There is no compelling evidence that circumstances in Zimbabwe currently pose a threat to financial stability in South Africa, the South African Reserve Bank (SARB) said on Thursday.
Releasing the September 2007 edition of the Financial Stability Review, the SARB said that currently the potential for negative news from Zimbabwe to affect investor sentiment towards South Africa is small, as investors increasingly differentiate political risk between the two countries.
Furthermore, South African companies operating in Zimbabwe have taken steps to minimise the adverse financial impact of conditions in Zimbabwe.
These actions have included either “writing off” their stake in Zimbabwe or reducing their investment to a minimum. Many of these companies have, however, opted to keep a foothold in Zimbabwe to be poised for an economic recovery.
The SARB added that the political and economic status of Zimbabwe has been receiving increasing attention both internationally and domestically.
“The impact of conditions in Zimbabwe on South Africa could escalate as the situation deteriorates and solutions become harder to find,” the SARB noted.
“Although the Bretton Woods Institutions and some First World economies have spoken out against the Zimbabwean government and demanded support for the reforms they propose, the motivation for South Africa to change its approach of ‘quiet diplomacy’ is currently more likely to be motivated by the growing humanitarian crisis in Zimbabwe than by the stability impact on South Africa,” the SARB added.
Meanwhile, any direct impact of the subprime-mortgage turmoil on the South African financial system is likely to be negligible, the SARB said.
It said South African financial institutions have very little exposure to the United States subprime lending industry or to securities with subprime loans as underlying assets.
According to the Financial Stability Review, the resilience of financial markets globally was severely tested during the past few months following the widespread impact of negative developments in the US housing market and the subprime mortgage market in particular.
Emerging market economies in general have proven to be resilient to the financial market turmoil following the subprime crisis, it said.
The Review focuses on the six months to June 2007 and is part of the SARB’s approach to encourage debate on financial stability issues and enhance the understanding of the financial system and its strengths and weaknesses. — I-Net Bridge