Wage demands making SA vulnerable.

By Ed Stoddard.

Reuters.

Johannesburg – Big wage hikes demanded by the government-allied trade union in South Africa’s coal and gold industries helped push the rand to a four-year low on Monday, highlighting the ripple effect of the prospect of more turmoil in the industry.

The National Union of Mineworkers’ (NUM) call for pay rises of up to 60 percent in a submission to the Chamber of Mines seen by Reuters on Sunday rattled mining investors after wildcat strikes at platinum and gold mines killed 50 people and cost billions in lost output last year.

Employers and workers are squaring off for next month’s salary bargaining period against a backdrop of high inflation and shrinking company margins in Africa’s largest economy due to soaring costs and sinking commodity prices.

This is making South Africa vulnerable, said George Glynos, managing director at financial consultancy ETM Analytics.

“Commodity prices are retreating, you have wage negotiations which look like they are turning pear-shaped even before they have begun, and all that on top of a fragile economy,” he said.

Reflecting the jitters over the threat of fresh mines unrest, the South African currency fell to a new 4-year low of R9.4790 to the dollar early on Monday before recovering to 9.4580 by 1228 GMT, still down 0.6 percent on the day.

Shares in Africa’s top bullion producer AngloGold Ashanti fell over four percent and rival Gold Fields shed 4 percent to 4-1/2 year lows.

On global markets, gold fell for an eighth straight session to its weakest level in over a month, as fears that the U.S. Federal Reserve may wind back its economic stimulus programme hurt the metal’s appeal as a hedge against inflation.

FIERCE TURF WAR

A fierce union turf war is roiling labour relations at mine shafts, with the NUM fighting an aggressive challenge to its once near monopoly of members from the growing Association of Mineworkers and Construction Union (AMCU).

AMCU has poached tens of thousands of platinum miners from NUM in an increasingly violent struggle at mine sites.

The union battle poses a headache for the ANC, which faces criticism that it mishandled last year’s mines violence. Opponents say it and the mainstream NUM have neglected the rights of workers and sided with mine bosses, a charge they both deny.

The ANC’s Secretary General Gwede Mantashe, a former top NUM official, defended the union on Monday, saying that “recent attacks” on it were akin to an attack on the ruling party’s alliance with its labour allies.

Last year’s mine violence dented South Africa’s image with investors and led to ratings downgrades for the economy.

NUM, a key political ally of the ANC, is seeking an entry-level minimum monthly wage of R7,000 rand for gold and coal surface workers and R8,000 rand for those underground, according to the submission to the chamber of mines obtained by Reuters. The latter would represent a 60 percent rise from the current minimum wage of R5,000 a month.

NUM also said it wanted 15 percent increases for “all other wage categories,” meaning more experienced and skilled workers. Wage talks are due to begin next month.

South Africa’s Solidarity trade union, which represents mostly skilled workers, said on Monday it was seeking 10 percent pay increases for its members from the country’s gold and coal producers in the upcoming negotiations.

Spot gold is currently fetching around $1,350 an ounce, down close to 20 percent so far this year, and South Africa’s mines, the deepest in the world, are hard pressed to turn a profit at these levels.

“If you look at the all-in-costs for South African gold miners, including capex (capital expenditure), the break-even costs right now are anywhere between $1,100 and ounce and $1,400 an ounce,” said David Davis, mining investment analyst with SBG Securities.

STRIKE THREATS

NUM still represents the bulk of the rank and file in the gold and coal sectors and needs to be seen taking a tough line with management to head off the assault from AMCU, which now dominates the platinum sector specifically.

AMCU has not yet submitted its wage demands to producers, which negotiate with unions on a company-by-company basis.

Anglo American Platinum, the world’s top producer, is planning to cut 6,000 jobs from an initial target of 14,000 as it seeks to restore profits after recording a loss last year.

It scaled back its original plan under government pressure, but workers and unions have threatened strike action on the platinum belt if the announced lay-offs go ahead.

African Bank Investments, a lender to lower-income South Africans such as miners, said on Monday many of its debt-laden customers were struggling to pay back their loans.

“The knock-on effect from the recent strike activity led to increased debt servicing burdens,” the bank said in announcing its first-half earnings.

AMCU’s rise has been built in part on perceptions that NUM’s leaders have grown too close to management and the ANC.

The view from the boardroom is somewhat different as NUM has been wringing above inflation wage hikes for its members over the past decade, a huge squeeze on company margins.

But even increases above inflation do not go far for workers at the bottom end of the pay scale who on average have eight dependants and are mostly drawn from poor rural areas.

Inflation, which is currently running near 6 percent, looks set to accelerate further given the recent weakness in the rand. -Reuters

Source: IOL Business Report

Nedbank Weekly Economic Monitor:  Review of 13 to 17 and preview of 20 to 24 May 2013.

• The rand weakened against most major currencies last week.
• Annual growth in retail sales slowed to 2,8% in March from 3,9% in February.US equity markets set new record highs on positive economic data.
• US consumer confidence rose to its highest level since 2007.
• The Eurozone economy contracted for the fourth consecutive quarter.
• The German economy expanded only slightly in the first quarter, while most of the other Eurozone economies declined.
• The Bank of England presented a more upbeat outlook for the UK economy.
• Japanese first quarter gdp data rose strongly on higher consumer spending and exports.

The rand weakened against most major currencies last week as renewed labour unrest in the mining industry dampened investor confidence. The local unit ended at R9,39, R12,04 and R14,26 against the US dollar, euro and British pound respectively, from R9,11, R11,82 and R13,99 at the previous week’s close.

Bonds ended the week down in line with the weaker currency, with yields on the benchmark R157 2015 and R186 2025 increasing to 5,04% and 6,82% respectively from 4,99% and 6,66%, while those on the 3-, 5- and 10-year BESA actuaries increased to 5,29%, 5,63% and 6,48% from 5,25%, 5,55% and 6,32%.

Money market rates were steady to lower over the week. The 3- and 6-month JIBAR rates remained steady at 5,13% and 5,28% respectively, while the 9- and 12-month JIBAR rates declined to 5,29% and 5,35% from 5,31% and 5,37% respectively.

Local equities ended the week up. The FTSE-JSE all-share index gained 2,9% over the week to end at 41 413,4 on Friday, with industrials, financials and basic materials up by 4,6%, 2,2% and 0,2% respectively to close at 53 927,1, 32 371,4 and 24 552,6.

Annual growth in retail sales slowed to 2,8% in March from 3,9% in February, but was slightly better than the consensus forecast of 2,4%. The main drivers of the increase were hardware, paint and glass, where sales rose by 4,4% y-o-y, textiles, clothing and footwear (up 3,8%), general dealers (up by 3,6%) and all ‘other’ retailers (up by 3,3%).

On a monthly basis, total retail sales fell by a seasonally adjusted 0,9% following a 2,0% increase in February. In the first quarter of this year, retail sales increased by seasonally adjusted 0,6% q-o-q following a 0,1% decline in the last quarter of 2012 and by unadjusted 3,0% y-o-y. The trend in retail sales has been weak and will probably remain so in the months ahead. A combination of the poor economic outlook, weak consumer confidence, high inflation and the weak job market will continue to keep consumers conservative on spending, which will contain growth in retail sales during the year.

Key releases for this week include April consumer inflation statistics out on Wednesday. We expect annual inflation to moderate to 5,7% from 5,9%. The Reserve Bank’s monetary policy committee will also be deciding on rates this week, we expect the repo rate to remain at 5%.

International …

See the full Economic Monitor

Inefficiency of labour market puts drag on SA.

By Pierre Heistein.

Productivity in South Africa, while a complex topic to measure and define, is generally accepted to be in bad shape. Given its rich endowments of resources and labour, South Africa’s gross domestic product (GDP) and GDP per capita are simply not at the levels where they should be.

Productivity is the level to which a country can produce given a fixed amount of resources. There are two points at which resources enter the domestic economy: the sites of extraction for primary resources, and the locations of import for primary and secondary resources brought from abroad. From there these resources pass through a process that involves labour, capital and a system that co-ordinates the two, and become the final product sold locally or exported.Productivity is the ratio of the quantum of the final output to the quantum of initial input of resources and it depends on the process that resources pass through between the two.

In this two-part series on productivity we will begin by exploring the productivity of labour in South Africa, which, by any international standard, is dismal.

According to Stephen Wright, an industrial development facilitator advising on policy, the main reasons for this are poor education, overly rigid labour laws, lack of investment in people and the process of resource allocation, and chronic absenteeism.

Local labour is known to be expensive, but Wright points out that, on an absolute level, this is not true when compared with similar and competitor economies. Even in Turkey labour is far more expensive than in South Africa, but it remains more competitive due to the level of value and output that the labour provides for this cost.

On the World Economic Forum’s comparison of pay and productivity (an index showing to what extent pay is related to productivity), South Africa falls behind the world average. Even when compared with emerging and developing markets, Brics nations and sub-Saharan Africa, South Africa is one of the most expensive places to produce goods and services using labour.

Skills development does not need more spending on education. South Africa is one of the highest spenders on education, allocating 21 percent of the national Budget and over 6 percent of GDP. What is needed is more suitable education; more focus on problem-solving, creativity, innovation and a great emphasis and respect for artisan and apprenticeship style learning.

A hotly discussed topic is the overregulation of local labour practices. However, it is important to note the difference between regulation and rigidity. Strong labour regulation is important as a free-for-all labour market results in abuse.But regulation must align with natural business cycles and practices. Wright points out that in many countries labour may be expensive, but employers have the freedom to change the length of the working week in accordance with fluctuations in demand.

In South Africa employers are forced to consider labour more as a fixed cost and this decreases one of the primary incentives to employ labour over capital. The issue lies in how suitable labour laws are to the state and structure of the economy. Exaggerating this is the government’s overemphasis on the development of service industries. Services require high skilled labour in low quantities.

To increase the productivity of labour, South Africa needs to not only empower the skills of each individual, but also redesign the system such that it meets the skills that these individuals already have.

Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision-Making course. Follow him on Twitter @PierreHeistein.

Source: IOL Business Report

IFC boosts lending to Africa.

By Reuters

Dakar – The World Bank’s investment arm will increase lending to sub-Saharan Africa by up to a quarter this year as private sector companies flock to the fast-growing region, its vice-president said.

Jean-Philippe Prosper said the International Finance Corporation (IFC) would make new investments of between $4.5 and $5 billion for the fiscal year ending in June, up from $4 billion the previous year.

The least developed continent is experiencing an economic growth surge, outpacing global averages. The World Bank sees Sub-Saharan Africa’s GDP accelerating to more than 5 percent over three years, driven by investment and commodity prices.

Prosper said projects to upgrade infrastructure for the region’s 1 billion people were attracting yield-hungry investors, while governments were keen to share the costs to free budget resources for poverty relief.

“In the past, nobody wanted to talk about Africa ... Now more people are coming,” Prosper told Reuters. “We would not be able do this level of financing without private sector projects. We did not invent these projects ourselves.”

Roughly half the IFC’s annual lending in the region goes to financial markets and institutions to help improve the flow of credit to small businesses, which employ most of Africa’s workers.

Another third goes to infrastructure projects – mostly transport and electricity – and natural resources investments.

The IFC holds a 5 percent stake in the giant Simandou south iron ore project in Guinea, managed by Rio Tinto, which was due to start production in 2015 but has been hit by lower iron prices and political and regulatory concerns.

Prosper, who met Guinean officials last week, voiced confidence the $15-$20 billion project would go ahead. There have been doubts the government can finance its 51 percent stake in a 700 km (430 mile) railway and offshore loading berth.

“Our discussions were extremely positive. There was interest from government officials to go ahead with the project,” he said. “Simandou is a good test. If it works, you will be amazed by the level of investment which will follow in Guinea.”

POWER PROJECTS

Post-conflict recovery in Ivory Coast, the economic powerhouse of francophone West Africa, was helping to revive investor appetite for the region, Prosper said.The economy of the world’s largest cocoa producer grew 9.8 percent last year as it recovered from a civil war after disputed 2010 elections.

The IFC provided $135 million for the 139 megawatt expansion of the Azito power station, near commercial capital Abidjan, and organised the remaining $277 million of funding for the project.

In Senegal, it is now assessing an investment in the 70 megawatt Tobene power plant, with a cost of $150 million. “Power is the main constraint to investment in Africa,” said Prosper.

To help deepen financial markets, the IFC has made shelf listings for local currency bonds in a number of countries including Tanzania, Kenya, Zambia and Rwanda. It recently issued a five-year naira bond in Nigeria, worth some $50 million.

“Zambia and Rwanda are probably quite close to the point where we might do something. But we don’t want to issue bonds just to issue bonds. We want to make sure we are going to do something with them,” Prosper said. – Reuters

Source: Business Report

Bank rules ‘restrict Africa growth.

By Ann Crotty.

Global banking rules such as Basel 3 were making it difficult for banks in Africa to provide services to the public and were consequently restricting the continent’s potential to develop, delegates attending the World Economic Forum on Africa were told last week.

V Shankar, the group executive director and chief executive of Europe, Middle East, Africa and the Americas at Standard Chartered, said that Africa had huge potential and was “hot on people’s agenda”.

“It has huge consumer potential, huge agricultural potential and huge infrastructure spend potential but all of this requires huge finance. Where will the money come from?”

With the exception of South Africa, Nigeria and Kenya, bond markets in Africa were shallow and governments in the region had an important role to play in developing them, Naveed Riaz, the chief executive of Citigroup’s Africa division, told the delegates.

John Rwangombwa, the governor of the National Bank of Rwanda, said that it was also important to develop the domestic savings markets in individual countries to create depth in the financial market.

Riaz said that Africans had more cellphones than bank accounts and that these were being used to develop banking facilities in countries such as Kenya.

“This has happened because the regulators allowed it to happen… Some money lending rules imposed on African regulators are making it difficult to provide banking services. “Regulators must engage on these rigid rules particularly when transactions are as small as they often are for rural consumers,” Riaz said.

Panel members agreed that anti-money laundering standards were very difficult to implement at the low end of the market and this was preventing the development of banking systems.

Regulators were urged to accommodate the involvement of cellphone firms in the development of banking services and the capital market. “Mobile banking has the potential to be transformative,” said Riaz.

Shankar said that Africa’s biggest challenge and opportunity was its population.

“Whether there is a demographic dividend or demographic debacle depends on the development of SMMEs [small, medium and micro enterprises] that is where the growth is and that is where finance is needed.”

At an earlier session entitled, “Myth Busting: Investing in Africa”, delegates were told by Carlos Lopes, the executive secretary of the United Nations Economic Commission for Africa, that: Africa had about twice the per capita income of India, it had fewer people living in poverty, it had more cellphones per head of population and had fewer people affected by conflict than India and yet India was perceived as successful and Africa was not.

Lopes said that Africa did suffer from a perception problem and that this could be affected by the fact that Africa was not one country but 54 countries.

He said that disposable income had doubled in the last 20 years in Africa and “will double again in the next 20 years”.

Jay Ireland, the chief executive of GE Africa, said that consistent regulations played an important role in influencing perceptions.

Ireland said that GE knew the risks attached to Africa but believed Africa was the place to be, “we’re all in”.

Source: Business Report

Nedbank Weekly Economic Monitor:  Review of 6 to 10 and preview of 13 to 17 May 2013.

• The unemployment rate rose to 25,2 % in the first quarter of this year from 24,9 % in the previous quarter.
• Total mining output declined in March after two months of recovery.
• Manufacturing production again surprised on the downside in March.
• US equity markets continued to be buoyed by strong earnings reports, with the Dow rising through 15000 for the first time in history.
• US initial jobless claims have continued to fall, suggesting a gradual improvement in labour market conditions.
• The Bank of England left the size of its asset purchase programme unchanged.
• The Chinese trade account returned to surplus in April after the deficit recorded in March.
• The Reserve Bank of Australia and the Bank of Korea reduced their policy rates last week.

Domestic

The rand ended weaker against most major currencies last week. The local unit depreciated to R9,11, R11,82 and R13,99 against the US dollar, euro and British pound respectively, from R8,93, R11,71 and R13,90 at the previous week’s close.

Bonds firmed over the week, with yields on the benchmark R157 2015 and R186 2025 falling to 4,95% and 6,58% respectively from 5,06% and 6,66%, while those on the 3-, 5- and 10-year BESA actuaries declined to 5,25%, 5,55% and 6,32% from 5,26%, 5,58% and 6,34%.

Money market rates were steady to lower over the week. The 3-month JIBAR rate remained steady at 5,13%. While the 6-, 9- and 12-month JIBAR rates declined to 5,28%, 5,31% and 5,37% from 5,32%, 5,34% and 5,41% respectively.

Local equities ended the week up. The FTSE-JSE all-share index gained 1,6% over the week to end at 40 232,1 on Friday, with industrials, financials and basic materials up by 1,5%, 2,1% and 1,2% respectively to close at 51 540,7, 31 679,3 and 24 500,7.

The unemployment rate rose to 25,2% in the first quarter of this year from 24,9% in the previous quarter, and the number of discouraged jobseekers increased by 73 000. During the quarter, employment was lost in both the formal and informal sectors of the economy, but the agricultural sector and private households created more jobs. A total of 44 000 jobs were created during the first quarter following a 68 000 job loss in the last quarter of 2012. The largest number of jobs were lost in the trade industry, which shed 66 000 jobs (down by 6,6% y-o-y), followed by construction and financial industries, down by 41 000 (up 3,4% y-o-y) and 23 000 (up 2,3% y-o-y) respectively. The agricultural sector continued to add jobs, employing 54 000 more people over the quarter following a 24 000 increase in the last quarter of 2012. On an annual basis, employment in the agricultural sector rose by 12,7%. The export-sensitive mining and manufacturing sectors also created more jobs during the first quarter despite the challenging labour and economic conditions. Employment in the manufacturing sector rose by 23 000 after 3 000 jobs were created in the fourth quarter of last year, while the mining sector added 8 000 jobs after employing the same number of additional people in the fourth quarter of 2012.

On an annual basis, employment in the mining and manufacturing sectors rose by 8,6% and 1,8% respectively.

The international liquidity position dropped to $45 834 million in April from $46 084 million in March as both the gold price and the US dollar fell during the month.

Gold reserves fell by $536 million to $5 910 million, while foreign exchange reserves rose by $298 million to $41 698 million. The value of gross reserves rose by $298 million to $50 307 million. Government deposits increased by $249 million to $8 482 million, while the forward position dropped by $798 million to $4 009 million, with the Reserve Bank attributing the fall to maturing swaps. The gold price shed 8,3% to $1 469,44 per ounce from $1 602,78 in March, while the dollar fell to $1,3070 against the euro from $1,2803 and $1,5486 against the British pound from $1,5141.

Total mining output declined in March after two months of recovery. Total production was down by 3,5% y-o-y after rising off a low base by a revised 6,7% (previously 7,0%) in February and 6,8% in January. On a seasonally adjusted basis mining production contracted by 3,5% m-o-m after declining by the same margin in February. Non-gold output was down by 3,1% y-o-y after rising by 9,3% in February, while gold production was down by 6,2% after falling by 4,8%. Growth in platinum group metals (PGMs) production fell to 1,8% y-o-y from the 66,0% surge in February, while coal output was down by 15,8%. In the first quarter total mining output was up by a seasonally adjusted 6,2% q-o-q after expanding by 7,6% in the previous quarter, and increased by 3,0% y-oy following the 7,1% contraction in the fourth quarter.

International …

See the full Economic Monitor

For a general picture see the Nedbank Guide to the Economy

Absa: SA Morning Sheet.

This is a daily economic comment …

The sheets can be downloaded daily from Absa Economic Research

An extract from today’s sheet is provided as an example:

NUM’s wage demands at Eskom suggest the union is prepared to play hardball. We have long argued that this year’s round of wage bargaining could be especially contentious, and the NUM’s initial demand at Eskom supports our view. On Friday, the NUM asked for increases of ZAR3,200-3,500 in the monthly salaries of the lowest-paid workers, and ZAR3,000 a month for higher-paid workers. The percentage increase is substantial, though the exact amount really depends on the salary grade.

On balance Eskom workers are well paid. The average monthly salary in Q4 (including bonus and overtime) for workers in electricity gas and water supply was ZAR14,291 (versus for example ZAR6,448 in the manufacturing sector). The NUM also demanded an increase of ZAR2,000-R5000 a month in the housing allowance. Bear in mind that this is an opening proposal from NUM in the negotiations, so the final numbers could be quite different. However, it is worth monitoring, in our view, given that the NUM has a lot of leverage this year because tight electricity supplies give the union. In the broader picture, we can take the NUM wage claim as a sign that the labour negotiations in all sectors across the economy are going to be difficult and that NUM and other unions are likely to be fighting a rearguard battle against new unions by taking a hard line in the wage negotiations. This likely means strikes, in our view. Labour tensions and the current account deficit are the key reasons we believe that the ZAR will be under pressure over the next six months.

ZAR is on the back foot for a number of reasons and is likely to keep weakening. Friday’s broad-based USD gains, which came after some encouraging US data, and a softer gold price played a large part in the ZAR’s 1% depreciation versus the USD on the day. However, the fact that the ZAR lost ground against most of the crosses into the weekend leads us to believe that domestic factors, including: 1) mounting labour tensions (including Anglo American Platinum’s announcement on Friday that 6,000 miners would be retrenched); and 2) the lingering possibility that bidders involved in Window 2 of renewable energy projects could be hedging the ZAR17bn of FX risk associated with these projects, also contributed to the weaker ZAR. What makes us nervous about the ZAR is that nonresidents did not buy SA bonds on Friday, and in the absence of considerable portfolio inflows, the ZAR is could become extremely vulnerable to further selling pressure over the coming months.

Domestic bonds were weaker on Friday amid the weaker ZAR. Yields rose from the record lows reached on Thursday. Sentiment was weighed down by announcements that Anglo American Platinum would cut production and reduce its workforce, as well as improving confidence in the US economic recovery. US Treasuries also opened weaker and this could feed into higher yields domestically into Monday. The benchmark R186 sold off by just under 10bp and the curve bear steepened on the day. The National Treasury auctioned ZAR430mn of I2038s, ZAR200mn of I2025s and ZAR170mn of I2050s. The long-dated I2050 cleared marginally stronger than the previous day’s close, as the ILB curve continued to catch up with flattening in the nominal space. …

The sheets can be downloaded daily from Absa Economic Research

House price growth appears to have peaked

Nominal year-on-year growth in the average value of homes in the middle segment of the South African residential property market appears to have reached an upper turning point in March 2013. This is in line with the expectation that base effects and slowing monthly price growth since mid-2012 would eventually bring about a moderation in year-on-year price growth. These trends are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes (see explanatory notes).

Middle-segment nominal house price growth was slightly lower at 11,1% year-on-year (y/y) in April this year, after a revised growth rate of 11,3% y/y in March. Real price growth, I.e. after adjustment for the effect of consumer price inflation, came to 5,2% y/y in March on the back of an inflation rate of 5,9% y/y in the month.

The average nominal value of homes in each of the three middle-segment categories was as follows in April 2013:

 Small homes (80m²-140m²): R736 800

 Medium-sized homes (141m²-220 m²): R1 066 500

 Large homes (221m²-400m²): R1 615 400

The headline consumer price inflation rate averaged 5,7% y/y in the first quarter of 2013, with inflationary pressures caused by rising fuel prices on the back of international oil price and rand exchange rate movements. The weakening in the exchange rate during 2012 and into 2013 came on the back of factors such as labour market instability, credit rating downgrades and a persistent large current account deficit. Since the start of the year up to late March, the rand depreciated by around 9% against the US dollar, before strengthening somewhat during April and early May. The oil price dropped from around $118 per barrel in mid-February to just above $100 per barrel in April and May. These exchange rate and oil price movements caused a substantial over-recovery in petrol, diesel and paraffin prices in April and early May, which are expected to lead to a further reduction in fuel prices and some easing of inflationary pressures in the near term.

Interest rates remained stable since last cut in July 2012, mainly as a result of trends in and prospects for the economy, inflation and the household sector. Although Absa’s view is for interest rates to stay at current levels until mid-2014, financial market sentiment is mounting for a further rate cut later this month when the South African Reserve Bank’s Monetary Policy Committee meets. This expectation of another cut in interest rates comes against the background of subdued global growth and domestic economic developments. Continued low interest rates will support the property market and benefit the affordability of housing and mortgage finance.

Based on the latest trends in house price growth and factors impacting the housing market, single-digit nominal year-on-year price growth is forecast for the full year. Real house price growth will continue to be driven by a combination of movements in nominal prices and consumer price inflation. …

Read more at Absa Property Research

Statement by IMF First Deputy Managing Director David Lipton at the Conclusion of his Visit to South Africa.

David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF), issued the following statement today in Cape Town:

“It has been a great pleasure for me to make my first visit to South Africa as First Deputy Managing Director of the IMF. I had the privilege to meet President Jacob Zuma and Finance Minister Pravin Gordhan, as well as Trevor Manuel, Minister in the Presidency in charge of the National Planning Commission; and South African Reserve Bank Governor Gill Marcus. I also had the opportunity to exchange views with representatives of labor unions, business, and civil society, and speak at an event hosted by the South Africa Institute for International Affairs and the University of Pretoria. Today, I had the pleasure of participating in a stimulating discussion on Africa, “Building with the BRICS’, at the World Economic Forum in Cape Town.

“During my discussions with the authorities, we agreed that the global economic outlook continues to impact negatively on the South African economy. The global economy has moved to a three-speed recovery, with growth in Europe, one of South Africa’s main trading partners, expected to remain negative in 2013. South Africa’s growth slowed to 2.5 percent in 2012, also reflecting domestic developments, and is likely to remain sluggish in 2013 due to continued weak private investment and slowing consumer spending. In the medium term, South Africa’s economy is projected to grow at an average of 3 to 3½ percent. This reflects, in part, the projected gradual global recovery and South Africa’s public infrastructure investment program—a pillar of the structural reform agenda laid out in the National Development Plan.

“Against this background, we discussed South Africa’s key challenge to raise growth, reduce high unemployment of 25 percent and reduce inequality. To this end, reforms are needed to strengthen education and vocational training, improve the functioning of labor markets, enhance product market competition, and promote a conducive environment for small businesses. Ongoing infrastructure investments to relieve power and transportation bottlenecks are also important to boost growth and encourage job creation in the private sector.The IMF welcomes the government’s endorsement of the National Development Plan, which provides a promising reform roadmap, and encourages fast implementation of the plan to address South Africa’s key challenges.

“A national growth bargain between the government, the private sector, and labor could facilitate reforms. Such a bargain could spell out monitorable commitments by each party to ensure the steps needed to promote high and inclusive growth are taken. Reflecting the interest of the unemployed who currently do not have a strong voice will be important.”

Source: International Monetary Fund

Time for Africa to seize the moment.

The global consensus is that this is an exciting time for Africa. Investors are scouring the continent looking for opportunities to extract value from what is considered the world’s last frontier of growth.

There is a genuine optimism that Africa can be transformed in this generation, in much the same way as China and India — both dirt poor a few decades ago — have been.

But that optimism will be wasted if the continent’s leaders do not proactively address the key obstacles to growth.

Government and business leaders attending the World Economic Forum on Africa in Cape Town this week agree that Africa is changing its attitude towards itself; no longer seeing itself simply as beneficiary of handouts from either the West or China, but as a real partner in the global economy. It has resources — minerals and people — and is devising appropriate market-friendly policies that foster growth. Africa also is preaching integration and quicker movement of goods and services among its people.

But Dr Donald Kaberuka, president of the African Development Bank (AfDB), delivers a significant message when he says that even he still needs a visa to visit many of the bank’s member states. The preaching needs to turn to action.

Inadequate infrastructure is the biggest obstacle to progress in Africa. Regular power failures in Nigeria, Mozambique, Zambia, Tanzania, Kenya — and increasingly South Africa — need to be dealt with decisively through investment in specific generation and transmission projects. An adequate power supply could ensure, for instance, that Kenyan President Uhuru Kenyatta’s dream of supplying laptops to every school-going child becomes a reality. Simply put, targeting specific projects that can be monitored, implemented and evaluated is much better than peddling vast projects that come to nothing.

For many years African regional economic groupings have kept elaborate maps and plans of so-called “transport corridors” comprising rail, road and port networks intended to ease the movement of goods in the region. The problem is that these plans tend to remain plans, tucked away on shelves.

Upgrades to regional ports, including Durban, Maputo, Beira, Dar es Salaam, Luanda, Lobito, and in West Africa, would cut congestion and reduce the cost of doing business. A reliable rail link from Zambia to a port would cut the cost and time it takes to move copper to its destinations. At present, Zambia’s copper is largely exported via the Tanzanian port of Dar es Salaam, when Namibia is far closer.

Africa must also deal with its many political problems. Solutions need to be found to the instability in the Maghreb, the Central African Republic, Democratic Republic of Congo and Mali, as well as lower-level conflicts in Chad and South Sudan, Swaziland, Zimbabwe and Lesotho. Côte d’Ivoire, once a political and economic dynamo in West Africa, must be resurrected as an African power. Although these countries’ problems may appear localised, they damage the continent’s stability and reputation as an investment destination.

The global economy is also something African leaders need to take more interest in. A drop in the appetite for commodities could hurt the continent as much as US and eurozone recessions have.

Volatility in global capital and currency markets are also having an increasing effect, and Africa may need to take precautionary measures to mitigate the fallout should those trends change.

Africa should also argue against tokenism when it seeks to compete in the global marketplace. For instance, the AfDB’s Dr Kaberuka argues, correctly in our view, that a development bank of the emerging Brics countries (Brazil, Russia, India, China and South Africa), capitalised at only $50bn, would be too small to be effective. An ambitious agenda demands more ambitious tools; if Africa is to use its resources to develop itself, it must discard its victim mentality and grasp the opportunity to maximise the benefit from the billions of dollars in investment the world is ready to deliver.

Source: Business Day BDlive