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South Africa’s rand halts rally, GDP data, Fitch review keep market wary

8 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – The rand pulled back from the previous session’s four-week highs against the dollar on Wednesday and traders said South African GDP data expected to show a small contraction in the first quarter could add pressure on the currency.

The rand has gained as much as 5 percent against the dollar since Friday, reaching 14.7995 on Tuesday in a relief rally prompted by S&P’s decision to maintain South Africa’s investment grade BBB- rating.

The currency however gave back some of those gains on Wednesday to trade at 14.9175/dollar by 0650 GMT, down 0.1 percent from the previous session’s close.

Traders saw a risk to the currency from Statistics South Africa’s GDP data due out at 0930 GMT, with economists polled by Reuters expecting the economy to have shrunk 0.1 percent on a quarter-on-quarter annualised basis in the first three months of the year.

“If this is indeed the case there is not much chance the rand will be able to continue its journey lower (firmer),” Standard Bank trader Warrick Butler said in a note to clients.

Another rand-moving headline could be a review from Fitch, which is also expected to retain its own BBB- rating on Africa’s most industrialised economy, although it could change the outlook to negative from stable.

Fitch has not set a date for its announcement, but the Treasury has said it expects it on June 8.

In fixed income on Wednesday, the yield on debt maturing in 2026 was flat at 9.1 percent.

The JSE securities exchange’s Top-40 futures index was down 0.4 percent, pointing to a slightly weak start for the local bourse at 0700 GMT.

 

(Reporting by Stella Mapenzauswa; Editing by Ed Stoddard)

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South Africa’s Telkom agrees performance-based pay deal with unions

7 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South African fixed line telecoms network operator Telkom has reached a performance-based pay deal with two of it three largest labour unions while agreeing not to cut jobs for two years, the company said on Tuesday.

Telkom, reported a 15 percent rise in full-year profits on Monday after completing a three-year restructuring as it adapts the business to slowing revenue from fixed-line telephony and a sharp increase in data traffic.

The firm said on Tuesday it had signed a deal with Solidarity and the South African Communications Union to implement a performance-based remuneration scheme for both individual employees and teams. A third union, the Communications Workers Union, has agreed in principle, Telkom said.

“The agreement covers Telkom’s 11,000 unionised employees, out of a total headcount of just over 13,500 at the end of March 2016,” Telkom said in a statement.

As part of the deal, Telkom committed to no compulsory job cuts for the next two years and limiting outsourcing moves to less than 1,000 employees over the same period.

Telkom, in which the government owns a stake of about 40 percent, said it would not be offering any employee an annual increase in pay this year but was willing to pay workers more if they reached certain targets.

“The company is offering employees the opportunity to earn up to 12 percent more each month should they meet and exceed sales and customer service targets,” Telkom said.

 

(Reporting by TJ Strydom; Editing by James Macharia, Greg Mahlich)

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Swiss and UK watchdogs quiz Credit Suisse over Mozambique loans

7 June 2016 Comments (0) Africa, Business

ZURICH (Reuters) – Switzerland’s financial watchdog said it is in touch with Credit Suisse over Mozambique’s undeclared loans, while Britain’s regulator is also making inquiries, according to a source familiar with the situation.

In April, Mozambique, one of the world’s poorest countries, disclosed as much as $1.35 billion of sovereign borrowing that may have made its debt unsustainable.

Swiss bank Credit Suisse and Russia’s VTB have been active in Mozambique, arranging loans for state-owned firms as well as helping with a eurobond issue.

A spokesman for Swiss financial watchdog FINMA told Reuters on Tuesday it was in contact with Credit Suisse over its engagement with the sub-Saharan African nation.

“We are aware of the issue and are in contact with the bank over this matter,” he said on Tuesday, declining to give any further details.

Separately, a source told Reuters on Monday that the UK’s Financial Conduct Authority (FCA), was looking into the role both Credit Suisse and VTB played.

Credit Suisse declined comment.

VTB said it had been open and transparent with the regulator on the Mozambique transaction and was not aware of any investigations.

“As we previously said, the total public debt number disclosed in the prospectus of the issued sovereign eurobond was inclusive of all outstanding direct and publicly guaranteed government debt, as confirmed to us by Ministry of Finance of Mozambique,” the Russian bank said.

Mozambique’s foreign debt – including $2 billion of commercial borrowing arranged without consulting parliament as required – has ballooned in the last four years, largely due to expectations it was set to become a major natural gas producer.

However, those expectations are now being shown to be wildly premature, leaving the country with a foreign debt burden equal to $400 per head – only a fraction below the International Monetary Fund’s $435 annual per capita GDP estimate.

 

(Reporting by Joshua Franklin and Oliver Hirt in Zurich, Alexander Winning in Moscow and Ed Cropley in Luanda; Editing by Michael Shields and Alexander Smith)

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Kenya’s tourism earnings fall 3 pct in 2015

7 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s revenue from its tourism sector dropped 2.87 percent last year to 84.6 billion shillings ($837.21 million), its tourism minister said.

Visitor numbers and earnings have plunged in the past four years as al Shabaab militants from neighbouring Somalia launched attacks on Kenyan soil in retaliation for Kenya’s military intervention.

Showing the depth of the fall, tourist arrivals fell from 1.8 million in 2011 to 1.18 million last year. The country earned 98.9 billion shillings in 2011 compared with the 84.6 billion shillings last year.

Najib Balala said the sector was on course for a recovery in 2018, in line with government plans, but cautioned that violent protests against the country’s electoral body could curb arrivals.

“A lot of people I meet are saying Kenya is maturing but when they see the incidents of the last weeks, they say we are going backwards,” he told Reuters on Monday.

“My concern is that, the efforts and the road map is working very well, I don’t want the political noise to interrupt that programme.”

Tourism is one of the main hard currency earners for Kenya.

President Uhuru Kenyatta’s government wants to bring in 3 million visitors a year according to its manifesto when it was elected in early 2013.

Efforts to revive the sector include boosting security, opening new source markets such as Nigeria and Poland and increased budgetary allocations to the sector.

Visitors are expected to rise by a third this year to 1.6 million and to recover to 1.8 million in 2018, matching a record high set in 2011.

($1 = 101.0500 Kenyan shillings)

 

(Reporting by John Ndiso; Writing by Duncan Miriri; Editing by Alison Williams)

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Fitch may keep South Africa rating but cut outlook, analysts say

6 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – Ratings agency Fitch is likely to affirm South Africa’s investment grade credit rating this week but may lower its outlook to negative, analysts said, as Africa’s most industrialised economy grapples with slow growth.

South Africa has dodged downgrades from S&P Global Ratings and Moody’s, taking some pressure off President Jacob Zuma ahead of elections in August and giving policymakers more time to implement reforms to boost GDP growth.

Fitch, which rates South Africa one step above speculative grade with a stable outlook, has not said when it will publish its review. The Treasury has said it expects the review on June 8.

“We expect Fitch to affirm the rating at BBB- but change the outlook to negative, bringing them in line with S&P,” Rand Merchant Bank analyst John Cairns said.

“The announcement will be a small negative and will not fully offset the positive news from S&P.”

Three other analysts Reuters spoke to expected much the same result.

S&P said on Friday it was sticking to its BBB- rating on South Africa, one notch above non-investment grade. But it warned that its negative outlook reflected the potential adverse consequences of low GDP growth. Last month, Moody’s kept its rating at Baa2.

The rand and government bonds jumped after the S&P review, with the currency trading 0.3 percent firmer, while the benchmark bond due in 2026 and the country’s dollar-denominated bonds firmed.

Rating agencies had warned of possible cuts to South Africa’s credit standing after Zuma rattled investors by changing finance ministers twice in less than a week in December, triggering a cross-asset selloff.

In its last review, released on Dec. 4, before Zuma swapped his finance ministers, Fitch had said it expected South Africa’s economy to grow by 1.7 percent this year.

But the economy has taken a turn for the worse after scandals surrounding Zuma and a severe drought that has hit agricultural output and worsened inflation.

The Treasury currently expects GDP growth of less than 1 percent this year.

Zuma has faced calls to resign following a Constitutional Court ruling in March that he had erred by refusing to refund the state for renovation work on his house paid for by the taxpayer.

“There is always a chance that they (Fitch) change the ‘stable’ outlook on their BBB- rating to ‘negative’, although this is not a given just yet,” said Standard Chartered’s head of Africa research, Razia Khan.

“Having just downgraded South Africa and assigned the stable outlook to the rating last December, they too could give it another six months or longer before changing the outlook.”

Analysts say a downgrade to “junk” status could be on the cards later this year if policy measures did not turn around an ailing economy.

“Fitch’s decision to hold the rating outlook at stable or to adjust the outlook to negative has valid arguments on both sides, and will therefore be a very close call,” NKC African Economics’ Hanns Spangenberg said.

“However, given the deterioration in South Africa’s economic growth outlook, as well as an uptick in political risk over the last few months, our view is that the correct decision for Fitch would be to adjust South Africa’s rating outlook to negative.”

 

(By Olivia Kumwenda-Mtambo. Editing by James Macharia and Hugh Lawson)

 

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Sasol warns U.S cracker could cost $11 bln, expects lower returns

6 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s Sasol on Monday raised its forecast for the cost of its U.S. ethane cracker by 26 percent to as much as $11 billion due to construction delays and also flagged lower expected returns from it.

The Lake Charles Chemicals Project in the state of Louisiana which includes a cracker will produce 1.5 million tonnes of ethylene a year for use in plastics and chemicals.

Shares in Sasol, which had previously forecast its cost at $8.9 billion, where down by more than 5 percent as of 0730 GMT.

The petrochemicals maker said in a statement that higher-than-expected rainfall had contributed to delays in the project.

It also said costs had been boosted by higher labour costs, building materials and bid contract prices.

The world’s biggest maker of motor fuel from coal said it now expected lower returns due to “changes in long-term price assumptions and the higher capital estimates”.

Returns will be down by as much as the company’s lower long-term price assumptions, Sasol said.

Lower oil prices have forced the company, which makes 40 percent of its revenue from the fuel, to lower its dividend, delay major projects and cut jobs.

The cracker will be funded by existing loans and cash flow without breaching Sasol’s gearing targets. Sasol has already spent $4.5 billion on the project which is about 40 percent complete.

Sasol also warned that full-year headline earnings per share, a popular measure of profit, would fall by 10 to 30 percent due to low oil prices and an impairment charge on operations in Canada.

“The volatile macroeconomic environment, in particular lower crude oil prices, has had a significant impact on earnings,” Sasol said.

 

(Reporting by Zandi Shabalala; editing by Jason Neely)

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Higher South African rates leave households saddled with crushing debt

3 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – Rate increases by South Africa’s central bank have left at least 10 million people crippled by debt in a country where many people buy on credit.

The result may be a further slowdown in South Africa’s slumping economy, which is now expected to grow just 0.9 percent in 2016. That would only aggravate the problem for those struggling with debt.

South Africa’s unemployment rate is already at a record high of nearly 27 percent. Food prices are soaring as a drought afflicts southern Africa.

Consequently, many households are borrowing to put food on the table. But inflation exceeds the central bank’s target of 3 to 6 percent, leading it to raise interest rates by 200 basis points in the past two years.

Inflation slowed to 6.2 percent in April, but commercial banks have raised their lending rates. Home loans now average around 10.5 percent, up from a low of 8.5 percent in 2012.

“Almost 75 percent of the income of the average household in South Africa is spent towards credit providers, to pay debt, so at the end of the day they don’t have enough money left to pay for their living expenses,” said Neil Roets, chief executive of Debt Rescue, a local company that helps clients manage debt.

“It’s had a devastating effect on consumers, especially because of the fact that a lot of consumers already find themselves in a situation where they are over-indebted,” he said, referring to the rising rates.

Industry officials say about 47 percent of the consumers that buy on credit are in debt arrears. About 10 million people, or a fifth of South Africa’s 52 million people, buy on credit.

The TransUnion South Africa consumer credit index, a gauge of consumer credit health, fell to a three-year low in the first quarter of this year. Debt defaults, defined by three months of arrears, rose 1.8 percent year-on-year during the quarter, after shrinking 5.3 percent in the fourth quarter of 2015.

Analysts said South Africans are still paying the price for unbridled lending that fuelled a consumer frenzy. That helped the economy grow an average 5 percent a year in the five years before 2009, when a recession wiped out nearly a million jobs.

Households are now reluctant to take up new debt. Private sector credit grew in April at its slowest rate since late 2013, central bank data showed.

Retailers are feeling the pinch across the board, with consumer demand for non-essential goods in particular dropping. New vehicle sales fell 10.3 percent in May from the same month last year, the sixth consecutive contraction.

“Both consumer and business confidence is unlikely to improve significantly in the short term, given the poor economic outlook and the poor job market,” Nedbank analysts Johannes Khosa and Dennis Dykes said in a note.

“Credit growth is likely to remain contained in the months ahead as the economic environment remains weak.”

 

(By Stella Mapenzauswa. Editing by James Macharia, Larry King)

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KFC quits Botswana after two decades as economy struggles

3 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – KFC will shut its 12 outlets in Botswana next week as they are no longer viable, closing its doors after operating in the southern African nation for 20 years, its owners said on Friday.

Botswana’s economy has been hurt by a commodities downturn and a drought, which has put thousands of jobs at risk.

Proprietors of the Botswana KFC franchise, VPB Propco, said in a statement KFC Botswana will cease operating next week, with all stores closed by June 5.

KFC has restaurants in 14 countries in Africa.

 

(Writing by TJ Strydom; Editing by James Macharia)

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Tanzania’s energy regulator raises retail fuel prices, citing costly crude

3 June 2016 Comments (0) Africa, Business, Latest Updates from Reuters

DAR ES SALAAM (Reuters) – Tanzania’s energy regulator raised maximum retail prices on fuel on Friday, citing higher international crude oil and refined product prices, a move expected to exert upward pressure on inflation.

Fuel prices have a big effect on the inflation rate in the east African country, which slowed to 5.1 percent year-on-year in April from 5.4 percent the previous month.

The Energy and Water Utilities Regulatory Authority (EWURA) raised the retail price of petrol by 4.49 percent and the price of diesel by 1.95 percent.

Maximum kerosene prices were raised 1.84 percent in the latest monthly price caps, which take immediate effect.

“To a large extent, increases in wholesale and retail local petroleum products prices have been caused by the continued increase of petroleum products prices in the world market,” EWURA said.

The regulator increased the price of petrol in the commercial capital Dar es Salaam by 80 shillings ($0.0366) a litre to 1,865 shillings, and the price of diesel in the capital by 31 shillings to 1,633 shillings.

Kerosene prices in the commercial capital rose 29 shillings to 1,607 shillings per litre.

 

($1 = 2,187.0000 Tanzanian shillings)

 

(Reporting by Fumbuka Ng’wanakilala; editing by Elias Biryabarema and Adrian Croft)

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OPEC fails to agree policy but Saudis pledge no shocks

2 June 2016 Comments (0) Business, Latest Updates from Reuters, Middle East

VIENNA (Reuters) – Saudi Arabia promised on Thursday not to flood the oil market with extra barrels even as OPEC failed to agree on output policy, with Iran insisting on the right to raise production steeply.

Tensions between the Sunni-led kingdom and the Shi’ite Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years.

Tensions were less acute on Thursday as Saudi Arabia’s new energy minister, Khalid al-Falih, showed Riyadh wanted to be more conciliatory and OPEC decided unanimously to appoint Nigeria’s Mohammed Barkindo as the group’s new secretary-general.

Several OPEC sources said Saudi Arabia and its Gulf allies had tried to propose a new collective ceiling in an attempt to repair OPEC’s waning importance and end a market-share battle that has sapped prices and cut investment.

But OPEC sources said the organisation had failed to agree on output policy and set a new ceiling.

Despite the setback, Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer, already pumping near record highs, to raise production further to punish rivals and gain additional market share.

“We will be very gentle in our approach and make sure we don’t shock the market in any way,” Falih told reporters.

“There is no reason to expect that Saudi Arabia is going to go on a flooding campaign,” Falih said when asked whether Saudi Arabia could add more barrels to the market.

The market has grown increasingly used to OPEC clashes over the past two years as political foes Riyadh and Tehran fight proxy wars in Syria and Yemen.

Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilising oil markets – in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

Tehran has been the main stumbling block for the Organization of the Petroleum Exporting Countries to agree on output policy over the past year as the country boosted supplies despite calls from other members for a production freeze.

Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear programme.

Iranian Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual country production quotas.

“Without country quotas, OPEC cannot control anything,” Zanganeh told reporters. He insisted Tehran deserved a quota – based on historic output levels – of 14.5 percent of OPEC’s overall production.

OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd – well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.

 

POLITICAL TENSIONS

That “OPEC could not agree on a relatively benign deal which would have been constructive for price is a sign that political differences are undermining the organisation”, said Gary Ross, founder of U.S.-based PIRA consultancy.

“It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market and want higher prices,” he added.

Falih was the first OPEC minister to arrive in Vienna this week, signalling he takes the organisation seriously despite fears among fellow members that Riyadh is no longer keen to have OPEC set output.

“There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” Falih told Argus Media ahead of the meeting.

At its previous meeting in December 2015, OPEC effectively allowed its 13 members to pump at will.

As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages.

Until December 2015, OPEC had a ceiling of 30 million bpd – in place since December 2011, although it effectively abandoned individual production quotas years ago.

For a Take-a-Look on Reuters stories on OPEC, click on

 

(By Reem Shamseddine, Rania El Gamal and Alex Lawler. Additional reporting by ⁠⁠⁠⁠Shadia Nasralla⁠⁠⁠⁠⁠; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)

 

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