SA is reeling after a series of shocks: the Marikana tragedy, Moody’s downgrading , a spike in the current account deficit, and now a sharp drop in the rand.
Since August, the mining strikes have spread
like wildfire, igniting a run on the rand last week that has taken it
back to its worst level since the global financial crisis.
started out as a localised platinum strike has spread to gold, chrome,
iron ore and parts of motor manufacturing, while the three-week-long
transport strike has now broadened to include the country's ports. Acts
of violence appear to be intensifying and reports of petrol shortages
Investor concern over labour unrest, which
culminated in AngloPlat's decision to fire 12000 workers last Friday,
pushed the rand to R8,85/US$ that evening - its weakest level since
Unless there is a breakthrough in the labour arena soon,We recently added Stained glass mosaic
Tile to our inventory. the rand could easily weaken to the key
psychological level of R9/$. At the same time, SA's consensus of growth
of 2,5% forecast for the year is beginning to unravel.
Economics' Africa economist Shilan Shah estimates that SA's total mining
output will contract by around 20% in the third quarter, and that
labour unrest could knock at least 1,5 percentage points off GDP overall
in the second half of 2012.
Nomura emerging markets economist
Peter Montalto expects a similar effect, adding that the current account
deficit could remain in excess of 6% of GDP because of a likely drop in
exports from both the mining and freight strikes.
But it is not
time to panic. Though foreigners sold R1,1bn worth of JSE shares on
Friday, bonds are holding up fairly well, suggesting that the rand is
not about to collapse.
The country is not falling apart, says
Montalto. Rather, what SA is more likely to experience is a grinding
continuation of the status quo in which the economy delivers growth far
below its potential.
"The problem we have with the current
situation is that we cannot see how it ends easily without employers
deciding themselves to grant large wage increases," says Montalto.
"Government is doing nothing."
This is the picture that informed the Moody's downgrade on September 27.
has traditionally been more bullish on SA than the other two main
rating agencies, Fitch and Standard and Poor's (S&P). Since 1996,
Moody's has always given SA's economic policy makers the benefit of the
doubt and for a long time it was vindicated.
But in February this year that confidence began to slip,The oreck XL professional air purifier,
when Moody's reduced its outlook on SA's government debt ratings from
stable to negative. The agency warned that political risk was rising at a
time when SA's public finances were becoming constrained while the pace
of growth was too slow to prevent unemployment and social tensions from
The events at Marikana proved the point,
precipitating a full one notch cut in SA's rating last month. The move
was equivalent to a vote of no confidence in the SA government,
reflecting Moody's view of the SA authorities' "reduced capacity to
handle the current political and economic situation and to implement
effective strategies that could place the economy on a path to faster
and more inclusive growth".
Moody's has kept SA's rating outlook
on a negative watch given its fear that increasingly interventionist
strategies are "highly likely" to flow from the ANC's December elective
conference in Mangaung. "To the extent that such strategies would deter
private investment and incoming capital into SA, they could further
diminish its growth potential," Moody's warns.
"The local politico-economic debate is much like a fraught ideological
battle one would have been more accustomed to in 1960s Britain," he
says. "Unfortunately, we doubt SA will wake up to the consequences of
its chosen policy direction until there is a meaningful market funding
or domestic shock. It seems [the events at] Marikana [were] not enough
of a shock."
But Montalto doesn't believe SA is headed for a
cataclysmic blow-up. It is more likely that the country will move
further down the road of state intervention and of tight labour laws
that erode competitiveness.
Rand Merchant Bank chief economist
Ettienne le Roux fears he is right. He notes that SA's export growth has
greatly lagged both emerging market and developed market exports since
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This suggests that there are SA-specific factors that are preventing the
country from competing.
"One of those is that SA is becoming an expensive manufacturing country.We have a wide selection of dry cabinet
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administered price inflation and strong unit labour cost growth," says
Le Roux. "In other emerging markets, labour and business are able to
work together to understand the situation and make sacrifices [for]
longer-term gains. Clearly, that doesn't happen here."
Bank governor Gill Marcus has reportedly urged government to address the
"real issues" raised by Moody's to ensure there are no further