JOHANNESBURG - Last week was characterised by the drama around global oil prices and worries that the Covid-19 infection rate would flare up again in a lot of countries.
Financial markets and exchange rates in reaction moved in volatile and uncertain fashion with a stronger dollar, sharp increases in the price of gold bullion and a collapse in oil prices.
Domestically, the drama continued as President Cyril Ramaphosa announced a Covid-19 economic and social package, stimulating the economy with another “R500billion”.
Highlights of the package were the R50bn awarded to new and increased social grants for a period of 6months. This is 3percent of the national Budget. Tax relief for companies of R70bn was announced and R100bn to save and create new jobs. The controversy remains the R200bn that will be available for businesses to borrow, from either the Industrial Development Corporation or from commercial banks, to help in protecting 700000 jobs.
Most of this money will be made available from IMF ($4.2billion), World Bank ($60million) and $1bn New Development Bank (BRICS) loans.
At a press conference on Friday, Finance Minister Tito Mboweni stressed that these loans would come with no conditions, as is usually the case.
The question still remains whether the government will get access to these loan facilities at a cheap rate (around 2percent) and that businesses will pay back these loans at a much higher rate (around 7percent), thereby collecting more income for the Treasury. Is this then nothing other than a tax on the companies?
On Thursday evening the president followed up on the social economic package with the announcement of the phasing out of the total lockdown (phase 5) from May 1. The whole country will start off on phase 4, which implies the opening up of a few sectors, mostly agriculture, mining, financial and professional services, more retail outlets including the selling of cigarettes, IT and postal and communication IT services. Further announcements will be done on a sector-to-sector and province-by-province basis as differentiated phasing out towards phase 1 (no lockdown) will take place in months to come.
The big uncertainty on the new economic package as well as the phasing out of the lockdown remains the ultimate effect on the economy and on the debt level of the national government. The Reserve Bank expects the economy to grow this year by -6percent, and taking into account the additional pressure on Treasury to finance the effects of Covid-19, it is expected that South Africa’s debt to gross domestic product (GDP) might increase by more than 40percent to a level near 90percent of GDP.
Financial markets were a bit indifferent on the week’s political interventions and equities, bonds and the rand exchange rate rather traded in a narrow band, as most of the announcements, seemed to be already discounted for in the markets.
Stocks in the US remained volatile last week as investors assessed the latest company earnings, efforts to open the economy again and the oil price saga.
The All Share index on the JSE gained a mere 392points (0.7percent) last week with three days negative and two days of positive movements. Given a strong rally in commodity prices the Resources 10 index had shot up by 4.6percent, with almost all the other indices moving sideways. Listed property unfortunately gave back almost all its winnings of the last two weeks as the index lost almost 12percent.
The rand to the dollar was once again weaker during last week with 14 cents (0.7percent) at the close on Friday, trading at R18.98/$ against R18.84 the previous Friday.
Dr Chris Harmse is an economist and chief investment officer for Rebalance Fund Managers.