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GDP

Fitch says South Africa’s new mining rules may deter investment

JOHANNESBURG – Fitch Ratings agency said on Monday that new regulations seeking to accelerate black ownership in South Africa’s mining industry would deter investment.

The government published its revised Mining Charter on Thursday, raising the minimum threshold for black ownership of mining companies to 30% from 26%.

But the Chamber of Mines, which represents mining firms, said it would challenge the new rules in court.

Fitch said in a statement that although the Black Economic Empowerment programme – meant to include more blacks in the economy to redress their exclusion during apartheid – was a longstanding feature of South African economic policy, the new charter was the result of a more radical approach.

The mining sector accounts for about 7% of South Africa’s economic output.

“It indicates that the government is prioritising radical transformation even if this leads to weakening of the business climate and could reduce trend growth,” Fitch said.

“Uncertainty about final outcomes, the implications on returns for existing shareholders of the new provisions, and the challenges of meeting procurement targets will continue to constrain investment in the mining sector.”

Source : Mining Weekly

South African economy enters recession as Q1 GDP contracts 0.7%

South Africa’s gross domestic product (GDP) contracted by 0.7% in the first quarter of the year, pushing the country in a technical recession.

This followed on the 0.3% contraction in GDP in the fourth quarter of last year.

Citing the trade, catering and accommodation industry as the largest negative contributor to the first-quarter GDP, Statistics South Africa (Stats SA) pointed out that the sector decreased by 5.9% and contributed -0.8 of a percentage point to GDP growth, followed by the manufacturing industry contracting by 3.7% and contributing -0.5 of a percentage point to GDP growth.

Seven out of ten divisions under the manufacturing ticker reported negative growth rates in the first quarter, with the largest contributor to the decrease being the petroleum, chemical products, rubber and plastic products division.

In contrast, the mining and quarrying industry increased by 12.8%, and contributed 0.9 of a percentage point to GDP growth – largely the result of higher gold and “other” metal ore production.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) welcomed the 12.8% increase in mining production in the first quarter, as the mining industry constituted about 25% of the metals and engineering sector’s demand profile.

Nevertheless, it revised its initial forecast for growth in the metals and engineering sector from 1.4% to 1.2% for 2017, as a result of a weaker-than-expected first quarter.

Seifsa senior economist Tafadzwa Chibanguza noted it was regrettable that, while commodity prices appeared favourable for the mining sector, the sector continued “to be in limbo in anticipation of an important policy direction” from government.

He added that this uncertainty was likely to continue to hold back much-needed investment into mining operations and, inevitably, this would impact negatively on the metals and engineering sector.

The agriculture, forestry and fishing industry rebounded in the first quarter of 2017 on the back of eight consecutive quarters of contraction. The industry’s increase of 22.2% in the first quarter of 2017 was mainly as a result of increases in the production of field crops and horticultural products.

Meanwhile, the electricity, gas and water industry contracted by 4.8%, owing to decreases in electricity produced in the first quarter, with the amount of water distributed decreasing, mainly driven by continued water restrictions in some parts of the country still recovering from the drought conditions.

The construction industry decreased by 1.3%. Decreases were reported for non-residential buildings and construction works.

Economist Mike Schussler told Engineering News Online that the latest statistics do not bode well for business, noting that it will “certainly drag business confidence even lower”.

During a telephone interview, he noted that the ratings agencies were now even more likely to downgrade the sovereign’s fiscal outlook. “We are in a very difficult arena . . . the country’s per capita income is not going to grow, our population is growing [at the same rate it has been] and if we do not see the GDP growing more than that, we are stuck,” he pointed out.

“The rest of the world is in a growth phase and we are stuck with Guptastan,” he added.

Citadel chief economist Maarten Ackerman said “the reality is that South Africa’s growth has been slipping sharply since 2011 compared to global peers. One needs to remember that the weak numbers released today are a reflection of the activity before the recent government reshuffle and subsequent ratings downgrade.

“The latest numbers confirm that we will need to do everything in our power to keep fiscal discipline to avoid any further downgrades in the near future,” he stressed.

The National Treasury noted that if the current growth rate was sustained, it would lead to a further decline in GDP per capita and revenue, “risking the sustainability of our fiscal framework and, more importantly, undermining the delivery of social services”.

“The current state of the economy puts more pressure on us as government, business, labour and broader society to intensify our growth programme and improve confidence as a matter of urgency to arrest the decline and set the economy on a higher growth trajectory,” it added.

Chibanguza said Seifsa was also gravely concerned about the economy’s descent into a recession, noting that it was particularly concerning that the tertiary sector – which historically does not contribute to contraction – had shrunk by 5.9% during the quarter.

“This is a significant deviation from the traditional norm and is indicative of the widespread nature of challenges. Economic reform is needed urgently to resolve the challenge of lacklustre growth,” he noted.

Meanwhile, Schussler said the slow GDP growth has already impacted on investment inflows and outflows in the country, with the local stock market “going nowhere” and local retailers and bankers, who derive significant turnover from South Africa, being hardest hit.

“The Reserve Bank will now have to think much harder about rates, as they want to provide relief to the consumer. This is a consumer recession,” said Schussler.

With take-home pay also severely impacted, the consumer would remain careful in spending, with confidence also at an all-time low.

“The consumer has started to see the corruption; they feel they are not getting anything of value anymore. Consumers are busy recovering and not prepared to spend anything on credit; people feel insecure in their jobs.”

Schussler highlighted that the GDP should have improved on the back of the uptick in the mining and agriculture industries, but was dragged down by the lower consumer confidence.

“Shops are emptier. The lipstick index – fast food – is slowing down, we’ve seen car sales in the doldrums for a long time. I last saw two estate agents in a museum; it’s a bum fight in that industry,” he quipped.

Seifsa CEO Kaizer Nyatsumba agreed, highlighting that the economy was likely to continue to under-perform for as long as the country lacked inspirational political leadership that enjoyed the confidence of all South Africans and ensured that government, business and labour worked together effectively as partners.

However, looking ahead, Schussler believed that “we are through the worst of it”, with society voicing its concerns through election results, which would translate in a “different country” in future.

He further pointed out that GDP growth figures for the second quarter should be better, as inflation has dropped radically and the upcoming two-month drop in the petrol price should boost consumer confidence.

Ackerman, however, noted that the numbers also suggested that the consensus growth assumption for the year – which was around 1% – was probably not achievable. “The weak growth numbers coupled with declining inflation suggest that the South African Reserve Bank should be in no rush to hike interest rates anymore. In fact, we might see a cut in rates before the end of this year.

“The current environment also suggests that the recent strength in the currency is not sustainable and a sharp depreciation in the medium term is becoming more likely to reflect the true, underlying economic fundamentals,” he pointed out.

North West University Business School Professor Raymond Parsons also voiced his concerns about the slow GDP growth, noting that it would negative implications for employment, tax revenues, business confidence and future investment ratings. “Whether we like it or not, the local economy is entering rough seas, and the storm signals are up.”

EXPENDITURE
Stats SA also reported that expenditure GDP fell by 0.8% during the first quarter, with household final consumption expenditure (HFCE) down 2.3%, contributing -1.4 percentage points to total growth.

The main negative contributors to growth in HFCE were food and non-alcoholic beverages, clothing and footwear and transport.

Gross fixed capital formation (GFCF) grew by 1%, a second consecutive quarterly increase. The largest contributor to growth in the first quarter was machinery and other equipment, which increased by 7.9% and contributed 2.5 percentage points to growth in GFCF.

There was a R2.7-billion build-up of inventories during the quarter, which contributed 2.5 percentage points to total growth.

Net exports contributed negatively to growth in expenditure GDP. Both goods and services contributed negatively to the growth in exports. Exports of mineral products and vehicles and transport equipment were largely responsible for the decrease in goods.

Imports of goods and services increased by 3.2%, driven largely by imports of mineral products.

Source : Engineering News

US diamond jewellery demand hits all-time high

JOHANNESBURG – As total diamond jewellery demand increased marginally to $80-billion in 2016, demand from US consumers ticked up 4.4% to break through the $40-billion mark for the first time.

After recording the fifth consecutive year of growth, US consumers now accounted for roughly half of all diamond jewellery purchases globally – a level not seen since before the financial crisis – in a market that remained the fastest growing, industry insight data from De Beers Group showed.

“American consumers continue to express a strong desire for diamonds, but their purchasing habits are changing rapidly. While bridal diamond jewellery remains fundamental, we are seeing both single and married women buying for themselves more frequently and more purchases being made online. Meanwhile, products such as multi diamond jewellery are becoming more popular,” said De Beers CEO Bruce Cleaver.

The report showed that demand growth from the US, supported by job creation, wage growth and a strong stock market, had offset a contraction in India, resulting in global demand for diamond jewellery increasing marginally in 2016 to $80-billion.

“However, while US demand drove global growth in 2016, it is increasing demand from emerging markets that is behind the last five years being the strongest on record. Despite some markets facing challenging conditions last year, we see this trend continuing, with improvements in demand from China and India, in particular, emerging in 2017,” he highlighted.

Demand from Chinese consumers grew 0.6% in local currency and has continued to improve in early 2017, while demand from Indian consumers started to return to more normal levels in 2017, following an 8.8% contraction in local currency in 2016 on the back of the jewellers’ strike, demonetisation and exchange rates.

While 2016 demand from Japanese consumers declined 2.9% in local currency, the strength of the yen had pushed up demand by 8.1% in dollar terms.

OUTLOOK
Unpacking the outlook for 2017, De Beers pointed out that continued sales in the US, bolstered by the more encouraging demand trends in China and India, would continue to drive global diamond jewellery demand growth, albeit marginal, in 2017.

“While the US has seen slower gross domestic product (GDP) growth in the first quarter, which generally signals slower growth in diamond jewellery demand, the outlook for 2017 is for higher consumer confidence and GDP growth,” Cleaver added.

Retailers in China expect demand to continue to grow at a slightly faster rate, in local currency, while in India, the effect of demonetisation this year proved to be less severe than anticipated, with consumption returning to more normal levels in the first quarter.

Source : Mining Weekly

S Africa drops a notch in global competitiveness ranking

South Africa’s overall global competitiveness dropped from 52 in 2016 to 53 in 2017, according to the International Institute for Management Development’s ‘World Competitiveness Yearbook’ (WCY).

The institute cites a lack of sustainable and inclusive growth, high levels of structural unemployment and a lack of access to quality education as some of the reasons for the country’s continued poor performance in global competitiveness.

The WCY rates the ability of 63 industrialised and emerging economies to create and maintain an environment that sustains the competitiveness of enterprises.

Country data is evaluated through distinct criteria, grouped into four competitiveness factors, namely government efficiency, business efficiency, economic performance and infrastructure.

“With a gross domestic product (GDP) growth of 0.3%, and consumer price inflation (CPI) hovering at above 6%, South Africa’s unemployment rate sits at about 27%,” states the WCY, which has ranked South Africa last in terms of employment.

The WCY further highlights that the country’s economic performance declined from 54 in 2016 to 59 in 2017.

“Government efficiency’s performance suffered a hard knock, sliding ten places from 40 in 2016 to 50 in 2017, while business efficiency’s performance ranking has once again shown an improvement with a climb of six places notching a ranking of 41 in 2017 up from 47 in 2016,” says the report.

Infrastructure recorded a drop from 54 in 2016 to 56 in 2017.

However, despite continued poor performance on the index economically, South Africa is ranked highly when it comes to the cost of living and an effective personal income tax rate.

Source : Engineering News