Investors ‘are more concerned about strike than election’

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Johannesburg - The longest mining strike in South African history risks weighing on investors as the threat to growth builds, clouding the economic outlook amid preparations by the ANC for its fifth general election.

The rand was little changed last month following its biggest back-to-back monthly gain since February 2012, data show. The number of days foreign investors were net sellers of government bonds was the most since January, according to stock exchange statistics.

The 14-and-a-half-week strike over pay by more than 70 000 platinum workers is a headwind for expansion, forecast this year to be half the 5.4 percent pace that the government estimates is needed to reduce the nation’s 25 percent jobless rate. The labour dispute is a bigger risk to investors than this week’s elections, which polls show the ANC will win, according to Mohammed Nalla at Nedbank.

“We cannot underestimate the impact that has on the South African economy, where you have an entire industry that is shut down for a quarter of the year,” Nalla, the head of strategic research at Nedbank’s investment banking group, said on Friday.

“The knock-on effect in terms of the growth implications further down the line are absolutely massive.”

ANC win

South African bonds due in 10 or more years were one of only two fixed-income categories that lost money last month among 144 indices tracked by Bloomberg and the European Federation of Financial Analysts Societies. Rand bonds earned 0.3 percent in the period, the worst performance since a 3.2 percent loss in January, bond indices show.

The ANC is set to win more than 60 percent of the vote when South Africans go to the polls tomorrow, ensuring a second term in office for President Jacob Zuma. Because it was a given that the ANC would win, the election outcome and its effect on the economy was not a concern, Thabi Leoka, the head of South African research at Renaissance BJM Securities, said on Friday.

A chief concern was the “inability of government to control labour”, she said.

The strike by workers at Anglo American Platinum, Impala Platinum and Lonmin has cost almost R16 billion in lost revenue and workers have foregone R7.1bn in wages, according to the companies.

Beyond mining

The weight of mining in South Africa’s exports means the strike will start to affect the current account deficit, which widened to 5.8 percent of gross domestic product (GDP) last year, as platinum mining companies’ inventories were run down, Moshabele Modise, an investment analyst at Citadel Investment Services, said.

“The problem is that the longer it goes on, the implications will go beyond the mining sector,” Modise said on Friday.

While Zuma said on May 1 that protracted strikes were not in the interest of the workers or the economy, on April 29 Finance Minister Pravin Gordhan played down the effect of the labour unrest.

“Investors know how to discriminate and discern the difference between one particular sector of the economy and other sectors,” Gordhan said in an interview with Bloomberg TV Africa.

The ANC has won every election since the end of apartheid in 1994 with more than 60 percent of the vote. The main opposition DA is forecast to win about 22 percent, according to market research company Ipsos.

The ANC was worried about the effect of the strike on the economy, Enoch Godongwana, the head of the party’s economic policy committee, said yesterday. “If affects the profitability of the companies, it affects the incomes of the individuals, it affects our exports earnings in terms of the balance of payments, it affects our revenue as government, so it has huge knock-on effects on the economy.”

The cost of insuring South Africa’s debt against default for five years using credit default swaps dropped 14 basis points from the start of April to 181 on Friday, signalling investors’ improving risk perception. – Bloomberg


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