Investors pull billions out of South Africa, weak rand could make petrol cost more – economic Ramaphocalypse?

Reuters reports that investors have pulled $600 million (About R8.8 billion) out of South African stocks this week.

According to the report part of the problem is that about 80% of South African investment is portfolio shares, with only about 10% of foreign investment being factories.

This means it is pretty easy, when issues such as Turkey come along, for investors to sell out.

According to Business Day the rand has also plummeted to levels last seen under Jacob Zuma, and this is only partly due to global factors.

As at writing this article the rand is at R14.70 to the dollar.

Part of the problem is that foreign investors aren’t convinced that the government is serious about fiscal consolidation, and they’re not sure it can solve its problems with state owned enterprises.

Not only that, mining production has slumped, and Ramaphosa’s move on land expropriation is a threat to property rights. Would you want to buy something, if there was a risk the government might just take it away from you without compensation?

Gwede Mantashe’s statements suggesting white farmers should be forced to had over ‘excess land’ to government, didn’t help.

EWN reports that the weakness in the rand could undue the recent price stability in petrol.

The Automobile Association told them that the fuel price looked like it might even go down slightly – right up until this slump hit.

Meanwhile according to Business Insider Julius Malema has submitted his bill to nationalise the reserve bank by simply writing its shareholders out of existence.

My Take

Some of this is down to Donald Trump’s policy with regards to Turkey.

Recep Erdogan is genuinely terrible for human rights, as Human Rights Watch documents. His government has arrested human rights defenders, engaged in torture, is cracking down on elected officials from pro-Kurdish parties.

If I could comfortably say Trump was wrong here, I’d just be being partisan. There are consequences for us, but Erdogan’s been getting away with too much for too long. It is about time somebody stood up, and Trump’s doing that.

That said, a lot of this slump isn’t Trump, and honestly Trump is not a factor we can control, we should focus on the things we can. A lot of this is the decisions we’ve taken as a country having consequences.

Jacob Zuma’s repeated stuff-ups have left us in a very bad place regarding sovereign debt, making it much harder to fix what he broke. To correct anything requires resources, and the ratings agencies consider us to be junk.

Ramaphosa has thus far come off as very weak. He wants to attract investment while also taking the wind out of the EFF’s sails, but the net result is that he comes off as being intimidated by Malema and unconvincing on his economic goals.

Meanwhile Malema has the initiative, and he’s suggesting stuff that looks very scary if you’re an investor. You could buy shares in our reserve bank, only to have your shares legally written out of existence, leaving you with nothing.

Would you want to buy on those terms?

A weak rand should be good for us. China keeps its currency artificially weak essentially to boost its export market, a weak rand should produce the same result for us.

But because of the disaster that has been Eskom’s management over the past decade, we can’t fully exploit that. It is difficult to gear up manufacturing if you can’t supply power to the factories.

Further because of uncertainty around property rights – well you start a factory, it starts making money and suddenly Malema says lets nationalise manufacturing and toady Ramaphosa says, “Yes boss”.

So instead of seeing a boom, what do we see? Petrol gets more expensive.

We need Ramaphosa to be a president, we need him to lead, not follow the party that came third in the last general elections. His decisions have to be his decisions, and so far we’re not seeing that.

  • Photo of President Cyril Ramaphosa courtesy of GCIS via Flickr.
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