Lloyd Blankfein, the CEO of Goldman Sachs described South Africa as having “enormous potential” and also “a lot of risk”, last week.
South Africa announced that it was sending the army to townships around Johannesburg and Durban in the first deployment to quell civilian unrest since 2008.
“We will deploy troops to volatile areas,” Defence minister Nosiviwe Mapisa-Nqakula said in televised comments to reporters during a visit to Alexandra township in Johannesburg on Tuesday. “We are deploying because it is an emergency.”
The Zulu King Goodwill Zwelithini appealed for calm but added in his speech to 10,000 people in Durban that if he had given an order to kill foreigners “this country would be reduced to ashes”.
The South African economy has been hit hard by rolling power blackouts and a seemingly intractable unemployment rate which clocks about 24 per cent. However evidently at the street level, this has become a tinderbox and is proving attractive for pyromaniacs like the king.
South Africa is experiencing its worst anti-immigrant attacks in seven years as mainly foreign shop owners in townships are being driven from their businesses. Lets set aside the point that immigrants are typically very hard-working and add ‘global fluency’ to an economy and that South Africa’s ‘softly softly’ approach to Zimbabwe has seen that economy halve in size since 2000 and has seen Zimbabweans do a Norman Tebbit. Norman Tebbit was a minister in Mrs Thatcher’s government and famously told the British to get on their bike and find a job. Therefore, part of the inward immigration problem is due to a seriously sub-optimal Zimbabwe economy which is forcing its citizens to look for opportunities in South Africa.
The cause and effect of this xenophobia can be seen across the continent with a number of businesses in Mozambique, for example, evacuating their South African staff. The South African consulate in Abuja has been shuttered and South African firms who have been expanding across the continent like Shoprite [and you might not know this but just five Shoprite stores in Angola sell more cans of energy drink Red Bull than in all of Shoprite’s 382 stores in South Africa], the banks and others must all be nervously looking over their shoulder because the blow-back could gain a lot of traction.
Against this backdrop, The South African All Share Index has posted a blistering rally of +12.42 per cent year to date and has now crossed the 55,000 level for the first time. Frontier markets tend to confound expectations and I think the South African market has floated higher on the ECB QE boost. Mario Draghi has wrestled a great deal of the Euro into negative interest rates and I suspect it is this surplus Mario Draghi liquidity that has washed up on South Africa’s shores because on the fundamentals a trailing PE of 20.00 is not cheap.
The challenge in South Africa is a political one. It is surely easier to blame the other. It is wrong but Its probably a big vote winner. Therefore, the political temptation is to race to the bottom.
Source : The Star