Johannesburg - The rand touched its weakest point against the dollar since December 2001 yesterday, following the devaluation of the Chinese yuan and a “disappointing” update by President Jacob Zuma on his administration’s plans to grow the economy and cut unemployment.
Although Zuma acknowledged that the economy was in a “crisis”, he dismissed suggestions that South Africa’s economic malaise was a uniquely South African problem. “Who is not in crisis? The globe is in crisis,” Zuma said as he repudiated questions about the poor state of the economy and the looming job losses in mining.
China devalued the yuan in a move that rippled through global markets, as policymakers stepped up efforts to support exporters as China grapples with a weakening economy. The local currency fell to R12.8235 against the dollar as external factors collided with domestic issues.
By devaluing the yuan, China will see its exports become cheaper overseas, potentially creating a glut for some of the very same commodities that South Africa relies on for its foreign currency earnings. China is South Africa’s largest trading partner and the buyer of its minerals.
In recent weeks, Zuma has come under criticism after his administration slammed the mining industry for contemplating thousands of job cuts as the sector battles a deepening slide in commodity prices and rising costs.
Last Thursday Zuma was questioned in Parliament about the damage that the suspension of a mining licence for a coal company owned by commodities giant Glencore had done to investor confidence.
He said said he did not know about the suspension, and a day later the government made a sudden u-turn, and lifted the suspension. In his update Zuma was expected to provide details about the plans he has put in place to revive growth, deal with the power shortages which have hammered manufacturing and boost job creation.
Steady increase
Zuma said despite the slow growth globally, economic growth in South Africa was expected to increase steadily to at least 3 percent over the next three years because the electricity constraint, the major obstacle, was expected to ease. “Our estimate is that electricity shortages are currently costing the economy close to 1 percentage point in economic growth.”
The Presidency had convened the media briefing to provide progress on a so-called nine-point-plan Zuma announced in his State of the Nation Address in February. The media briefing, however, left many questions unanswered, with only four ministers in attendance out of 12 in the economic, employment and infrastructure development cluster.
Zuma said mining remained a critical component of the economy and the government wanted it to remain the backbone of the South African economy. “The threat of job losses in the mining and steel sectors is of serious concern to government as it would be a negative impact on many families, communities and the economy.”
The South African steel industry has been buffeted by cheap Chinese imports, threatening thousands of jobs.
The local steel industry has made an application for a 10 percent tariff increase as protection against cheap steel imports, particularly those from China.
Economic Development Minister Ebrahim Patel said yesterday that the International Trade Administration Commission of South Africa (Itac), the local body that aims to foster economic growth and development in order to raise incomes and promote investment, was applying its mind to the application.
“A lot of complex issues have to be balanced after which Itac will make its decision.”
The rand suffered along with fellow emerging market currencies, following the Chinese central bank’s decision to devalue the yuan.
RMB said in a research note: “The move creates a new uncertainty for global markets in the medium term.”
More exposed
Chief strategist at ETM Analytics, Russell Lamberti, said the depreciation of the rand was as a result of international markets reacting to the devaluation of the yuan. He said the only currency that would benefit from the devaluation would be the dollar and emerging markets would be more exposed in the medium term.
“All the markets have taken the same cue, because it means that China would be importing less goods from other countries and South Africa sells a lot of stuff to China,” said Lamberti.
Isaac Matshego, an economist at Nedbank, said Zuma’s comments that the economy will stay weak for the next three years was disappointing. “There is nothing new to boost confidence in the briefing.”
In one sign of how the briefing was short on substance, Rural Development and Land Reform Minister Gugile Nkwinti found himself being a jack of all trades, talking on trade, labour and international relations.
Additional supply
Zuma said substantial progress had been made in resolving the energy challenge. “The operations and maintenance practices at Eskom continue to improve, to ensure that the power plants are properly maintained and provide electricity within their capacity.”
He said Eskom had signed short-term power purchase agreements that brought additional supply of electricity to cater for the shortfall due to maintenance and to match demand during peak periods.
A further 800 megawatts would be added to the grid through co-generation.
Zuma said to address the spectre of job losses in the mining sector, Mineral Resources Minister Ngoako Ramatlhodi had convened an urgent meeting of the industry and labour last week. They identified a number of areas to save jobs and to find alternatives to job losses.
* Additional reporting by Sechaba ka’Nkosi, Dineo Faku and Bloomberg
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