/ 17 June 2014

Zuma looks to increase investor confidence as SA economy buckles

Jacob Zuma needs to reassure investors at Tuesday night's State of the Nation Address.
Jacob Zuma needs to reassure investors at Tuesday night's State of the Nation Address.

President Jacob Zuma is under pressure to shore up investor confidence when he delivers a keynote address on Tuesday following the nation’s longest mining strike, power outages and a credit-rating downgrade.

The economy shrank an annualized 0.6% in the first quarter after a 20-week wage strike by more than 70 000 workers shut the world’s biggest platinum mines. Prospects of a recession rose last week when two power plants failed, causing rolling blackouts. Standard and Poor’s cut the nation’s rating by one level to BBB- on June 13, while Fitch Ratings lowered the outlook on its BBB grading to negative from stable, citing concern over South Africa’s deteriorating growth outlook.

“His speech is likely to be aimed sharply at the investor community,” Mzukisi Qobo, a politics lecturer at the University of Pretoria, said in a June 13 phone interview. “He would want to give them a sense that the government has a grasp of the kind of challenges facing the economy and is committed to doing something about them.”

Zuma, 72, who was reappointed for a second five-year term after the ruling ANC won elections on May 7, is due to deliver his State of the Nation address at 7pm local time. It will be his first public appearance since being hospitalised for two days earlier this month to undergo what the presidency said was a routine checkup after doctors found him to be suffering from exhaustion.

Economic policy
Economic policy in Zuma’s second-term administration is focused on implementing a 20-year National Development Plan that seeks to cut the jobless rate to 14% by 2020 from 25% and boost the growth rate to at least 5.4%.

The ANC has appealed for a more policy-driven plan from the government and more effort in resolving strikes that could cripple the economy.

The 102-year-old party “urges government to take decisive actions” and “speedily address uncertainties with respect to the policy and regulatory framework that deter investment”, it said in a June 14 statement. “We appreciate the challenges ahead and have made the resolution of the current platinum strike as urgent and prerequisite for building confidence in the economy. Coupled with the proposed metal strike, the impact can be devastating on the economy.”

While the strike at platinum shafts owned by Anglo American Platinum, Impala Platinum Holdings and Lonmin may be nearing an end, further labour unrest is brewing.

Numsa strike
The National Union of Metalworkers of South Africa (Numsa) said its 200 000 members in the metal and engineering industries plan to strike from July 1, after employers refused to meet their demands for a 15% wage increase.

The rand has slumped 2.5% against the dollar this year, extending last year’s 19% plunge, while yields on benchmark government rand bonds maturing in December 2026 have risen 16 basis points to 8.41%.

Sixty-one percent of 3 370 adults surveyed in February and March said the state was not doing enough to address unemployment, research company Ipsos said in a June 13 email. Just 12% said they got value for money from the taxes they paid, it said.

“President Zuma needs to acknowledge the economic difficulties that have unfolded, that confidence has fallen across the board and the economy is noticeably weaker,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said by phone. “This is the time to start to rebuild with a view to restoring confidence.”

Limited scope Zuma has limited scope to restore stability to the labour market or ensure the construction of two new power stations by state utility Eskom Holdings runs on schedule, said Ian Cruickshanks, chief economist at the South African Institute for Race Relations, a Johannesburg-based policy research unit.

“It’s a bit difficult to see Mr Zuma having some rabbits up his sleeve,” Cruickshanks said by phone. “I’m not expecting any positive announcements that will encourage investment or restore business confidence or consumer confidence.”

Zuma took time off to rest after being discharged from hospital on June 8, missing a cabinet meeting last week where the contents of his speech were to be threshed out and cancelling several other planned engagements.

“It is very unusual for a president not to preside over a Cabinet” meeting ahead of the State of the Nation Address and to be rested for so long, Qobo said. “There must be something a bit more serious than the official line of just a routine check.” – Bloomberg