainly because, at this early stage, there is little clarity around the reform agenda and without specifics it is difficult to quantify growth responses.”

Moody’s Investors Service last month removed the threat of a junk credit rating, citing the impact of political changes. Downgrade concerns could re-emerge if narrowing the nation’s budget deficit prove harder than the markets anticipate, the Reserve Bank said.

That, and a current-account deficit that may widen more than expected, could put pressure on the rand, the bank said.

The currency has gained 9 percent since the December election of Ramaphosa as the African National Congress’s leader, helping to lower price pressures. Inflation slowed to an almost three-year low of 4 percent in February.

The central bank forecast it will remain in the target band of 3 percent to 6 percent until at least the end of 2020, stabilizing at just more than 5 percent.

While current inflation is unusually low, recent developments in services prices and expectations “provide some evidence that positive price shocks, if properly managed, can engender permanently lower inflation,” the central bank said.

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06 Mar

Zuma’s Exit Sparks Shifting Political Alliances in South Africa

Jacob Zuma’s forced resignation as South Africa’s president did more than revive confidence in the ruling African National Congress. It’s deepened divisions between the two main opposition parties, threatening their control of the nation’s key cities.

Together with the ANC’s shift to support expropriation of land without compensation, Zuma’s replacement by Cyril Ramaphosa has thawed its relations with the Economic Freedom Fighters.

The party hounded Zuma over allegations of graft and advocates the seizure of white-owned farms, banks and mines.

That’s increasingly isolated the Democratic Alliance, the second-largest party which took power in Johannesburg, the economic hub, and Pretoria, the capital, in a municipal vote in 2016 by forming a loose coalition with EFF.

As that arrangement frays, its chances of pushing the ANC below 50 percent of the vote in general elections next year are fading.

“The ANC and EFF will probably contest the 2019 national elections separately to maximize their share of the total vote, but are then likely to join up in some or other new format,” said Frans Cronje, chief executive officer of the South African Institute of Race Relations. “The EFF will hand the cities back to the ANC in exchange for senior leadership roles.”

That would mark a dramatic change in the political landscape. The EFF was founded in 2013 by former ANC youth wing leader, Julius Malema after the ruling party expelled him for criticizing Zuma and sowing divisions within its ranks. It won 6 percent of the national vote in the last national elections in 2014.

He and his fellow lawmakers, who wear red berets, coveralls and maid’s uniforms in parliament, have been a thorn in the side of the ANC as they castigated Zuma for a succession of scandals and pressed the government to ensure that the black majority received a greater shape of the nation’s wealth.

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13 Feb

Bank of Baroda to Exit South Africa Amid Probe Over Gupta Ties

The Bank of Baroda plans to exit South Africa as it faces a probe by regulators about its dealings with the politically connected Gupta family.

The state-owned Indian lender is in talks with the South African bank regulator to ensure an orderly withdrawal that won’t disadvantage any depositors, the Pretoria-based registrar said in an emailed statement on Monday. The central bank has no further comment on the matter, it said.

Bank of Baroda’s retreat comes less than a week after the company confirmed South Africa’s central bank is probing historical transactions.

Bank of Baroda, which is the only lender in South Africa still offering services to companies linked to the Guptas, last year sought a court order that will allow it to close their accounts.

The Gupta family, who are friends of President Jacob Zuma and in business with one of his sons, have been accused by politicians and civil society groups of using that relationship to influence state contracts and cabinet appointments. Zuma and the family deny wrongdoing.

Chief Executive Officer P.S. Jayakumar said in an interview with BloombergQuint that the lender is talking to regulators around the world to reduce its presence in countries where it doesn’t see a strong business case to rather focus on larger markets where it can better serve new customers.

He declined to comment on the Gupta allegations in the interview with the Indian TV venture, saying there are many factual errors in some of the reports.

A Mumbai-based spokesman for Bank of Baroda didn’t immediately respond to an email and phone call seeking comment.

The bank was said to have transgressed its own rules by being significantly exposed to one client.

The lender may hold as much as 1.75 billion rand ($146 million) on behalf of trusts for mines, linked to the Guptas, and by law that money must be used for environmental rehabilitation, according to the civil society group Organisation Undoing Tax Abuse.

Source: https://www.bloomberg.com/news/articles/2018-02-12/bank-of-baroda-to-exit-south-africa-amid-probe-over-gupta-ties 

11 Jan

South Africa’s Zuma Retains Office as Ramaphosa Bides His Time

Jacob Zuma remains South Africa’s president for the time being as the new leader of the African National Congress, Cyril Ramaphosa, plans how to bring an end to his scandal-ridden administration without unleashing a major split in the ruling party.

The ANC’s National Executive Committee didn’t discuss the option of forcing Zuma from office at a meeting Wednesday in the southern city of East London, according to three members of the panel who spoke on condition of anonymity. Earlier in the week, three of the NEC’s 86 voting members, who also asked not to be identified, said the matter would be raised.

Ramaphosa, 65, must strike a delicate balance between assuaging the concerns of Zuma supporters and meeting the desire of his own backers for the president’s quick removal. A lack of support from a clear majority in the NEC will limit his scope to convince voters before 2019 elections that he can rebuild the battered economy and clamp down on the alleged graft that’s become synonymous with the Zuma era.

“For Ramaphosa to build on the momentum of his ascendancy to ANC president and boost investor confidence, he will only have a relatively short window to remove Zuma,” said Mike Davies, the founder of political-advisory company Kigoda Consulting. “After that, the Zuma camp will be able to consolidate, and other factors will start to erode recent optimism that his election means significant change.”

Ramaphosa, the nation’s deputy president, was elected ANC leader by a narrow margin last month, warding off a challenge from Nkosazana Dlamini-Zuma, Zuma’s ex-wife and favored successor. A former labor-union activist, businessman and lead negotiator in talks to end apartheid in the 1990s, Ramaphosa may be playing a long game in his bid to remove Zuma.

He could allow Zuma to remain in office while he acts as an effective chief executive, building up support in the party by engineering a comprehensive cabinet reshuffle, while allowing legal cases to catch up with Zuma before removing him in six to nine months, according to Robert Schrire, a political science professor at the University of Cape Town.

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22 Nov

South Africa Awaits $7 Billion Ratings Double Jeopardy

South Africa will confront the threat of a $7 billion debt selloff this week as it awaits two concurrent judgments on its credit status.

Opinion among economists is divided as to how stark a danger that is. Fifty-six percent of respondents in a Bloomberg survey said S&P Global Ratings will reduce its assessment on rand-denominated debt to the highest non-investment grade on Friday. Moody’s Investors Service, which is scheduled to make a decision, will likely leave it unchanged, according to three-quarters of those asked.

Should both companies cut, rand debt would fall out of gauges including Citigroup Inc.’s World Government Bond Index, sparking outflows of 80 billion to 100 billion rand, Citigroup economist Gina Schoeman said. This would raise borrowing costs for the nation that’s selling more debt to plug a widening budget gap.

Conflict in the ruling party in the run-up to its leadership election next month has hamstrung efforts to bolster the Africa’s most-industrialized economy, which had its second recession in less than a decade earlier this year. Business confidence is near the lowest in more than three decades amid allegations of corruption against state companies’ managers and politicians including President Jacob Zuma.

“Given the fraught political context in which South Africa finds itself, alongside the negative repercussions of downgrades in triggering ejection from key bond indices, we believe that the rating agencies will not rush to cement decisions to downgrade this month,” said Phoenix Kalen, director for emerging-markets strategy at Societe Generale SA in London.

The sustainability of the nation’s debt will be at risk unless government presents a credible fiscal-consolidation plan in 2018, Moody’s said after the mid-term budget last month.

While the outcome of the ruling African National Congress’s elective conference next month will be of interest to ratings companies, it’s the February budget that they’ll be watching for clues on the country’s debt direction, said Annabel Bishop, the chief economist at Investec Bank Ltd.

Read more: South Africa Awaits $7 Billion Ratings Double Jeopardy

 

17 Jul

South Africa considers privatisation to counter recession

South African Finance Minister Malusi Gigaba laid out an ambitious 14-point programme on Thursday to wrench the economy out of recession that included the sale of non-core assets and partial privatisation of state-owned firms.

The plans to stimulate growth in the continent’s most industrialised economy appear to represent an ideological shift by the African National Congress (ANC), whose political alliance with the unions has tended to make privatisation a dirty word.

A team commissioned by President Jacob Zuma to review state firms last year recommended that some should be sold. Now the government has set a date – March 2018 – by which to roll out a “private sector participation framework”.

“All of these items that we have announced … they constitute an important intervention to restore confidence and demonstrate action, and outline an action plan that we as government can be responsible for,” Gigaba said.

The government would also reduce the number of debt guarantees to this firms, especially those extended for operational purposes, he said.

Analysts said Gigaba’s plan could face opposition.

“I’m not sure how far he is going to be able to get with this because I think ideologically there’s a lot of opposition,” NKC African Economics analyst Gary van Staden said.

“The last time I heard the ANC even talk about privatisation or even talk about sale of state owned assets on any kind of level is when Thabo Mbeki was president. It’s been a long time.”

South Africa’s economy entered recession for the first time since 2009 in the first quarter and is also struggling with high unemployment and credit ratings downgrades.

The state of the economy is adding to the pressure on Zuma, who is also facing persistent corruption allegations and increasing calls for him to stand down from within the ANC. Parliament will hold a no-confidence vote on Zuma next month.

Many of South Africa’s 300-odd state-owned companies are a drain on the government’s purse. Ratings agencies have singled out some as threat to its overall investment grade rating.

The firms, known as “parastatals” in South Africa, include companies such as South African Airways, power utility Eskom and logistics group Transnet that are regarded as central to the functioning of the economy.

Gigaba did not say what would be going under the hammer first, saying that would be determined by an audit.

BNP Paribas South Africa economist Jeff Schultz said investors would want to see more details before endorsing it as a viable turnaround strategy.

Read More: Reuters