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Expert traders weigh in on SA's investability

South African president Jacob Zuma recently addressed a business forum in China at the Xiamen International Conference & Exhibition Centre. The BRICS Business Forum (Brazil, Russia, India, China and South Africa) conference was attended by high-level dignitaries from developing countries, and the South African president took the initiative to express his discontent at the inequitable distribution of trade within the emerging market sector.
This was the ninth such meeting of the BRICS Summit in China. Pesident Zuma called for increasing partnership between emerging market economies, as he drove home the message of supporting industrialisation policies in South Africa. Among others, Zuma pushed the narrative of greater technology transfers, skills development, and equal partnership development.

Trade between South Africa and other BRICS countries has risen sharply to $31.2bn in 2016.The South African delegation wants to prioritize inclusive economic growth, expand trade in BRICS countries, and facilitate greater capital flows to South Africa.

The South African government’s macroeconomic plan entails redressing equity to the economy after the previous policy of ‘institutionalised racism’ a.k.a. apartheid. The SA delegation is pushing for greater industrialization and the development of SMEs across the board. The South African president wants to see widespread change in transport infrastructure, sanitation, science, technology, broadband Internet etc.

A McKinsey report estimates that the household consumption expenditure and business expenditure on the African continent could reach $5.6tn within seven years. Even traditionally week sector such as mining could top $1tn by 2025 if business and consumer demand is met.

Risk factors and investment benefits

The South African economy suffers from decreasing confidence levels in the international community. High crime, nepotism, poorly developed infrastructure, inadequate provision of resources, and high unemployment characterize the economy. The problems start at the top, and permeate to grassroots level.

According to statistics, the South African unemployment rate during Q2 2017 was 27.7%, a 13-year high. The number of unemployed people in the country was measured at 6.18 million, marginally less than the previous reading. However, for an economy to support a 27.7% unemployment rate, the state is going to have to carry a significant burden.

The biggest declines in job losses took place in the non-agricultural sector, the agricultural sector, and in private households. The informal sector showed slight gains, but these are negligible when compared to the big picture. When the number of people who have stopped looking for work is factored into the equation, the unemployment rate in South Africa increased to 36.6% during Q2 2017.

The current reading has the ignominious honour of being the highest level in 14 years. This follows hot on the heels of a 0.7% decline in the economy during Q1 2017 as the SA economy slips further into a recession. Adding to the negative perception of the country is the South African Reserve Bank’s pessimistic GDP forecast for 2017, now at just 0.5%.

The gold mining sector in South Africa has been particularly hard hit, as the rising costs of mining gold outweigh the benefits. After Sibanye Gold Limited announced job cuts, some 10% of all gold-mining employment activity in South Africa could evaporate. Costs are being eliminated across the board, with major retailers like nationwide supermarket chain – Pick and Pay – slashing 1 in 10 of all jobs.

The performance of the South African rand has strengthened in recent weeks, trading at below 13 to the USD. For the year to date, the USD/ZAR started at 13.71 and hit 12.9259 by early September. This slight depreciation in the ZAR is in line with the strong decline of the USD. The US dollar index – a measure of the USDs strength against six major currencies was recently at 92 .27, marginally higher than its 52-week low of 91.62. For the year to date, the DXY is down 9.88%.

A word from the wise

Weiss Finance trading expert, Malusi Sizwe believes that there are some positives to take away from recent geopolitical tensions.

‘The South African economy is still heavily reliant on its mining sector. Despite job losses, there is significant short-term optimism vis-à-vis North Korea and the US. Look at the price of gold as a case in point. Gold prices are advancing sharply, as they approach a one-year high as North Korea continues to defy the international community with its ballistic missiles testing. The price of gold during the first week of September was $1,337.45 per ounce, for a six-month gain of 8.17%. Gold’s gain is South Africa’s gain, even in the presence of a strengthening ZAR and a weakening USD. Other commodities like platinum, silver, coal and iron ore also benefit from increased demand from countries like China and India which are growing strongly.’

18 Sep 2017 17:11

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About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.




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