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<p>According to YPO&#8217;s Global Pulse report, economic sentiment among business leaders in Africa is at its highest level since April 2015, however, it remains the second least-confident region in the world.</p>


Africa’s confidence in the economy improves slightly

<p><span class="articleLocation">JOHANNESBURG</span> (Reuters) &#8211; The steep decline in South Africa&#8217;s business confidence is a setback to economic growth recovery and will dampen investment, ratings agency Moody&#8217;s said on Monday.<span id="midArticle_byline"></span></p>
<p>&#8220;Reduced business confidence implies reduced investment, which would negatively affect growth in South Africa’s already-weak economy, and will ultimately make fiscal consolidation more challenging,&#8221; Moody&#8217;s senior analyst Zuzana Brixiova said in a research note.</p>
<p>(Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia)</p>
<p>&nbsp;</p>


South Africa’s low business confidence setback to growth recovery: Moody’s

<p>Olivia Kumwenda-Mtambo | <span class="articleLocation">JOHANNESBURG</span></p>
<p>South Africa&#8217;s recession took economists by surprise, but for clothing shop owner Hans Setlhabi the gloomy numbers confirmed what he already knew &#8211; chronic unemployment and lofty inflation have shattered consumer confidence.</p>
<p>&#8220;I wasn&#8217;t surprised to hear about the recession. I saw that the economy was going down last year,&#8221; said 38-year old Setlhabi, staring at shelves piled high with clothes offered at discount prices.</p>
<p>&#8220;People don&#8217;t have money and for those who come in, they buy cheaper items and not the expensive ones.&#8221;</p>
<p>South Africa sank into recession for the first time in eight years in the first quarter, hit by weakness in consumer sectors such as wholesale, retail and accommodation.</p>
<p>The economic turmoil is piling pressure on President Jacob Zuma, who faces calls to step down from within the ruling African National Congress (ANC) as a string of corruption scandals, party infighting and sky-high unemployment erode public support ahead of elections in 2019.</p>
<p>The persistence of poverty and joblessness 23 years after the end of apartheid is also stoking anger, with unrest dubbed &#8220;service delivery protests&#8221; &#8212; taking place frequently.</p>
<p>Unemployment is at a 14-year high of 27.7 percent.</p>
<p>The government&#8217;s response to the gradually building economic crisis is due to be laid out later this week when Finance Minister Malusi Gigaba briefs the media how he will address the economic challenges.</p>
<p>Economists had expected the economy to expand, helped by a recovery in mining and agriculture, but surprise contractions in the rest of the economy led it to shrink.<span id="midArticle_byline"></span></p>
<p>Rising unemployment, high interest rates and a drop in purchasing power after a drought last year have all driven consumer prices up and hammered consumer confidence.</p>
<p>&#8220;I used to go into a shop and fill a trolley with groceries to last my family a month but that&#8217;s not happening anymore,&#8221; said 68-year old Mabule Modiba, a retired salesman who recently started driving a taxi to make ends meet.</p>
<p>&#8220;I thought I was done working, but now I also have to look after my grandchildren because my kids don&#8217;t have jobs.&#8221;</p>
<p>South Africa&#8217;s inflation rose to 7 percent early 2016, breaching the central bank&#8217;s target of 3-6 percent, but has now eased to 5.3 percent as food price rises slow.</p>
<p>The Treasury has said the recession introduced &#8220;significant downward bias&#8221; to this year&#8217;s growth estimate of 1.3 percent, up from 0.3 percent in 2016. It means growth is more likely to fall than rise.</p>
<p>It also said that any policies introduced to combat the recession would be made within the current budget framework, in which South Africa aims to cut its budget deficit to 3.3 percent of national output in the next three years from the current 3.8 percent.</p>
<p><strong>ZUMA&#8217;S PROMISE</strong></p>
<p>To stem falling voter support for the ANC, Zuma has vowed to redistribute economic wealth to the poor, but this will be almost impossible with an economy contracting.<span id="midArticle_byline"></span></p>
<p>The ANC lost major cities in its worst ever local election results last year and opposition parties are becoming increasingly confident of ousting the party of Nelson Mandela at a parliamentary vote in 2019.</p>
<p>&#8220;What (the recession) does do is show what is at stake,&#8221; Nomura analyst Peter Attard Montalto said.</p>
<p>&#8220;If there can’t be reform, we are on this path where the ANC will lose power because they cannot create jobs.&#8221;</p>
<p>Unbridled lending fuelled a consumer frenzy that helped the South African economy grow by an average 5 percent a year in the five years before the 2009 recession.</p>
<p>But stricter lending rules since 2015, which require borrowers to produce bank statements and proof of income before retailers can grant them in-store credit accounts, have excluded some from buying on credit.</p>
<p>Results from clothing and furniture retailers such as Mr Price, Truworths and The Foschini Group show they have lost a combined total of 1 billion rand ($78 million) in sales since new rules were implemented.</p>
<p>Active credit accounts fell to 54 million in the first three months of the year, from a high of nearly 58 million in 2015.</p>
<p>&#8220;Consumers had to become conservative and try to live within their means, given the high risk that the economic environment could deteriorate further,&#8221; said Elize Kruger, an economist at NKC African Economics.</p>
<p>There is no relief in sight for traders like Setlhabi after a central bank official said cutting interest rates was not the answer to dragging South Africa out of recession. <span id="midArticle_byline"></span></p>
<p>&#8220;I don&#8217;t see myself surviving if the economy doesn&#8217;t pick up,&#8221; Setlhabi said.</p>
<p>&#8220;If nothing changes in the next two to three years, then I will have to sell the shop.&#8221;</p>
<p>($1 = 12.8976 rand)</p>
<p>(Additional reporting by TJ Strydom and Olwethu Boso; Editing by Joe Brock/Jeremy Gaunt)</p>
<p>&nbsp;</p>


For South Africans, economic pain hit long before recession

<p><span class="articleLocation">Olivia Kumwenda-Mtambo | JOHANNESBURG</span></p>
<p>Business confidence in South Africa fell to a seven-month low in May, hit by political tension, doubts over the course of economic policy and credit ratings downgrades, a survey showed on Wednesday.<span id="midArticle_byline"></span></p>
<p>The South African Chamber of Commerce and Industry&#8217;s (SACCI) monthly business confidence index (BCI) fell to 93.2 in May &#8211; the lowest since October &#8211; from 94.9 in April.</p>
<p>(Reporting by Olivia Kumwenda-Mtambo; Editing by Hugh Lawson)</p>
<p>&nbsp;</p>


South Africa’s business confidence at seven-months low in May: survey

<p><span class="articleLocation">Wendell Roelf | CAPE TOWN</span></p>
<p>South Africa needs to provide policy clarity to boost investor confidence, after a cabinet reshuffle and a pledge to introduce &#8220;radical economic transformation&#8221;, Finance Minister Malusi Gigaba said on Tuesday.<span id="midArticle_byline"></span></p>
<p>Gigaba&#8217;s comments echo those of President Jacob Zuma about redistributing wealth, which remains largely in the hands of the white minority more than two decades after apartheid ended, raising uncertainty about South Africa&#8217;s policy direction.</p>
<p>&#8220;We know that we need to continue acting conscientiously to do what we have to do, including providing policy clarity on a number of areas &#8230; to boost business and investor confidence,&#8221; Gigaba told parliament&#8217;s finance committee.</p>
<p>Both S&amp;P Global Ratings and Fitch downgraded South Africa&#8217;s credit rating to below investment grade last month, citing likely changes in economic policy after Finance Minister Pravin Gordhan was fired, shaking investor confidence.</p>
<p>Lower ratings typically make it more expensive to borrow, particularly when they fall below investment grade, and risk deterring the foreign investors on whom South Africa relies to finance its big budget and balance of payments deficits.</p>
<p>&#8220;The debates around radical economic transformation are ongoing,&#8221; Gigaba told the finance committee. &#8220;How do you get the majority of South Africans &#8230; to participate in the economy, to own some assets, to become self-sustaining?&#8221;</p>
<p>He said the ruling African National Congress, which steers government policy, had not yet defined what the transformation entailed.</p>
<p>(Reporting by Wendell Roelf; Editing by James Macharia, Larry King)</p>
<p>&nbsp;</p>


South Africa needs to clarify policy to boost confidence, Gigaba says

<p>By Marafaele Mohloboli</p>
<p>Lesotho&#8217;s Prime Minister Pakalitha Mosisili was preparing on Wednesday to call a snap election after losing a confidence vote in parliament, a cabinet minister said.</p>
<p>A slew of defections by ruling-coalition lawmakers to the opposition has badly weakened support for Mosisili in parliament two years after he came to power after an inconclusive vote.</p>
<p>&#8220;We will be going to the polls&#8221; said Minister of Defense Ts&#8217;eliso Mokhosi, referring to the cabinet.</p>
<p>Mosisili&#8217;s political adviser Fako Likoti had said the prime minister would call elections, although Mosisili himself did not make a public comment after the vote.</p>
<p>Lesotho, a small landlocked country of 2 million people surrounded by South Africa, has been hit by several coups since independence from Britain in 1966.</p>
<p>Analysts said it appears set for a period of political instability. It&#8217;s last two elections have not produced a winner with a clear majority.</p>
<p>&#8220;The period of uncertainty is set to continue,&#8221; said independent political analyst Ts&#8217;oeu Petlane. &#8220;Even the next election is likely to give an undecided outcome, which could lead to another shaky coalition.&#8221;</p>
<p>Lesotho&#8217;s law says elections must be held within three months of parliament being dissolved.</p>
<p>After a debate on the motion of no confidence, the 120-member assembly voted by acclamation to depose Mosisili.</p>
<p>Two years ago, Mosisili&#8217;s Democratic Congress (DC) ousted former prime minister Thomas Theban&#8217;s All Lesotho Congress (ABN) by uniting with smaller parties.</p>
<p>This time around, Theban&#8217;s ABN led a coalition of opposition parties including the Alliance of Democrats (AD) and the Lesotho National Party (BNP) in a bid to remove Mosisili.</p>
<p>Lesotho&#8217;s economy relies heavily on textile revenues, regional customs receipts and water piped to South Africa, making it of strategic importance to Pretoria, which has acted as a mediator during previous bouts of political turmoil.</p>
<p> </p>
<p> </p>
<p>(Additional reporting and writing by James Macharia Editing by Jeremy Gaunt)﻿</p>
<p> </p>


Lesotho set for snap election after PM loses confidence vote

<p>Business confidence on the Indian Ocean island of Mauritius rose in the last quarter of 2016, a survey of leading private companies showed on Tuesday.</p>
<p>The Mauritius Chamber of Commerce and Industry&#8217;s quarterly confidence index climbed 4.9 percent to 97.5 points. But the index remained well below the long-term average of 100 points.</p>
<p>The Mauritius economy grew by an estimated 3.6 percent in 2016, higher than the 3 percent growth in 2015. Statistics Mauritius forecast growth to be at 3.8 percent this year with an expected rebound in the construction sector.</p>
<p>The Chamber of Commerce and Industry said the index rose on the back of a positive evaluation by business leaders of the economic situation between October and December 2016. It said those surveyed anticipate better future prospects for business.﻿</p>
<p> </p>


Mauritius business confidence rises in Q4 2016

<p>South Africa&#8217;s economy will pick up next year as commodity prices rise and a historic drought eases, according to the consensus forecast in a Reuters poll, but it is still short of the necessary investor confidence to grow faster.</p>
<p>The poll, taken in the past three days and released on Thursday, predicted the economy for Africa&#8217;s most developed nation would expand 1.1 percent next year from 0.4 percent this year, the same consensus forecast made last month.</p>
<p>The latest gross domestic product data for the third quarter showed the economy expanded by only 0.2 percent compared with a revised 3.5 percent in the second quarter.</p>
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<p>Jeffrey Schultz, economist at BNP Paribas, wrote in a note that he expected growth to gain speed next year, but the trends in gross domestic fixed investment remain concerning.</p>
<p>This type of investment is normally capital spending, such as buying new machinery for future production. The private sector makes up nearly two-thirds of the gross domestic fixed investment contribution to GDP.</p>
<p>&#8220;A lack of policy coherence and an increasingly uncertain political environment continue to weigh on both the willingness and ability of domestic corporates to invest meaningfully in the economy,&#8221; Schultz said.</p>
<p>The Johannesburg all-share stock market index has climbed over 90 percent since the 2008/09 recession, but companies have been reluctant to invest in the economy even when their balance sheets are healthy.</p>
<p>That is not a problem just in South Africa. It also affects developed economies like Japan, the United States and United Kingdom.</p>
<p>Lacklustre growth and unsettling political noise has worried the three major ratings agencies this year.</p>
<p>The country got a reprieve last week from Standard &amp; Poor&#8217;s and Fitch, which rates South Africa debt just one step above junk. Moody&#8217;s rating is two notches above.</p>
<p>Still, Schultz expects growth to accelerate, boosted mainly by improvements in agriculture and higher commodity prices. Southern Africa is recovering from its worst drought in history, which wilted crops and stoked food inflation.</p>
<p>The country is expected to benefit from slower inflation next year, because the central bank will have room to keep interest rates stable at 7 percent for next year.</p>
<p>Inflation is expected to slow to 5.5 percent for next year &#8211; 0.3 percentage points lower than last month&#8217;s consensus &#8211; from a median 6.3 percent of estimates for this year.﻿</p>
<p> </p>


South Africa&#39;s economy to pick up a bit in 2017

<p>Business confidence in South Africa rose to its highest in four months in November, helped by improvements in new vehicle sales and manufacturing output, a survey showed on Wednesday.</p>
<p>The South African Chamber of Commerce and Industry&#8217;s (SACCI) monthly business confidence index (BCI) rose to 93.9 in November, its highest reading since August, from 93.0 in October.</p>
<p>&#8220;Positive monthly contributions to the BCI mainly came from real value of building plans passed, new vehicle sales (seasonally adjusted) and manufacturing output,&#8221; SACCI said.</p>
<p>&#8220;Notwithstanding the volatility in the business climate, the present turnaround in the BCI could gather more momentum.&#8221;﻿</p>
<p> </p>


South Africa&#39;s business confidence index rises

<p>South Africa&#8217;s scandal-plagued President Jacob Zuma is facing a vote of no confidence by the ruling party&#8217;s executive committee, media reported on Monday.</p>
<p>The ANC&#8217;s national executive committee (NEC) extended its scheduled meeting into a third day on Monday, after Tourism Minister Derek Hanekom proposed the motion of no-confidence on Saturday, said Beeld, an Afrikaans-language daily.</p>
<p>Committee members were locked in a &#8220;fiery and fierce&#8221; debate over whether a secret ballot should be used to decide the no-confidence motion, it added, citing unnamed sources who had attended the meeting.</p>
<p>The ruling party&#8217;s spokesman did not respond to a telephone call to seek comment. In a statement on Sunday, the ANC did not give a reason for the extension of the meeting.</p>
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<p>The committee, which is meeting in the capital, Pretoria, is the only body in the ruling party that can remove the leader of the party, besides its 5-yearly congress.</p>
<p>Zuma&#8217;s presidency has been plagued by scandal and the nation&#8217;s anti-graft watchdog this month asked for a judge to investigate alleged influence-peddling by a wealthy family Zuma has called his friends.</p>
<p>Zuma has denied any wrongdoing.﻿</p>
<p> </p>


S.Africa&#39;s Zuma faces no-confidence vote by party&#39;s executive panel

<p>A new study released by the Havas Creative Group seeks to understand how consumers are responding to intense change and uncertainty in their countries, and how brands can help ease those concerns. </p>
<p>The study, entitled Pride and Prejudice: Shifting Mindsets in an Age of Uncertainty, draws on the experiences and points of view of nearly 12,000 men and women in 37 markets around the globe. Currently, 48% of South African Prosumers* (see definitition below) feel ashamed of their country. This is a large difference from the global average which is 22%.</p>
<p>“South Africans are living in volatile, uncertain and complex times – the study indicates that 73% of the country’s Prosumers are not confident in the direction the country is headed as opposed to 46% of global Prosumers. This is a huge difference and brands operating in the South African market may have to adjust their communication to provide a sense of comfort to the consumer as their perceptions and behaviour change” says Lou Boxall-Davies, Chief Strategy Officer for Havas Johannesburg.﻿ </p>
<p>The study also records great gaps in sources of happiness for South African citizens compared to the rest of the world. Sustaining strong moral values contributed 77% to the South African Prosumers’ happiness whereas global Prosumers felt that it only contributed 50%. Education and skills development contributed 73% to the happiness of SA Prosumers as opposed to 58% globally.</p>
<p>“It’s imperative for brands to be aware of what general concerns consumers have about their country and what makes their consumers happy as it does ultimately affect their lives, how they spend their time and how they choose to spend their money,” continues Boxall-Davies.</p>
<p>The study reveals other factors linked to the change in people’s behaviour on the back of activities taking place in the country, namely:</p>
<ul>
<li>National Identity: With the Western culture having such a great influence on the rest of the globe, Afrillenials have entered into an era of neo-patriotism where a lot of influence comes from major local cultural, political and economic shifts. Brands are required to keep up in order to maintain relevance.</li>
<li>Collaborative Democracy: A majority of people in the nations surveyed believe democracy is the best form of government, but they still see much room for improvement. In South Africa, the Afrillenials showcased their belief in a fair government through the recent municipal elections that surprisingly swayed away many votes from the ruling party.</li>
<li>In Pursuit of Happiness: 71% of South African Prosumers consider new experiences to be a contributing factor to their happiness compared to 59% for Global Prosumers.</li>
</ul>
<p><em> *  <strong>Who are Prosumers?</strong></em></p>
<p><em>Havas uses a proprietary algorithm to break the survey sample into two groups: mainstream consumers (which, in the case of this study, make up 80 percent of the sample) and Prosumers (20 percent).  Why do Prosumers matter? These proactive and informed men and women are today’s leading influencers and market drivers. They have always been important, but they have grown even more powerful thanks to their skillful embrace of technologies and, especially, social media.</em></p>
<p>(<em>The survey was created by Havas and fielded by Market Probe International. For more information or to download the report, please visit <a href="http://mag.havas.com/prosumer-report/pride-prejudice">mag.havas.com/prosumer-report/pride-prejudice</a>. )</em></p>
<p> </p>


South Africans ashamed of their country – study

<p>South Africa measures favourably in most indices bar economic growth, which the Treasury has forecast will be 0.5 percent this year, a Moody&#8217;s representative said on Tuesday.</p>
<p>&#8220;South Africa is doing relatively well in a lot of the indices when you strip out growth &#8230; and when we look at a sovereign rating you&#8217;ve got to look through the cycle,&#8221; Moody&#8217;s country representative Sylvia Chahonyo told a business conference.</p>
<p>Moody&#8217;s rates South Africa two notches above subinvestment grade with a negative outlook and is due to publish its next review in December.﻿</p>
<p> </p>


South Africa doing well if you strip out growth says Moody&#39;s

<p>As many as 76% of South African women feel financially insecure despite demonstrating better budgeting and saving habits than their male counterparts. According to Lizl Budhram of Old Mutual Personal Finance, women’s lower rates of financial confidence reflect their higher levels of financial vulnerability.</p>
<p>The Old Mutual Savings and Investment Monitor shows that only 39% of women have banked cash savings, while this figure is 45% for men. “While women may find it reassuring in tough times to have surplus cash in their purse, inflation, or the general rise in the price of goods and services, continually eats away at the value of this uninvested money, which means it doesn’t actually contribute to  personal wealth.”</p>
<p>Similarly, when it comes to investing for the long term, 53% of men contribute to a pension or provident fund, as opposed to only 47% of women.  This is despite research by Statistics SA indicating that women’s average life expectancy is four years longer than men in South Africa.</p>
<p>Women, however, appear to be better at saving for short-term goals. The Monitor reports that 22% of women are already putting aside money for Christmas and other year-end expenses, compared with only 16% of men. “Women are 8% more likely to stick to their monthly budget than men and allocate significantly more money to informal savings vehicles, such as stokvels, than the opposite sex,” says Budhram. “Yet, they are also 6% less likely to save money in a formal interest-bearing savings vehicle.”</p>
<p>Some have speculated that women are naturally more risk averse than the opposite sex. By not banking cash savings and keeping money in cash or “stokvels” instead, many South African women are not taking advantage of investment vehicles, such as saving accounts and retirement annuities, that promise to grow their personal wealth. However, Budhram believes, women’s lower tolerance for risk is not the result of a reluctance to invest, but rather the consequence of a generally more precarious financial situation.</p>
<p>Alarmingly, the Workplace Research <a href="http://sabpp.co.za/the-sabpp-womens-report-2015/" target="_blank">Programme</a> at the University of Johannesburg suggests that South African women earn, on average, between <a href="http://www.uj.ac.za/EN/Faculties/management/FutureFitBreakingNews/Documents/FoM%20SABPP%20Womens%20Report%202015.pdf" target="_blank">15% &#8211; 17%</a> less than men. According to the Monitor, 72% of women are or will be financially supporting their parents this coming year. The data also suggests that 42% of South African households are headed by single mothers, with only 12% receiving financial support from the fathers of their children.</p>
<p>“Focusing only on immediate financial needs and ignoring longer term needs and goals is likely to create a situation of long term financial uncertainty and risks,” says Budhram.</p>
<p>When it comes to seeking advice, the Monitor reveals a correlation between feeling financially secure and having sought the counsel of a professional financial adviser. “The value of financial advice can’t be overemphasised. Independent research suggests that informed women investors, especially when it comes to active trading, for example, are better at investing as they are more cautious, resulting in trading less frequently and staying on course during market swings.”</p>
<p>According to a study, “Gender Differences in the Investment Decision-Making Process”, published in the Journal of Financial Counselling and Planning, risk aversion is less about biology and more about access to resources and financial education. The study suggests that men are more likely to invest in risky assets if they are unmarried, older and educated, while women are more likely to hold risky assets if they’re employed or hold a higher net worth.</p>
<p>“With the right financial advice, women have the potential to be as good (or better) at investing than men, especially with increased confidence in managing their personal finances. A tailored financial plan, one that is both realistic and goal-oriented, will help meet financial needs as well as long-term financial goals,” concludes Budhram.﻿</p>
<p> </p>


Women vs men – savings habits

<p>South Africa&#8217;s business confidence rose in the third quarter, ending seven straight quarterly declines, a survey showed on Wednesday, but could fall again over the uncertainty facing the finance minister.</p>
<p>Police are investigating Finance Minister Pravin Gordhan over the activities of a surveillance unit set up when he headed the tax department, a probe that has also rocked South African markets and raised concerns over a possible credit downgrade.</p>
<p>The Rand Merchant Bank (RMB) survey said further ructions around Gordhan could keep business executives on tenterhooks.</p>
<p>The RMB index, which is compiled by the Bureau for Economic Research, climbed to 42 points in the third quarter from 32 in the three months to June, helped by a stronger currency and lower fuel prices and inflation.</p>
<p>&#8220;A continuation of the current domestic political uncertainty, or renewed adverse international political or economic developments could easily see business confidence falter again,&#8221; it said in a statement.﻿</p>
<p> </p>


South Africa&#39;s business confidence improves, political uncertainty remains

<p>Politics came to the fore in August, in both a positive and a negative way. On the positive side, the 2016 local government election was largely free and peaceful and voters showed that they were prepared to hold politicians accountable, especially in the metro areas. All parties involved also accepted the outcome of the polls. While local governments do not usually influence macroeconomic policy, it is notable that those parties with a radical economic agenda failed to make big inroads, showing that the risk of a major shift to populist policies seems limited.</p>
<p>On the negative side, fears that Finance Minister Pravin Gordhan would be arrested and removed from his post, and concerns over the direction of governance and economic policy in general, resulted in a sell-off of the rand and interest rate-sensitive assets. It also highlighted significant divisions within Cabinet, which does not bode well for implementing the reforms identified by ratings agencies as necessary to lift the economic growth rate and sustain our investment grade rating.</p>
<p><strong>Data showed improvement, but recent numbers mixed</strong></p>
<p>Renewed political uncertainty threatens to further dent confidence in the economy just as data seemed to be pointing to a slight upturn. StatsSA is expected to announce a fairly strong second quarter economic growth number this week, following the first quarter’s decline. However, data for the third quarter so far is mixed.       </p>
<p>The most recent Barclays purchasing managers’ index (PMI) focusing on manufacturing data is concerning. The PMI unexpectedly slumped from 52.5 index points in July to 46.3 in August (with 50 index points separating growth from contraction). This was surprising, given that the PMI remained above the neutral level for the previous five months, highlighting the vulnerability of the sector. A decline in new sales orders and business activity was the main reason for the much weaker PMI. However, businesses remain optimistic that conditions will improve over the next six months.</p>
<p>Credit growth slowed in July. Total loans and advances grew by 6.7% year-on-year in July, down from 7.2% in June. Although corporate borrowing is down from the previous month, it continues to be the big driver with 12.3% annual growth. Household borrowing has also slowed down dramatically with interest hikes of 200 basis points since January 2014. After adjusting to the removal of African Bank’s “bad bank” from the numbers, household credit growth was only 3.7% year-on-year, down from earlier in the year and well below inflation and income growth rates.</p>
<p>Mortgage lending grew by 5.7% year-on-year in July, but this was mainly driven by commercial mortgages. Banks&#8217; home loan books only grew by 3%, pointing to further sluggishness in the domestic residential property market. Instalment credit, which is mainly used to finance vehicle purchases, grew by only 1% between July 2015 and July 2016.</p>
<p>According to industry body Naamsa, the number of new vehicles sold fell further in August. However, StatsSA data shows a significant increase in the value of used car sales this year, with consumers clearly shifting away from new to used cars. One reason is that new car prices are increasing sharply as a significant number of new vehicles and components are imported.</p>
<p>On the positive side, South Africa posted a R5 billion trade surplus in July, and the surplus for the year-to-date of R17 billion is still a remarkable improvement on the R24 billion deficit posted over the same period in 2015. The improvement stems from a 10% growth in exports, driven mainly by precious metals and vehicles (about half of locally manufactured vehicles are exported, compensating for the decline in domestic demand).</p>
<p>Imports grew only 3%, with the lower oil price contributing to a R22 billion saving on our oil import bill for the first seven months of 2016 compared to the first seven months of last year. At current levels, the rand is certainly weak enough to continue supporting export growth.</p>
<p><strong>Rand under pressure</strong></p>
<p>The rand’s response to renewed political uncertainty has been severe, but had a strong rally that was helped along by the positive reaction to the elections. It has also been worsened by increased uncertainty over the timing and extent of US interest rate increases following comments from key Federal Reserve officials over the past two weeks. However, Friday’s payroll numbers indicating the US economy added 151 000 jobs, less than expected, complicates the case for a US rate hike later this year.</p>
<p>Unlike December’s “Nenegate” episode, which occurred in the midst of a global sell-off of emerging market assets, the current standoff between Minister Gordhan and the Hawks is fortunately taking place against a more favourable global backdrop for emerging markets. Year-to-date, emerging market equities are also leading developed market equities in US dollars with a return of 15% against 5.5%.</p>
<p>With the weaker rand and the prospect of a ratings downgrade, it is no surprise that local interest rate-sensitive assets have been knocked hard. The 10-year South African government bond yield rose from 8.6% to 9% during the month of August, but was still well below 9.7% where it started the year. The All Bond Index lost 1.7% in August, cutting year-to-date returns to 11.7%. Over one year, the ALBI delivered a disappointing 4.5%, lagging cash and inflation.</p>
<p>Listed property followed bonds sharply lower, with a loss of 4.8% in August. Year-to-date, the asset class has returned a respectable 7.6% but the twelve-month number has rolled down to 3.5%. The JSE Financials Index lost 3.3% in August, wiping out most of the year-to-date gains. Over one year, the sector lost 4%. However, rand hedge industrials rallied in August and lifted the JSE All Share Index to positive territory for the month.</p>
<p><strong>Living with political uncertainty – focus on valuations</strong></p>
<p>Political uncertainty flared up over the past two weeks, causing anxiety for both investors and ordinary citizens.  However, the most important political development over the past month in terms of its longer-term implication for the country was the local government elections and not the Hawks’ treatment of Minister Gordhan. The latter is obviously unsettling, but it is important to focus on valuations. For example, the local bond market is clearly pricing in the uncertainty.</p>
<p>Credit default swaps on government bonds suggest that the market is already treating South Africa as a sub-investment grade economy. Real yields are elevated relative to where inflation is expected to be over time, while short-term interest rates are in peak territory. This suggests remaining overweight to local fixed income.</p>
<p>The rand volatility over the past year in particular is a reminder of the importance of diversification, since markets seldom move in one direction and can be unpredictable over the shorter term. When the rand weakens, offshore investments and rand-hedge shares tend to benefit. Interest rate-sensitive assets such as bonds, listed property and bank shares do well when the rand strengthens.</p>
<p>Nobody knows where exactly the exchange rate will be in the future, but the massive 16% annualised depreciation against the dollar over the past five years suggests that the worst is probably behind us.  A fearful concentrated portfolio of rand-hedges could therefore be a risk &#8211; we’ve seen how quickly the rand can rally when conditions were in its favour this year.</p>
<p>It also remains true that over longer investment horizons, short-term volatility fades away. The key for investors remains to have an appropriately diversified portfolio built around long-term goals and the time available to meet those goals. Our Strategy Funds provide such diversification on an ongoing basis, with a combination of local and global asset classes and a spread of fund managers. Once in place, the most important thing for investors (but often the most difficult) is to avoid making investment decisions based on emotional responses.</p>
<p><strong>Chart 1: Rand-dollar exchange rate and South Africa’s 10-year government bond yield</strong></p>
<p> <img decoding="async" loading="lazy" src="/media/19206045/old_mutual_chart_1_6sept16.png" width="567" height="322" alt="Old Mutual Chart 1_6sept 16"/>﻿</p>
<p style="text-align: right;"><em>Source: Datastream</em></p>
<p> </p>
<p><strong>Chart 2: South Africa’s imports and exports (R million, seasonally-adjusted and smoothed)</strong></p>
<p> <img decoding="async" loading="lazy" src="/media/19206052/old_mutual_chart_2_6sept16.png" width="480" height="288" alt="Old Mutual Chart 2_6sept 16"/>﻿</p>
<p style="text-align: right;"><em>Source: SARS﻿</em></p>


S.A. Investment Note: Politics to the fore

<p>In recent weeks, following the local elections, we have been reminded of the importance of democracy. Our commitment to this as a country has encouraged all stakeholders; citizens, business, investors and politicians alike &#8211; all while the world continues to keep a watchful eye on South Africa. However, the ongoing dispute between the Ministry of Finance and South African Revenue Service (SARS) places this new found confidence at risk.</p>
<p>Ernest Mahlaule, President of the Johannesburg Chamber of Commerce and Industry (JCCI) says: “In conversations with our constituents and stakeholders, we have become aware of how reports of the ongoing dispute between the office of the Minister of Finance and SARS is impacting confidence in South Africa, from  local and international businesses. The situation continues to create instability in the Rand and local markets, which comes at a very delicate time for the local economy.”</p>
<p>“Something needs to give. If this situation continues for much longer, the greater risk is the lasting reputational damage to the country, in the eyes of our current and future investors, and this is something the country simply cannot afford.”</p>
<p>South Africa is still at risk of being downgraded to ‘junk’ status, where research from local economists has already demonstrated that, should this happen, it will take the country’s economy at least seven years to recover. “The startling reality, however, is that if South Africa is downgraded to junk status – and our political will is still at odds – this could spell the beginning of more, and compounding, challenges for the country,” Mahlaule﻿ continues.</p>
<p>“We hope the situation is resolved quickly and that an appropriate and lasting resolution can be found to put this debacle to rest, once and for all. Now is a time to come together and collaborate in line with the emerging consensus whereby all stakeholders comprising business, organised labour, government as well as civil society have resolved to continue working together towards reigniting the economy and create the much needed jobs for our citizens. We should further be mindful of the fact that when political will is exerted, it should never be to the detriment of the country’s common interests. The people of this country want strong leaders with a proven understanding and sense of accountability for the power of the positions they hold,” concludes Mahlaule.﻿</p>


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