Latest Articles for South Africa

South Africa's recession continues

Sat, 29 Aug 2009 00:00:00 +0200

As was expected by most analysts, South Africa's GDP shrank in the second quarter of this year at an annualized rate of 3% over the first quarter as compared to the 6.4% rate seen in the first three months of the year. This is one of the steepest contractions seen worldwide. Especially agriculture was a serious disappointment, with a 17% drop in Q1.

The unemployment now raised to a total of 29,7% (28,4% in 2009). Also worrying is that retail sales decreased in June by an annual 6,7% following by a drop of 4,4% in May. The mix of people being worried about job security, high levels of household debt and still high inflation is is a deadly one. What is wost worrying is the inflation which remains extremely high.

The year-on-year CPI inflation rate was 8. 1 per cent in January 2009. It then rose to 8.6 per cent in February before declining marginally to 8.5 per cent in March Inflation in the first quarter of the year was driven mainly by increases in food prices, alcoholic beverages, household maintenance and repair, electricity, and in financial services. Since that time the inflation rate has fallen back slightly - from 8.0 per cent in May 2009 to 6.9 per cent in June - but given the extended recession and the low levels of capacity utilization this rate is still noteworthy for its size. Electricity prices in South Africa went up by 28,6%. Inflation of 6,9% is a headache for the SA Central Bank. The bank already lowered its repurchase to 7 percent. Governor Tito Mboweni said in a televised statement after the monetary policy meeting that the decision to reduce rates had been a “very closely debated one”, and it seems unlikely that further rate cuts will follow rapidly. The South Africa rand has climbed 21% this year against the dollar. This is mainly due to the inflow of so called carry traders from Europe and the US. But is this impressive performance of the ZAR supported by the underlying macro fundamentals?

Negative growth, depressed confidence and steadily rising unemployment certainly do not make it look like it is. “We are deeply concerned about a permanent decline in productive capacity as factories close rather than simply reduce output,” Patel said to the South African Parliament, "Manufacturing output has been declining since mid-last year. It has now reached levels last seen some five years ago.” All of which naturally enough feeds directly through to the pretty substantial current account deficit.

The growing pressure on the fiscal side will be enormous. South Africa’s borrowing needs are likely to double the government’s projection according to estimates from JPMorgan Chase & Co. Government borrowing may surge to 183 billion rand (22,4 billion US$) in the 2009-10 fiscal year to cover spending, compared to the budgeted 90,37 billion budget. This would increase the budget deficit to 7,4% of GDP, compared to the forecasted 3,8%.

Read the full report here.

South Africa: drinking water problems, crime escalation

Sun, 31 May 2009 00:00:00 +0200

The Brazilian articles have moved to a new section which you can find here: Brazil economy updates.

Meanwhile in South Africa things are deteriorating.
This weekend The Times reported on recent water tests in Durban where more than half of the tests did not meet health standards.
“It shows this water is not protected and organisms are growing at a hell of a rate.”

Meanwhile a business man offered Zuma 1 billion Rand to buy satellite equipment, computers and helicopters for regular patrols - they would be available to police all over this country. The business man sees crime as the biggest threat to South Africa and right he is. But a "donation"? There's nothing like "Cash in the table"..or should I say, "There's never a thing called Free Lunch". What's the catch? Surely a man cannot just wake up and think about donating R1 billion to the state...the devil is in the details.
Readers wonder who'll be able to operate this tech material, the army already doesn't have people to operate or maintain new boats, U-boats and planes.

Also, let's not forget that last February Zuma and the ANC abolished the Scorpions, South Africa's elite corps who was investigating the ANC.

District 9 movie: Racial segregation and intolerance in SA

Sat, 16 May 2009 00:00:00 +0200

I'm sceptical on South Africa's short and mid-term future, that's no secret. The whole African continent is facing an enormous economical backlash. There will be a public deficit of 5,4% in 2009 compared to a surplus of 2,8% in 2009. The commercial balance is dropping from a surplus of 2,7% in 2008 to a deficit of 4,3% in 2009. Already today the South African public health system, on which 90% of the South Africans depend is falling apart.
But the real big issue of South Africa will be the influx of immigrants.

South Africa is unlike Brazil not a multicultural country. Different ethinic groups live next to each other and not with each other. When I address a black chief of staff of South African Airlines in Joburg and I stand on my rights without insulting the woman, she immediately threatens me not to be racist. The effect of "reverse racism" is absolutely stunning these days in the country.

And now there's an absolute blockbuster movie which will appear later this year which is taking place in South Africa and uses a metaphor to dig up the whole issue of racial seggregation, apartheid and intolerance in South Africa: District 9.
Neil Blomkamp is the director. He is a South AFrican born, Vancouver based director. I got know him in 2005 through these shortmovies: "Alive in Johannesburg".

For District 9 (which will be released on August 14th in South Africa and North America, later this year in Europe), Neil Blomkamp teamed up with Peter Jackson through and Jackson's production company, WingNut Films. Sony Pictures Entertainment picked up the North American distribution rights for District 9 which will mark Blomkamp's feature film directorial debut. Peter Jackson is the producer of the Lord of the Rings, Crossing the Line,... so expect District 9 to become a blockbuster.

The setting is South Africa and the metaphor both producers use in District 9 is as suble as a brick to the head: "Look: South Africa ! Apartheid ! Racial Segregation and intelorance !"

Below two trailers: the first one is the edited one for Apple Trailers, the second one is the unedited one with the translation of the answers of the aliens (messsage: just like the Zimbabwen immigrants, the Aliens they have no bad intentions).

Is South Africa Heaven?

Thu, 09 Apr 2009 00:00:00 +0200

South Africa in black clouds

Wed, 11 Mar 2009 00:00:00 +0100

South Africa is flooded by poor economic data. First, South Africa’s purchasing managers index plummeted to a record low of 39.2 points in February 2009.
Secondly, a disastrous month for the motor manufacturing industry as February new passenger vehicle sales plummet further. The industry is on the brink of collapse and is hoping for R10bn from government to keep it going.
And the thirdly – a disappointing January 2009 trade deficit has sent the rand into freefall against the Euro and dollar. This is in sharp contrast with Brazil posting a trade surplus in February.
This means inflation will go up again in South Africa, which will firther weaken the Rand. I have been warning for more than a year now how South Africa's trade deficit is a serious problem. Customs and Excise reported the January 2009 number at R17.380bn – the weakest on record – and a fair margin worse than the previous R14.7bn ‘low’ recorded in October 2007.

With this new inflationary pressure, you can expect that there will be no immediate further rate cuts in South Africa. The South African prime rate is still 14,00% !! Meanwhile in Brazil, the comparable SELIC rate which is at 12,75% will highly probable be dropped to 11,75% this week. More importantly is that in Brazil the spread charged by the banks is also going down; I'll write on this later this week.

New IMF paper: why isn't South Africa growing faster

Mon, 09 Mar 2009 00:00:00 +0100

Only yesterday did I publish this article stating my scepticism on South Africa; one of my arguments is the complete lack of private saving rate in South Africa; something where the government cannot easily act upon. Still South Africans believe they can spend themselves out of trouble and the economic prospects that finance minister Manuel Trevor announced last week are called "heroic" (an ephemism for 'naive').

And just today did I discover this new report which the IMF just published on South Africa, titled: "Why Isn’t South Africa Growing Faster? A Comparative Approach", 25 pages long and a must-read.
Bear with me for the conclusions:

Over the last decade the main constraints on growth in South Africa have been the low investment rate, insufficient labor productivity gains, lower openness to trade, and slower technical progress relative to faster-growing countries. Underinvestment, a common factor in the three growth decompositions, has significantly slowed growth since 1996. Despite a pickup in recent years, the investment rate is low compared to faster-growing countries. Boosting investment is therefore critical for accelerating growth.
Low saving has been constraining the expansion of investment, but the scope to increase private saving seems limited by structural considerations. The low level of private saving in South Africa mainly results from structural factors like shifts in demographics, urbanization, and financial sector deepening that are not easily affected by public policies. The two factors that most explain the difference in the private saving rate between South Africa and the panel of comparators (apart from the persistence term) are both demographic: the young dependency ratio and the urbanization rate.
Despite the importance of structural factors, some macroeconomic variables do impact private saving, but their effect may be detrimental to national saving (for example, decreasing public saving26) or may have macroeconomic costs (for example, increasing inflation).
The best way to increase national saving in South Africa therefore seems to be to continue raising public saving, preferably by containing the growth of public consumption. An increase in public saving would have a positive effect on national saving even if it were partially offset by the private sector. An increase in the tax take (whether through higher tax rates or a broader base) is likely to be less effective in boosting national saving than a slowdown in public consumption, because the offset by the private sector is likely to be higher.

South African real estate dropped 15,8% in 2009, 4,8% extra in January 2009

Sun, 15 Feb 2009 00:00:00 +0100

After last weeks update on the South African economy and real estate market, the figures of the Plettenberg Bay Property market show a further drop of 4,8% in the real estate prices for January only. The 2009 South African real estate prospects are a further decline until early 2010.

South Africa: Civil Violence will rise again says report

Sun, 15 Feb 2009 00:00:00 +0100

Remember the civili violence in South Africa during the month of May 2008? 20.000 foreigners had to be displaced and 60 were killed, mostly in Gauteng, where the violence started.
A report from Johannesburg University of Witwatersrand now warns that such violence will rise again. The report warns that civil violence will soon rise again and that neither government nor civil society is ready to provide effective protection.

Jody Kollapen of the SA Human Rights Commission also shared his concern that "we may have inadvertently exported xenophobia into Africa, especially when many people fled the violence in South Africa with no counselling or debriefing."

The repot is a must-read.

South African tourism market ice cold

Fri, 13 Feb 2009 00:00:00 +0100

Some people believed the low South African Rand would stimulate tourism to South Africa; not quite. The South African tourism industry is crying out loud:
"The world wide economic situation has definitely affected the tourism trade in South Africa, but those who have managed to still come to our beautiful country have gone home with wonderful memories and great experiences."

South Africa's uncertain future

Wed, 11 Feb 2009 00:00:00 +0100

Paul Van Cotthem, MD of TurnLeaf (check out the weblog to learn more on the great work they are doing for Yuntaa, Nomadesk and others) just send me this excellent article published in the Economical Times Today on the state of the South African economy.Next to the worries the Economical Times has on the economical prospects of South Africa, which I completely share -most of my Emerging South posts on South Africa since early 2007 focus on these problems-, the article in the ET transpirates a very big concern on the leftist move of South Africa after May 2009, when the new (ANC) president will take seat. I have written a lot on my views with regards to Zuma and the state of the ANC. Zuma will opt for the Chavez scenario instead of the Lula scenario and that will be a huge lost opportunity.

As to the South African economy; the tendency is not good at all.However, the biggest problem of South Africa is the absolute naive denial of South Africans to cope with the reality of the situations.
The typical articles you will read in South Africa read like this one "Will consumers spend South Africa out of trouble"; the interestrate goes down and therefore spending will solve everything. You will even read articles like this these days: wherePam Golding agent Richard wright states:
“My advice to investors is to stop waiting – you‘ve got about three or four months to purchase properties because by the second half of this year we will see prices rise again,” said Pam Golding agent Richard Wright in Port Elizabeth.
“Anyone who has money in the bank now can afford to negotiate a lot.”

South African real estate prices going up in the second half of 2009? Keep dreaming. Remember: only 16% of the South African don't have debts, 11% missed at least one downpayment and 33% simply say they are "drowning in debt". The problem with (South Africans) is that they culturally never learned how to save; these are not my words, anyone will confirm you that South Africans drowned themselves in debt the last decade.

And when people are drowning in debt, no interest cut will help; this excellent article explains why through a beautiful metaphor.