Another month, another crises. During July, South Africa was plagued by violent riots and looting, following the imprisonment of former President Jacob Zuma. It is very likely that there were a number of other factors at play causing the events that played out in KwaZulu-Natal and Gauteng; increased unemployment and poverty induced by 18 months of lockdowns and resultant poor economic performance surely had a role to play.
The total cost to the economy as a result of the looting is yet to be determined, but estimates point to a cost of at least ZAR 30 billion! Last week, ABSA released the Purchasing Managers Index, compiled by the Bereau for Economic Research, a measure of South African factory activity. The index fell from 57,4 in June to 43,5 in July – the biggest decline since the establishment of the index, more than 20 years ago. The business activity and new orders components of the index fell quite considerably, highlighting the massive negative impact of the looting as business closed down. Increased lockdown measures also had a role to play in the poor performance during July.
The South African Reserve Bank’s Monetary Policy Committee met during the month and decided to keep the repo rate unchanged. This was a unanimous decision, despite some market analysts expecting a rate increase. While the Governor indicated that the next move for interest rates is up, he left the door open on the timing of the first hike. Given the poor economic environment, a case could be made for holding off again on a rate hike at the next MPC meeting. Lesetja Kganyago said: “Better anchored expectations of future inflation could keep interest rates lower for longer, and be realised by achieving a stable public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage inflation low into the recovery”. This might have implications for the currency, especially considering that many of our emerging market peers are increasing interest rates.
Another interesting development during July, was increasing regulatory pressures directed at Chinese e-commerce and IT companies. The Chinese stock market has been underperforming since late last year. The recent moves by Chinese regulators to clamp down on IT companies had a significant negative impact on share prices of these companies, including Tencent, which is South African Naspers and Prosus duo’s largest single investment. Ashley has written a very informative piece on the impact of increased regulation in the context of the ownership structures of these internet giants.
Until next month, be safe.
Bennie
