SA economy on eggshells

[boramk]

Fin24

Johannesburg - South Africa's current account deficit widened to a 26-year high of 9.0% of GDP in the first quarter of 2008 while the portfolio inflows key to funding it turned negative, central bank data showed on Thursday.

Moody's sounded a note of caution and analysts said South Africa's economy and currency were vulnerable to the large current account gap, the financing of which was now uncertain.

South Africa's Reserve Bank said in its June quarterly bulletin the current account gap, which was up from 7.5 percent of gross domestic product in the fourth quarter of 2007, was at its highest since the first quarter of 1982.

The financial account remained in surplus, albeit smaller at R47.8bn, but portfolio investment recorded an outflow of R19.1bn, the largest since the second quarter of 2001.

Lehman Brothers analyst Peter Attard Montalto said the gap would likely widen even further this year given the services account deficit of a record R133.2bn.

"The key concern is the funding of this (current account) deficit, however. In the past the run rate of portfolio flows was around R20-30bn per quarter," he said.

"The current account funding looks precarious for Q2 and beyond."

Analysts said the widening deficit left the rand, which has lost around 15% to the dollar this year, more vulnerable, adding to political and economic policy uncertainty.

Investors are watching whether the market-friendly policies of president Thabo Mbeki will outlive him in government.

A power shortage that hurt the key mining sector has raised concern about economic growth while news images of South Africans attacking immigrants have highlighted the potential for political instability.

Moody's ratings agency said South Africa's positive ratings outlook was under strain due to deteriorating economic conditions and social conditions and hinged on whether policies will change after Mbeki's administration ends in 2009.

Future uncertain

New ruling African National Congress (ANC) leader Jacob Zuma is the frontrunner to succeed Mbeki, and his backers - trade unions and the ruling party's communist allies - want more left-leaning policies.

"The events of the past year do appear incongruous with the positive outlook," Kristin Lindow, Moody's Senior Vice President and South Africa sovereign analyst, said at a conference.

"I would like to get a bit of a sense of whether or not there will be significant changes (to economic policy)," she told Reuters in an interview. "Those are the kinds of things that really affect our decision."

The quarterly bulletin also showed household spending under pressure, in part due to higher interest rates.

South Africa's targeted CPIX inflation hit a 5-1/2 year high of 10.4% year-on-year in April, prompting the central bank to hike its key repo rate by another 50 basis points to 12% last week, bringing total increases to 500 basis points since June 2006.

Annualised household expenditure growth moderated to 3.3% in the first quarter from 3.8% previously and 7.0% for 2007 as a whole.

The central bank said private sector fixed investment growth remained strong but South Africa's dependency on foreign capital reached a new record high of 39.5% in the period.

"Overall, the bulletin points to an economy and a currency vulnerable to poor current account funding and stress in the household sector, but helped by strong investment," said Lehman Brothers' Attard Montalto.

 

[Moederloos]

What amazes me is that when the Eskom debacle began, everyone in guavamint shouted about how "it would not effect the economy", "no crisis" and so on.

Now our mines are producing lower than before, the energy squeeze is getting tighter, and even though gold and platinum are at record levels, we are still falling back on our deficit.

Something is not lekker in the braaivleis world.

Another concern, and slightly on and off topic, is our reliance on food imports.
We have a huge amount of arable land - and before someone squawks about it being near desert, take a look-see at Israel - and yet we do nothing about it?

 

[alloytoo]

Another concern, and slightly on and off topic, is our reliance on food imports.
We have a huge amount of arable land - and before someone squawks about it being near desert, take a look-see at Israel - and yet we do nothing about it?

Ag man, it's ok for a few head of cattle and couple of ears of corn, why would we need more, that would be unafrican.

 

[Moederloos]

Ag man, it's ok for a few head of cattle and couple of ears of corn, why would we need more, that would be unafrican.

I know you jest, but this is a serious issue.
There was an article I saw the ither day claiming Africa could triple its food production in one season.
702 did a broadcast that stated that Africa ALREADY grows enough food, it is just that the transport system is so flawed, that most goods never even make it to market.

One of my pet pipe-dreams is to see Africa flourish in terms of food. It is just such a sad waste.

 

[HavocXphere]

There are just so many things piling on top of SA that I'm not surprised that investors are running away. Crime, Electricity, Zuma, Zim, Racial tension, Xeno etc.

 

[alloytoo]

I know you jest, but this is a serious issue.
There was an article I saw the ither day claiming Africa could triple its food production in one season.
702 did a broadcast that stated that Africa ALREADY grows enough food, it is just that the transport system is so flawed, that most goods never even make it to market.

One of my pet pipe-dreams is to see Africa flourish in terms of food. It is just such a sad waste.

It's so simple really, let those who are trained and experienced at large scale commerical farming, do what they've been trained to bloody do.

Stop giving away ariable land to urban dwellers on the basis of sentiment.

 

[Moederloos]

It's so simple really, let those who are trained and experienced at large scale commerical farming, do what they've been trained to bloody do.

Stop giving away ariable land to urban dwellers on the basis of sentiment.

Well, in SA.
But I also refer to the entire continent - in a lot of countries a white oke is as rare as a quagga. It goes beyond land-reformation and so on. It goes to the heart of the problem - which is that Africa, for some or other reason, is unable to rise above "entitlement" and just do some work for a change.