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South Africa considers privatisation to counter recession

13 July 2017 Comments (0) Latest Updates from Reuters

By Olivia Kumwenda-Mtambo and Mfuneko Toyana

JOHANNESBURG (Reuters) – 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.

“It’s very difficult to say at this stage. He was quite cagey on what sales of non-core assets he was referring to,” Schultz said.

South Africa sold its stake in mobile phone firm Vodacom in 2015 to as part of a 23 billion rand capital raising for Eskom.

Schultz said it might try to sell similar stakes, rather than embracing formal privatisation.

“In much the same way as government sold down their stake in Vodacom, the government is looking to do similar things to try and raise some revenue in the near term,” he said.

 

(Additional reporting by TJ Strydom and Tanisha Heiberg; Editing by Alison Williams)

 

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South Africa watchdog to oppose Zuma bid to set aside influence-peddling report

19 June 2017 Comments (0) Latest Updates from Reuters

PRETORIA (Reuters) – South Africa’s anti-corruption watchdog will oppose a bid by President Jacob Zuma to have a report on claims of influence-peddling by him and his government set aside, Public Protector Busisiwe Mkhwebane said on Monday.

Thuli Madonsela, Mkhwebane’s predecessor as Protector, released the report in November. It called for a judicial inquiry into allegations that Zuma, some cabinet members and some state companies acted improperly, but stopped short of asserting that crimes had been committed.

In December Zuma, who has denied wrongdoing and faced down calls for his resignation over a series of scandals that have plagued his administration, asked the High Court to set the report aside.

In February, Mkhwebane said she was seeking legal advice on how to proceed on the issue.

On Monday she told a news conference her office would oppose Zuma’s application to have the report set aside.

($1 = 12.7941 rand)

 

(Reporting by Dinky Mkhize; Editing by James Macharia and John Stonestreet)

 

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South Africa’s private-sector activity little changed in May, PMI shows

14 June 2017 Comments (0) Latest Updates from Reuters

JOHANNESBURG, June 5 (Reuters) – Private-sector activity in South Africa was little changed in May from April, remaining in positive territory, as new orders and output failed to register significant gains.

The Standard Bank Purchasing Managers’ Index (PMI), compiled by Markit, was at 50.2 in May compared with 50.3 in April, still above the 50 mark that separates growth from contraction.

“PMI remained above 50 for the ninth month running in May, signalling the longest sequence of overall improvement in operating conditions in five years,” Markit said in a statement.

The sub-index for new orders fell to 50.1 in May from 50.4 previously. Output rose slightly to 49.9 from 49.6.

South Africa’s economic outlook has been clouded by credit rating downgrades to “junk” by two of the three major rating agencies after President Jacob Zuma fired Finance Minister Pravin Gordhan in late March.

A fall below investment-grade typically constricts funding and sharply raises borrowing costs.

 

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South Africa needs to “reduce noise” in its political system: Treasury official

27 May 2016 Comments (0) Africa, Latest Updates from Reuters, Politics

JOHANNESBURG (Reuters) – South Africa has to reduce the “noise” in its politics in order to attract investment and improve confidence, a senior Treasury official said on Friday.

“We have got to reduce the amount of noise in our political system, especially as it pertains to various policies that are under consideration so that we can improve confidence and make our country an attractive investment destination,” Director General Lungisa Fuzile said at a conference in Johannesburg.

Africa’s most industrialised country has been gripped by political upheavals ranging from a failed impeachment attempt against President Jacob Zuma for breaching the constitution to media reports that he is at “war” with Finance Minister Pravin Gordhan in the past few weeks.

 

(Reporting by Mfuneko Toyana; Writing by Nqobile Dludla; Editing by James Macharia)

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South Africa’s rand weakens on Zuma showdown, stocks open flat

18 March 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand weakened against the dollar early on Friday as investors turned focus to a political scandal that has jolted President Jacob Zuma’s government and a potential sovereign ratings downgrade.

At 0702 GMT, the rand traded at 15.2400 per dollar dollar, 0.46 percent weaker from Thursday’s New York close of 15.1700.

The currency had rallied more than 3 percent to its strongest in more than a week on Thursday after the central bank hiked interest rates.

“Factors to consider are any news on the political front, over the long weekend the ANC (African National Congress) is holding its NEC (National Executive Committee) Lekgotla and we await any news from Moody’s who are currently in South Africa,” Nedbank analysts said in a note, referring to a meeting of the top brass of the ruling party.

Analysts from Moody’s credit rating agency were due to complete their three-day visit to South Africa on Friday after putting its Baa2 rating on review, according to the Treasury.

Investors fear further political uncertainty could hasten a downgrade, with Fitch and Standard & Poor’s already rating the country just one step above junk status.

The government has been jolted this week by suggestions that a wealthy family with close ties to Zuma may have been behind his decision to sack the country’s respected finance minister Nhlanhla Nene in December.

Zuma, who is due to hold a three-day meeting with top ANC officials from Friday, has denied being influenced by anyone in the appointment of cabinet ministers.

On the stock market, the benchmark Top-40 index was flat in early trade, sliding 0.02 percent.

In fixed income, the yield for the benchmark instrument due in 2026 down 3 basis points to 9.145 percent.

 

(Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia)

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South African rand recovers as Zuma says not at war with finmin

29 February 2016 Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand firmed against the dollar on Monday after President Jacob Zuma said he was not at war with Finance Minister Pravin Gordhan, following media reports of a fallout.

The currency fell nearly 4 percent on Friday, its biggest daily loss since 2011, after Gordhan said there were attempts to discredit him and the integrity of the Treasury.

Gordhan’s statement followed a newspaper report which quoted sources as saying he had threatened to resign after receiving a letter from the elite Hawks police unit questioning his knowledge of a suspected rogue unit at the revenue service.

This followed media reports of a clash between Gordhan and the head of the South African Revenue Service (SARS).

The Hawks also said they were not investigating Gordhan, and there was no case against the minister.

“The media has incorrectly reported, among other things, that there is a war at SARS and that the President and the Minister of Finance are somehow at war. This is a total fabrication and mischievous sensationalism,” the presidency said in a statement.

“The President wishes to emphasise that Minister Gordhan remains the Minister of Finance and any positing that the position of the Minister is under any threat is dismissed with the contempt it deserves.”

As of 1344 GMT, the rand had firmed 1.45 percent to 15.9260 versus the dollar from Friday’s close of 16.1600.

Government bonds also recovered. The yield on the benchmark instrument due in 2026, which soared as much as 28 basis points in early trade, was up 4.5 basis points to 9.41 percent as of 1434 GMT.

“It is a case of correction following knee jerk selling on Friday. The markets will continue to keep a close eye on narrative and look for further confirmation Gordhan will be allowed to do his job,” NKC African Economics economist Bart Stemmet said.

On the stock market, both the Top-40 index and the broader All-share were largely unchanged.

Barclays Africa Group Ltd fell as much 6 percent when the market opened, and traded 5 percent lower after Barclays Plc said on Sunday its board was evaluating strategic options in relation to its shareholding in its African business.

($1 = 16.0379 rand)

 

(By Olivia Kumwenda-Mtambo. Additional reporting by Stella Mapenzauswa and Nqobile Dludla; Writing by James Macharia, editing by Ed Osmond)

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South Africa announces austere budget to trim deficit, avoid downgrades

24 February 2016 Comments (0) Africa, Latest Updates from Reuters, Politics

CAPE TOWN (Reuters) – South Africa announced an austere budget on Wednesday aimed at avoiding cuts in its credit ratings, and vowed to focus spending on priority areas after weak economic growth reduced its revenue.

The measures may appease ratings agencies, which have said they might lower South Africa to sub-investment grade after President Jacob Zuma changed finance ministers twice in less than a week in December, casting doubt over Pretoria’s commitment to prudent fiscal policy.

Still, the package of spending cuts, civil service job freezes and moderate tax hikes on property sales, fuel, alcohol and capital gains may not go down well with voters ahead of municipal elections this year in which the ruling African National Congress faces a stiff challenge from the opposition.

“We cannot spend money we do not have. We cannot borrow beyond our ability to repay. Until we can ignite growth and generate more revenue, we have to be tough on ourselves,” Finance Minister Pravin Gordhan told parliament.

The tax hikes should help raise an additional 18.1 billion rand in revenue in 2016/17, he said.

Asked if the budget was enough to stave off ratings downgrades, Gordhan told ENCA news channel: “That’s what I hope.”

He said the economy may expand just 0.9 percent in 2016, down from a previous forecast of 1.7 percent and compared with estimated growth estimate of 1.3 percent in 2015.

It would be the lowest rate of growth since South Africa emerged from recession in 2009 and would reflect the impact of a severe drought and a sluggish global economy.

Growth has now fallen behind the rate of population increase, resulting in declining per capita incomes, the National Treasury said in a budget statement outlining spending plans for the next three years.

“In other words, the average South African is becoming poorer,” it said.

The rand extended losses over the lower growth forecast, trading 2.5 percent weaker to the dollar on the day.

“I would say the rand weakened so much immediately after the budget was released primarily because of the lack of sufficient reforms to tackle South Africa’s economic problems,” London-based EMEA analyst at 4cast Rajiev Rajkumar said.

“Whilst the lower projections for the budget deficit are a plus, ratings agencies previously said the country’s weak economy could be cause for further ratings downgrades to junk status.”

The cost of insuring exposure to South African debt via credit default swaps rose 17 basis points (bps), indicating investors’ disappointment with Gordhan’s budget.

 

NARROWER DEFICIT

Despite weaker growth, the government would still aim to reduce its budget deficit to 3.2 percent of GDP in the next fiscal year from 3.9 percent in the current 2015/16 period by tightening spending.

Fitch and Standard and Poor’s have South Africa on BBB-, just a step into investment grade. Any further cut would label them as junk status. The third main ratings agency, Moody’s, rates South Africa at Baa2, two notches above junk.

Moody’s said last week the drought risked tipping an already weak economy into recession as rising agricultural imports feed into rising inflation.

The Treasury said a credit downgrade to sub-investment grade, or “junk” status, could trigger a sharp reversal of capital flows and precipitate recession.

“In such an event, aggressive austerity measures would likely be required to restore public finances to a sustainable position,” it said.

The Treasury said it had cut government departments’ budgets for non-essential services, would borrow $4.5 billion from global markets over the next three years, and seek a minority equity partner after merging two of its state-owned airlines.

 

(By Stella Mapenzauswa and Olivia Kumwenda-Mtambo. Additional reporting by Wendell Roelf in Cape Town and Mfuneko Toyana in Johannesburg; Editing by James Macharia and Hugh Lawson)

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South Africa’s rand slides as President’s speech disappoints

12 February 2016 Comments (0) Africa, Latest Updates from Reuters, Politics

JOHANNESBURG (Reuters) – South Africa’s rand weakened on Friday after President Jacob Zuma’s state-of-the-nation address that analysts and economists said did not deal with concerns raised by rating agencies.

By 0645 GMT the rand had slipped 0.7 percent to 15.9100 per dollar, pushed lower by the president’s failure to address investor worries over fiscal policy as well weak mining and manufacturing data.

Bonds also weakened, with the benchmark paper due in 2026 adding 7 basis points to 9.24 percent.

“There was only limited recognition of the current economic malaise with an overplaying of success of past policy targets,” said Peter Attard Montalto, head economist for emerging markets at Nomura International.

Analysts said ratings agencies were keen to hear the president announce a clear plan detailing how South Africa would improve economic growth, predicted at only 0.9 percent in 2016 by the central bank.

On Thursday, data from the statistics agency showed mining production declined 0.3 percent in December, while manufacturing grew slightly in the same month.

“The impact of the commodity price rout has been disastrous for domestic mining industry,” analysts at NKC African Economics said in a note.

“Unfortunately, new Mineral Resources Minister Mosebenzi Zwane offered little in the way of viable relief strategies when he addressed Mining Indaba earlier this week.”

Stocks opened higher, with the JSE Top-40 blue-chip index adding 0.65 percent to 42,324 points in early trade.

 

(Reporting by Mfuneko Toyana; Editing by Biju Dwarakanath)

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South African president Zuma under pressure as economy worsens

27 January 2016 Comments (2) Africa, Featured, Politics

Jacob Zuma

Analysts point to potential losses for the African National Congress in upcoming local elections, which could pave the way for Zuma to exit the presidency later this year.

South Africa’s venerable African National Congress party may lose political ground in upcoming municipal elections as economic conditions worsen and controversy swirls around President Jacob Zuma.

As business confidence in the government and popular opinion of Zuma plummet, some are predicting the ANC could pave the way for Zuma to exit the presidency later this year if the local elections go badly.

Zuma’s six-year tenure has been mired by accusations of corruption, policy missteps and controversial appointments that his critics contend have created economic stagnation and stifled investment in South Africa.

Ouster of finance minister sparks protests, while rand plunges

Zuma caused a national uproar in December when he abruptly fired a respected finance minister and then was forced to sack an inexperienced replacement only four days later amid protests and plunging currency rates and capital markets.

The rand dropped to under 16 to the dollar for the first time and the benchmark stock index lost the equivalent of $11 billion after Zuma fired finance minister Nhlanhla Nene and replaced him with parliamentarian David van Rooyen on Dec. 9.

Business leaders protested while thousands of South Africans took to the streets using the slogan “Zuma Must Fall” and demanding that Zuma leave office.

ANC leaders persuaded Zuma to quickly replace van Rooyen and a measure of stability was restored with the appointment of a third finance minister, Pravin Gordhan who had served in that post from 2009 to 2014.

Economy worsens with record drought

South Africa, the most industrialized country on the continent, was under economic pressure well before the latest events. The rand has steadily declined, losing half its worth since Zuma took office in 2009. The economy is stagnant, unemployment is high, and the country is undergoing its worst drought since record keeping began in 1904.

Maize production has dropped by 30 percent and prices on the South Africa Futures Exchange have more than doubled in the past year. While agriculture makes up only a small fraction of South Africa’s gross domestic product, the country will be forced to import food, including as much as $710 million worth of maize, which will result in even higher prices.

Christo Joubert, a price analyst with the National Agricultural Marketing Council, said the council expected prices to increase by as much as 20 percent in 2016. “The drought is hitting everything,” Joubert said.

The higher prices will present further struggles in a nation with an unemployment rate of 30 percent. Also, analysts predict the nation’s economy could stagnate in 2016 for the third straight year, with a growth rate of less than 1 percent.

Support for government declines

ANCBusiness confidence and popular support for the incumbent government have also dropped.

The business community’s confidence dropped to its lowest rate in 20 years, according to the South African Chamber of Commerce and Industry. As the finance upheaval unfolded in December, the chamber’s confidence index declined to 79.3 percent, the lowest level since June 1993.

Meanwhile, even before December’s events, public distrust of the president had reached a record 66 percent, up from 37 percent in 2011. A majority of South Africans believe Zuma ignores the courts and the parliament, according to an Afrobarometer poll released in November.

Municipal elections could be pivotal

The troubled economy and public distrust put in doubt whether the ANC can maintain its grip on power and whether Zuma will serve out his term.

The ANC has won 60 percent of the vote since coming to power with Nelson Mandela two decades ago.

Gary Van Staden, an analyst with NKC African Economics, said the party could lose as much as 10 percentage points of support in local elections between May and August. He said the ANC can expect to lose control in some municipalities, which run parks, libraries, utilities and sanitation.

If the elections go badly for the ANC, some analysts predict the party will try to replace Zuma.

“We look for a cornered ANC machine having the possibility of managing the exit of President Zuma around July,” said Peter Attard Montalto, an analyst at Nomura.

For now, however, the ANC has voiced support for the embattled president. In the annual speech on the January 8 anniversary of the party, Zuma touted the progress the ANC has brought to the country and said the ANC was needed as a unifier.

Meanwhile, several possible candidates to become Zuma’s successor have emerged. Among those mentioned are Zuma’s former wife, Nkosazana Dlamini-Zuma, who heads the African Union Commission; Cyril Ramaphosa, the deputy president; and Baleka Mbete, the ANC national chairwoman and speaker of parliament.

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South Africa’s rand, stocks gain after Gordhan named as finance minister

14 December 2015 Comments (0) Africa, Latest Updates from Reuters, Politics

JOHANNESBURG (Reuters) – South Africa’s rand strengthened more than 4 percent in early trade on Monday after President Jacob Zuma named widely-respected Pravin Gordhan as finance minister in a bid to draw a line under days of market turmoil.

Zuma gave Gordhan the job late on Sunday, in a dramatic U-turn that gave Africa’s most industrialised economy its third finance minister in a week.

Just four days earlier, the president had sacked Nhlanhla Nene as finance minister and given the job to David van Rooyen, a relatively unknown lawmaker and Zuma loyalist – a move that had triggered a wave of criticism and a sell-off on the markets.

Gordhan, who last held the post from 2009 to 2014, was due to address the media at 1pm local time (1100 GMT), a statement from the Treasury said.

South Africa is gearing up for local elections next year where the ruling African National Congress (ANC), is expected to face stiff competition from the opposition Democratic Alliance in urban areas, including the economic hub of Johannesburg. The countryside remains an ANC stronghold.

Even some supporters of the ANC, Nelson Mandela’s erstwhile liberation movement that has ruled since the end of apartheid in 1994, expressed dismay about Wednesday’s appointment of a Zuma loyalist to the crucial post. They also described his latest appointment as a sign Zuma was losing control.

“It may not be his death knell, but it’s certainly the turning of the tide,” a former senior anti-apartheid activist and ruling ANC legislator Ben Turok.

The currency fell nearly 9 percent last week following the removal of Nene, a civil servant veteran who was keen to rein in government spending.

“The markets will welcome back Gordhan to National Treasury,” Rand Merchant Bank’s currency strategist John Cairns said. “He is a known entity, is his own man and did well when in the post previously. But it is certainly unreasonable to expect all of last week’s losses to be reversed — a huge amount of uncertainty has been created in the past few days.”

By 0716 GMT, the rand had strengthened 4.53 percent against the dollar to 15.1700, recouping some losses suffered last week. The rand had traded at 14.4320 per dollar before Nene was fired.

Yields on government bonds recovered sharply in early trade, with the benchmark paper due in 2026 down 101 basis points at 9.37 percent.

 

MARKETS CHEER GORDHAN

The rally may also be limited if the Federal Reserve, the U.S. central bank, raises interest rates on Wednesday – a move set to put emerging markets like South Africa under strain.

“Markets should rally back very strongly but I would not expect a total retracement with a permanent loss of trust in leadership even if we are in a better place,” said Peter Attard Montalto of Nomura in London.

The removal of Nene also led to a selling frenzy in South African banking stocks, which dropped nearly 20 percent on investor worries that the country’s credit rating would slip into “junk” status.

On the bourse, the banking index shot up 12 percent, having dropped nearly 20 percent after Nene was removed.

The Johannesburg Security Exchange’s broad All-Share index was up 2 percent to 49,051 points by 0734 GMT.

Zuma said the about-face decision was prompted by many calls to rethink his decision.

South Africa’s Beeld newspaper, citing an informed person, said Gordhan’s appointment was preceded by a crisis meeting between Zuma, politicians and representatives of the private sector on Sunday afternoon.

 

(By Tiisetso Motsoeneng and Nqobile Dludla. Additional reporting by James Macharia and Zandi Shabalala; Writing by James Macharia)

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