Showing posts with label SA Economy. Show all posts

Thursday, October 26, 2017

The Medium Term Budget Speech in a Nutshell October 2017

The October 2017 South African MTBS in a Nutshell:

Growth forecast almost halved from 1.3% to 0.7% (now in line with ours)

Revenue shortfalls of R50.8 billion (17/18), R69.3 billion (18/19) and R89.4 billion (19/20) expected

Tax buoyancy expectations may still be too optimistic

R13.7bn bail-out for SAA (R10bn) and SA Post Office (R3.7bn)

Debt forecast to rise to 60% of GDP in 2020, but task team to investigate remedial action

Rising odds of December downgrades, rather than 1H18, with risk of even further downgrades over the MTEF.

The Rand Weakened to R14.19 to 1 USD

Tuesday, April 11, 2017

South African Political Uncertainty Ahead

Diversification SA Political Uncertainty

Uncertainty makes any investor nervous. When it comes to South Africa uncertainty is a certainty for investors. Two credit rating downgrades, mass protest action of hundreds of thousands of South African citizens last week and our economy is still digesting the aftermath. South Africa is officially junk status.

One would expect an immediate global sell off of bonds, equities, properties and a currency in free fall. However, the expected financial storm has not yet hit. The question is why? Many economists believe that investors are taking a wait and see approach especially the upcoming vote of no confidence and how the newly appointed finance minister will behave. Others believe that our markets have already priced in "junk status".

The long term effects of junk status are much more worrying. South Africa has a shrinking tax base many wealthy and young graduates are seeking opportunities abroad. Unemployment is rife at almost 45% of the population and the need to attract foreign investment is crucial to the future of the South African economy.

Our debt to GDP ratio is at almost 50% and this year the past finance minister had to increase the tax rate in the high income bracket to 45%. How is South Africa going to manage it's debt repayments going forward with debt now at a much higher price.

Zuma seems to be steering the South African economy aground and likely his careless actions will put South Africa into a recession. A recession will have dire consequences especially to the poor.

From an investor view point, diversification is key to riding out the storm ahead. My view remain overweight offshore assets and cash.

Tuesday, February 5, 2013

South Africa, one of the top inquality countries in the world

Widening gap between reach and poor globally

The World Economic Forum meets in Davos, amid a growing focus on the global gap between rich and poor. The W-E-F’s Global Risk report identifies inequality as one of the top risks for 2013. Countries like Namibia, Brazil and South Africa are said to have the highest levels of inequality.

Press TV - Report

Tuesday, September 25, 2012

Market Update

SA: An economic thermometer

South Africa has been on a real roller-coaster ride over the last few weeks.

25 September 2012 | FELICITY DUNCAN

Labour unrest has shaken the foundations of South African society, the rand has bounced up and down by about 30 cents against the dollar, and various pieces of economic data have jumped in unexpected directions.

Given all this, now seems like a good moment to pause and take stock of the economy. Human beings are emotional creatures, after all, and it’s easy for us to get caught up in the headlines and to miss what’s really going on.

For example, the events at Lonmin’s Marikana mine can seem very frightening and discouraging.

However, the truth is that the mining crisis, while tragic, is not a decisive economic event – the overall direction of South Africa’s economy is a function of far more than a few incidents of labour unrest, and the mining crisis alone would be a poor guide to investment behaviour.

Hopefully, by calmly taking stock of things we can avoid making investment decisions that are based in fear rather than in fact. Let’s take a look at some hard measures of SA’s economy, then, and what they suggest about the future.

The real news
The last few weeks have seen several important pieces of economic news and data released.

For a start, Statistics South Africa reported that consumer price inflation accelerated slightly in August, to 5% year-on-year from July’s 4.9%.
This was in line with market expectations, and means that despite food and fuel price increases, South Africa’s CPI remains comfortably within the 3-6% target band.

Analysts expect inflation to rise next year, but for the moment it’s comfortably contained, which is very encouraging.

In another (somewhat) comforting piece of news, the FNB/BER Consumer Confidence Index edged higher in the third quarter of this year to -1, after falling sharply from +5 in the first quarter to -3 in the second. Although the index is still in negative territory and low by historical standards, this improvement nevertheless represents some firming of consumer sentiment.

This improvement in the state of consumers is backed up by the fact that so far this year, individual civil summonses for debt have declined by 7.7% and civil judgments by 9.5%.

This is also backed up by the emergence of some good news on the employment front; according to Stanlib economist Kevin Lings, in its Quarterly Employment Survey Stats SA announced that ‘‘formal (non-agricultural) employment in SA rose by a more encouraging 42 000 jobs in Q2 2012 (following) a rise of only 4 000 in Q1 2012.’’ Although employment is still not growing fast enough to solve the country’s unemployment problem, the improvement is positive.

Of course, there’s a dark cloud inside every silver lining.

Although employment firmed in the second quarter, income growth didn’t follow suit; gross employee earnings rose by 8.9% in Q2 compared with 9.6% in Q1.
This is admittedly still higher than inflation, but does indicate that growth in consumer income is slowing.

Perhaps even more worryingly, consumer spending growth slowed to a quarterly 2.9% in Q2, down from 3.1% in Q1 and 5% in 2011, and growth in consumer debt outstripped growth in income for the quarter. Underscoring this, retail sales grew by a tepid 4.2% in July, down from June’s 8.6%. Given SA’s reliance on consumer spending (which accounts for 60% of GDP) and the likelihood of future interest rate increases, this is pretty worrying.

Rounding off the bad news on a macro level, South Africa reported an unexpectedly large current account deficit in the second quarter.

According to the Reserve Bank, the country’s current account deficit hit 6.4% of GDP in Q2, up sharply from Q1’s 4.9% – this surprise jump was a major factor in the rand’s recent volatility and highlights the country’s vulnerability to foreign portfolio flows.

On the back of all this news, coupled with SA’s uninspiring GDP growth performance, the Reserve Bank announced last week that it would be keeping interest rates unchanged.

The move came as no surprise, and reflects current uncertainty about the future; the Reserve Bank is trying to balance slow growth and high unemployment with risks to inflation from external shocks and rand weakness.

So what does all this data, and the bank’s decision mean? Well, in a nutshell, it means that South Africa’s economic outlook remains more or less unchanged since before the mining crisis.

– felicity@moneyweb.co.za

Tuesday, September 11, 2012

Minners Hard Hit on JSE due to Labour Unrest

S.Africa's Implats details second pay bid by militant labour

Tue Sep 11, 2012

* Implats demands would be second pay hike this year

* Lonmin strike rumbles on, workers intimidated by strikers

* Gold Fields' illegal strike continues

By Sherilee Lakmidas and Ed Stoddard

JOHANNESBURG, Sept 11 (Reuters) - South Africa's Impala Platinum faces a second pay bid from miners equal to an 8-10 percent hike granted in April, the world's No. 2 platinum producer said on Tuesday, and its shares tumbled on the size of the latest demand from militant labour.

Unrest has been sweeping South Africa's bellwether mining sector with a wave of violence that killed 44 people in August, including 34 in a hail of police bullets near the Marikana mine of platinum producer Lonmin .

Implats said on Tuesday the latest pay demand, which it first disclosed last week but did not detail at the time, resembled an 8-10 percent hike dished out five months ago to end a six-week strike.

The company's share price slid over 5 percent on Tuesday as investors digested the scale of the pay hikes being sought, reflecting jitters about high costs and low prices afflicting the industry in Africa's largest economy.

There was no end in sight to the month-long strike that has paralysed Lonmin after thousands of protesters armed with sticks and machetes marched in a dramatic show of force on Monday, vowing to hunt down and kill strike-breakers.

The few workers who wanted to report for duty at Lonmin's Karee mine on Tuesday were asked to stay away for their own safety as strikers gathered nearby, said Gideon du Plessis, deputy secretary general of the trade union Solidarity.

"The strikers started intimidating people very early this morning and so the area around the Karee mine was declared unsafe," he told Reuters.

Talks to end the impasse looked set to collapse with the independent mediator planning to withdraw at 1400 GMT if the workers had not returned to their shifts by that time.

A precondition for wage negotiations is for workers to return to the posts. If the mediator pulls out, Lonmin will have to deal directly with the workers, who have promised not to return until their demand is met for a more than doubling of their basic monthly wage to 12,500 rand ($1,500).

The platinum sector has been shaken by a bloody turf war between the dominant National Union of Mineworkers (NUM), a longtime political ally of the governing ANC, and the militant Association of Mineworkers and Construction Union (AMCU).

Implats' massive Rustenburg operation, the world's largest platinum mine, was shut for six weeks in January and February amid bloodletting between the unions and an illegal strike.

Now the wage increases approved in April to help resolve that dispute are being demanded again.

"Should this implementation be effected as per the demand, this would equate to a double increase within a period of six months," Implats chief executive Terence Goodlace said.

CONTAGION

The labour troubles coincide with simmering discontent over NUM's leadership, which is seen as out of touch and too close to management and the ruling African National Congress, and have now spread to the gold sector.

Around 15,000 workers at Gold Fields remained on an illegal strike at its KDC West mine that started on Sunday night and a company spokesman said their demands had now been tabled.

"We did get written demands. The main one is unhappiness with the NUM branch leadership. They also want 12,500 rand," said Gold Fields spokesman Sven Lunsche.

Gold Fields last week resolved an illegal strike by 12,000 workers at another mine who voiced similar anti-NUM grievances.

South Africa's mining industry is being sucked into a vicious circle as labour unrest spreads with steep wage demands that employers say they can ill afford. Glaring income disparities have driven the labour militancy.

But many platinum shafts are unprofitable and soaring costs mean gold mines will also start losing money in just a few years' time if the precious metal's bull run is not maintained.

The August killings reawakened painful memories of similar incidents under racist apartheid rule, which ended in 1994.

The AMCU's violent rise poses the biggest challenge to the unwritten pact at the heart of the post-apartheid settlement - that unions aligned to the ANC deliver modestly higher wages for workers while ensuring labour stability for big business.

Tuesday, August 21, 2012

Productivity 40 year low in South Africa

Workers destroying value – Prophet Analytics labour study.

PRETORIA – Only 65 of the listed companies on the JSE have labour productivity that exceeds their employee costs. But at least private sector productivity is outdoing productivity in the public sector.

These are the findings in the Labour Market Navigator for the third quarter of 2012, released by Prophet Analytics, a local labour analytics company, on Monday.

According to Prophet Analytics labour productivity in the country has fallen to a 40-year low.

“South African companies are shedding labour at an extraordinary pace, and they are doing so in line with underlying low labour productivity,” the company said.

The study disagrees with the definition used by the Reserve Bank when looking at productivity – output per worker – rather measuring whether it meets the criteria of making the greatest use out of limited resources.

The research found that both public- and private-sector productivity had declined over time. Public sector productivity declined 52.2% compared with a private sector decline of 49.3%. Private sector productivity is 450% higher than the public sector.

The study also looked at 151 JSE-listed companies and identified the companies that should be taking serious steps to optimise their workforces. For each company, Prophet Analytics took the operating cash flows for the period divided by the number of employees and further divided by non-current assets. The 151 JSE-listed companies with market values above R1bn and which consistently report employee numbers in their financial statements were then ranked.

When looking at the JSE-listed companies the four highest-ranked companies were RMB Holdings, Vukile Property Fund, Investec Bank and Assore which generated more than R100 000 of operating cash flow per worker per annum after accounting for the contribution of capital in the production process.

“The lowest ranked, Wits Gold, destroyed R221 300 per worker per annum,” Prophet Analytics said.

RMB Holdings generated R903 816 per worker per unit of capital per year between 2007 and 2012. Vukile is at R325 410 and Investec at R294 364. A total of 137 of the 151 companies on the list at least generated a positive balance, with 14 with negative balances.

“These findings support other data which show that labour productivity for the South African economy as a whole has fallen to a 40-year low and capital’s share of national income has correspondingly risen from 39.9% to 47.2%,” says Peter Aling, the analyst responsible for compiling the Navigator.

Aling characterises productivity – making the best use of available resources – as “a paramount economic goal”. Profitability, a separate matter, is an organising principle of business affairs that leads to maximum productivity. “It is just one of several means of achieving this goal.”

Aling argues that the Reserve Bank’s definition and calculations do not match reality.

“They do not explain why firms continue to lay off workers in large numbers (1.9m since the peak in the late 1980s); and they do not explain why labour’s share of national income has fallen from 60.1% in 1995 to 52,8% in 2011.”

“Labour productivity properly measured has declined steadily since the 1970s, whereas capital productivity has risen dramatically over the same period.”

He goes so far as to claim: “South African workers, on the whole, are destroying value, with the result that they are gradually being retrenched.”

Thursday, November 3, 2011

SA Latest Unemployment Figures

Stats SA released the Labour Force Survey (LFS) for Q3 2011 yesterday. The LFS is a quarterly household survey specifically designed to measure the dynamics of employment and unemployment in South Africa, including the informal sector as well as small-scale subsistence farmers. The following is a summary of the key trends in the labour market as at Q3 2011 (see charts attached for further information).

In Q3 2011, there were 32.555 million people aged between 15 and 64 years in SA (up 120 000 relative to Q2 2011, and up 483 000 year-on-year).

Among these people:

17.761 million were economically active (up 98 000 relative to Q2 2011)

13.318 million were employed (up 193 000 relative to Q2 2011)

4.442 million were unemployed (down 96 000 relative to Q2 2011. The number of discouraged workers fell by 3 000 in the quarter)

This implies that the official unemployment rate is now down at 25.0%, compared with 25.7% in Q2 2011. This is a very welcome improvement, but at 25%, the unemployment rate is still extremely high by global standards. Using the expanded definition, the unemployment rate is still well above 30%; reflecting the high level of discouraged workers.

As mentioned above, the number of employed people rose by a very welcome 193 000 in Q3 2011 relative to Q2 2011. This gain in employment occurred mostly in the formal sector (+238 000). The agricultural sector also gained 26 000. In contrast, the informal sector shed 53 000 jobs, while private households lost 19 000.

Over the past year, the SA economy has added an relatively impressive 343 000 jobs. While this is still below the key target level of 500 000, it reflects a significant turnaround relative to recent years. All of the gains in the past year have been in the formal sector (+393 000). In contrast the informal sector has shed 12 000 jobs. There were also losses in agricultural employment (-16 000 in the past year) and domestic workers (-21 000 in the past year).

There remains a significant debate within South Africa regarding the accuracy of the various employment surveys. However, the current trend in the employment surveys suggest that at least SA is past the worst of the job-cutting cycle (see chart 3 attached) and could expect more meaningful gains in employment during the next couple of years. The key question is now how many jobs can SA create? The New Growth Plan has set a target of creating 5 million jobs over the next 10 year. The is a worthy target, but also a very ambitious target. Hopefully, SA’s economic policy will increasingly focus on how to encourage job creation in the private sector.

Clearly, job creation is not merely a function of interest rates or the cost of capital. Other important policies play a crucial role in facilitating job creation, namely fiscal (tax) policy, labour policy, education policy, competition policy, industrial policy, trade policy, exchange rate policy etc etc. Asking monetary policy to consistently solve all of SA’s economic woes is unfair and unrealistic. SA’s high unemployment requires a far more complete and bolder solution, that has the role of the private sector firmly at its core.

South Africa’s unemployment rate remains far too high by historical and international standards, and clearly contributes to much of the social tension and anguish experienced in South Africa on a daily basis. As we have stated on many occasions, increasing the number of people employed in South Africa has to be the number one economic/political/social objective.

Friday, October 28, 2011

The Budget in a nut shell

Overall, the Minister revised down his GDP growth estimate (especially for 2012 from 4.1% to 3.4%); including a downward revision to his growth estimate for fixed investment spending (for 2012 from 5.5% to 4.5%) - despite claiming that this is an “investment led budget”. It is clear that the performance of the SA economy has been negatively impacted by the poor global economic environment.

The estimate for the national deficit for 2001/12 has been revised up to -5.5% of GDP, compared with a budget of -5.3% of GDP. The projected deficits over the next couple of fiscal years have also been increased. For 2012/13 the budget deficit is now projected at -5.2% (was -4.8%), while for 2013/14 it is -4.5% (was -3.8%). The deficit estimate for 2014/15 is more encouraging at -3.3% of GDP, which sends the right message but much has to happen before that is achieved.

The estimate of tax revenue for 2011/12 has been reduced to reflect a projected revenue shortfall of R13 billion. Unfortunately, this shortfall could end-up being closer to R20 billion based on our own projections.

In order to reduce the budget deficit over the next 3 years the Minister has budgeted for revenue growth to average a fairly optimistic 11.0% a year (currently tax revenue is growing at around 7.4%); while the growth in government expenditure, which has experienced double-digit growth for a number of years, is projected to average a much reduced 8.4% a year for the next 3 years (with salary increases budgeted to rise by only 5% a year – which is not that realistic given the current upward trend in inflation). These projections appear somewhat optimistic given recent trends, implying that the government is likely to experience a higher budget deficit and larger borrowing requirement than is currently reflected in the MTBPS. Net government debt is forecast to reach 40% of GDP in fiscal 2015, which is still very respectable, but clearly contingent on the fairly optimistic revenue and expenditure projections.

The Minister is aiming to increasingly switch the focus of government expenditure initiatives away from consumption based spending to investment activity (including a R25 billion initiative to promote industry over the next 6 year). This is applauded, but the Minister is projecting that public sector infrastructure spending actually declines from 7.8% to 6.8% of GDP over the next three years.

There was little detail on the pending National Health Insurance, other than to indicate that National Health Insurance pilot projects will take place in 10 districts, in order to gauge the feasibility and scalability of proposals contained in the green paper.

Although SA’s fiscal position remains extremely favourable by global standards, and government purposely embarked on a counter-cyclical fiscal policy during the recent recession, the fiscal position could deteriorate more than projected if government is unable to curtail its current growth in consumption expenditure. It is also becoming increasingly urgent for SA to broaden its tax base through job creation. The Minister recognises the need to improve investment activity as well as government’s service delivery, and is clearly aware that tough policy choices will have to be made in order to create employment. However, the lower projected growth in investment spending is a concern, especially as it relates to the ongoing under-investment by provinces and local government

Tuesday, September 6, 2011

The year so far: the hunt for yield

Marriott Asset Management :

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Wednesday, August 24, 2011

Leading Indicator records positive growth for SA

SA leading economic indicator recorded positive growth in June 2011

The SA leading economic indicator for June 2011 was released yesterday by the Reserve Bank, and recorded a rise of 1.8%m/m, after declining for three consecutive months. Overall, despite the rise in June, the SA leading indicator has clearly lost momentum and is signaling a meaningful slowdown in domestic economic activity.
The increase in June was broad-based, with 7 out of the 10 data series measured during the month improving, while the other 3 declined. Out of the indicators that rose during the month, the largest contribution came from residential building plans passed, particularly for flats and townhouses. There was also a marked increase in the twelve-month percentage change in job advertisement space, largely due to the low base that was created in June 2010 as a result of the hosting of the FIFA World Cup. The major negative contributors were the prices of all classes of shares traded on the JSE, as well as the interest rate spread.
On an annual basis the rate of change in the leading indicator improved to +3.6%y/y; up from -0.2%m/m in May 2011. Overall, the annual rate of change is well down from a recent peak of 24.2%y/y in April 2010 (see chart attached).
The slowdown in the domestic economy, certainly relative to the surprise growth of 4.8%q/q in Q1 2011, has become very noticeable in the past few months; both in terms of anecdotal comments from domestic businesses, as well as some sector specific economic data. This weakening in economic activity is partly due to the fall-off in activity levels in most major economies (hence a downward revision to the global growth outlook, see previous notes), as well as a loss of growth momentum in real household incomes and a lack of investment spending and job creation locally.
SA’s GDP growth rate is, therefore, expected to slow meaningfully in the quarters ahead, certainly relative to the 4.8%q/q achieved in Q1 2011. This amounts to a loss of momentum in the pace of the economic recovery; but not a return to recession conditions. It will, however, help the Reserve Bank to keep interest rates on hold for an extended period, despite higher inflation.
As would be expected, the SA leading indicator has a good correlation with the OECD leading indicator (with a short lag). SA’s leading indicator tends to lag the global economic cycle, both into a slowdown/recession as well as into a recovery, but by only about 1 to 3 months. Importantly, this relationship appears to have gotten stronger over the years (mainly due to the increased globalisation of South Africa) and the lag has tended to shorten from around 6 months a decade ago to around 1 to 3 months currently.
The SA leading economic indicator is compiled by the SA Reserve Bank and released once a month. It consists of 12 sub-indicators, namely:

Opinion survey of volume of orders in manufacturing
Opinion survey of stocks in relation to demand: Manufacturing and trade
Opinion survey of business confidence: Manufacturing, construction and trade
Composite leading business cycle indicator of major trading-partner countries: Percentage change over twelve months
Commodity prices in US dollars for a basket of South Africa’s export commodities: Six-month smoothed growth rate
Real M1 money supply (deflated with the CPI): Six-month smoothed growth rate
Prices of all classes of shares: Six-month smoothed growth rate
Number of residential building plans passed for flats, townhouses and houses larger than 80m2
Interest rate spread: 10-year bonds less 91-day Treasury bills
Gross operating surplus as a percentage of gross domestic product
Job advertisements in the Sunday Times newspaper: Six-month smoothed growth rate
Opinion survey of the average hours worked per factory worker in the manufacturing sector

Download the presentation slides

Wednesday, July 6, 2011

South Africa Equities set to Rally in 2nd Half of 2011

S. African Shares to Gain 10% to 15% By Yearend on Economy, Investec Says

By Stephen Gunnion - Jul 5, 2011 6:34 PM GMT+0200

South African equities may rise as much as 15 percent this year as the global economy starts to improve and concern eases that China may curb growth to control inflation, according to Investec Asset Management.

The Cape Town-based money manager has reduced the cash element and raised the equities portion in its Discovery Balanced Fund to 70 percent from a “neutral” weighting of 65 percent six weeks ago, Chris Freund, an Investec Asset Management portfolio manager, told reporters in Johannesburg today. African securities account for 76 percent of the fund.

The MSCI Emerging Markets Index of stocks has gained 4.1 percent since Greece’s parliament on June 29 approved an economic austerity plan, key to avoiding a default, and after U.S. manufacturing unexpectedly expanded at a faster pace in June. Inflationary pressures in China are under control, Premier Wen Jiabao said in comments posted on the government’s website today. South Africa’s FTSE/JSE Africa All Share Index rose for an eighth day in the longest winning streak since November 2009.

“Markets were looking for an excuse to bounce and did so last week on the back of the Greek parliament voting in favor of further austerity measures,” Freund said. “People are so defensively positioned that if we start to get some strong data consistently then the market is going to rally quite hard. I personally think we are good for another 10 to 15 percent this year from this point.”

The South African benchmark equity index closed at 32,254.24 as of 5:30 p.m. in Johannesburg. The gauge is up 0.4 percent for 2011 and is 2.5 percent lower than its record-high close of 33,094.06 set on Feb. 14.

Risks

The Discovery Balanced Fund (DISBALA) has gained 2.5 percent so far in 2011 and 17 percent from a year ago, ranking in the 84th and 91st percentiles, respectively, according to data compiled by Bloomberg News.

While a number of risks remain, including the U.S. housing market and slower Chinese and European growth, equity valuations globally are not “overcooked,” said Freund, who manages 25 billion rand ($3.7 billion) in pension fund portfolios and mutual funds, including the Discovery Balanced Fund.

Freund is also raising the portion of South African bond holdings. He didn’t give further details. His biggest equity holdings in South Africa include Sasol Ltd. (SOL), Compagnie Financiere Richemont SA, BHP Billiton Plc, MTN Group Ltd. (MTN), SABMiller Plc (SAB), FirstRand Ltd. (FSR), Mondi Plc, Anglo American Plc (AAL), Exxaro Resources Ltd. (EXX) and Imperial Holdings Ltd. (IPL)

To contact the reporter on this story: Stephen Gunnion in Johannesburg atsgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

Item	% change
Oil Prices	+50.7%
Food Prices	+32.0%
Metal Prices	+29.9%
Cotton Prices	+27.1%