{"id":265307,"date":"2018-08-16T07:31:58","date_gmt":"2018-08-16T05:31:58","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=265307"},"modified":"2018-08-16T07:37:47","modified_gmt":"2018-08-16T05:37:47","slug":"reality-sets-in-for-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/265307\/reality-sets-in-for-south-africa\/","title":{"rendered":"Reality sets in for South Africa"},"content":{"rendered":"
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If there were any doubts that the euphoria following Cyril Ramaphosa\u2019s election as president of South Africa has evaporated, this week\u2019s slump in the rand has removed them.<\/p>\n

The currency has plunged to a level last seen when Jacob Zuma was still in charge, having retreated from a three-year high against the dollar amid a toxic cocktail of negative economic news, political risks and falling commodity prices. An investor retreat from emerging markets has accelerated its slide of almost 10% against the dollar this month.<\/p>\n

When Ramaphosa took over as president in February, he promised to stimulate growth and attract investment, fix the finances of state-owned enterprises, and root out the corruption that marked Zuma\u2019s administration.<\/p>\n

Investors took note: the rand surged to a three-year high in February and borrowing costs fell as inflows into the country\u2019s bonds and stocks surged.<\/p>\n

The mood was dubbed \u201cRamaphoria.\u201d There\u2019s no sign of it now.<\/p>\n

\u201cThe change in the political leadership after Cyril Ramaphosa took power provided a boost to investor sentiment, sparking a rally in the rand that has now been reversed,\u201d Mark Bohlund, an Africa economist at Bloomberg Economics, wrote in a report.<\/p>\n

\u201cForeign investors could become concerned about renewed lapses in fiscal consolidation or the government\u2019s ability to rein in financial risks from state-owned enterprises.\u201d<\/p>\n

Things started changing in April as rising US interest rates and a strengthening dollar began to sap demand for emerging-market assets. While crises in Argentina, Turkey and Russia provided the context, homegrown problems fueled the retreat.<\/p>\n

The economy contracted in the first quarter as the current-account deficit widened, highlighting the country\u2019s vulnerability to capital outflows. Mining production, once the engine of the economy, has slumped, and manufacturing and consumer spending have struggled to pick up the slack.<\/p>\n

A widening budget gap has limited Ramaphosa\u2019s ability to boost infrastructure and social spending.<\/p>\n

\u201cSouth Africa faces domestic challenges at a time when the external backdrop is less positive for risky assets,\u201d said Piotr Matys, a London-based emerging-market strategist at Rabobank.<\/p>\n

\u201cThe US dollar is broadly stronger on the back of widening interest-rate differentials, the US and China are involved in a trade war and Turkey is a major warning signal for other economies which rely on volatile capital inflows to finance current-account deficits.\u201d<\/p>\n

The rand dropped 2% on Wednesday to R14.5292 per dollar. It hit R15.5517 on Monday, the weakest since June 2016.<\/p>\n

The cost of insuring the country\u2019s debt against default for five years using credit-default swaps climbed 14 basis points to 219, the highest in more than a month. Moody\u2019s Investors Service rates South Africa\u2019s foreign and local debt at Baa3, the lowest investment level.<\/p>\n

Adding to the weakness, Naspers Ltd, which accounts for 18% of the benchmark stock index, tumbled after China\u2019s Tencent Holdings Ltd, in which it owns a 31% stake, missed earnings estimates.<\/p>\n

Populist Faction<\/strong><\/p>\n

The tipping point came on Aug. 1, when Ramaphosa, bending to the populist faction of his party, announced that he would seek a constitutional amendment to allow expropriation of land without compensation.<\/p>\n

The move could undermine property rights and deter investment, some analysts say. Investors are looking north to neighboring Zimbabwe, where a program of violent land seizures beginning in the late 1990s wrecked the economy.<\/p>\n

Gwede Mantashe, chairman of the governing African National Congress, stoked the concerns on Wednesday when he proposed that white farmers should be forced to turn over excess land to the government, handing traders another excuse to abandon the rand on a day that both Moody\u2019s and Reserve Bank Governor Lesetja Kganyago sounded warnings on the economy.<\/p>\n

\u201cMarkets are sensitive to anything perceived to be \u2018Zimbabwe-fication\u2019 on the land-reform front,\u201d said Henrik Gullberg, executive director of emerging-market strategy at Nomura International Plc.<\/p>\n

The fact that Mantashe was just repeating proposals that had been made before \u201cdoesn\u2019t really matter, especially in an environment of broader US dollar strength,\u201d he said.<\/p>\n

The next big test for the rand may be the mid-term budget review scheduled for October, where Finance Minister Nhlanhla Nene will have to convince investors that the government can maintain spending discipline in the run-up to 2019 elections.<\/p>\n

If management of the national economy is anywhere like what\u2019s happening locally, they\u2019d have reason to be worried.<\/p>\n

The Emfuleni municipality, which is part of South Africa\u2019s richest province, had all of its vehicles repossessed by Bidvest Group Ltd., civil society group the Organisation Undoing Tax Abuse said Wednesday. Emfuleni lost the vehicles for its traffic, water, electricity and fire departments.<\/p>\n

\"\"<\/a><\/p>\n

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Read: How South Africa\u2019s billionaires were hit by the latest rand crash<\/a><\/strong><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

If there were any doubts that the euphoria following Cyril Ramaphosa\u2019s election as president of South Africa has evaporated, this week\u2019s slump in the rand has removed them.<\/p>\n","protected":false},"author":59,"featured_media":259409,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[26],"class_list":["post-265307","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/265307","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=265307"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/265307\/revisions"}],"predecessor-version":[{"id":265315,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/265307\/revisions\/265315"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/259409"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=265307"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=265307"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=265307"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}