(Bloomberg) — The world’s deepest precious-metals mines, together with giant iron-ore and coal pits are providing an unexpected boon to a South African economy slowly recovering from its biggest contraction in a century.
Surging demand and prices for commodities including platinum-group metals, iron ore, manganese and coal are generating record mining-company profits and bolstering government revenue. That’s even as decades of dwindling output and investor reluctance to build new mines blights prospects for the industry.
“Last year, we were concerned about the lack of space to support the economy amid the severe hit from the pandemic,” Elna Moolman, a South Africa economist at Standard Bank Group Ltd., said in an interview. “The recovery in commodities demand and their prices is providing very strong support to the economy.”
President Cyril Ramaphosa on Monday flagged the “significant role” the sector will play in accelerating South Africa’s recovery from last year’s coronavirus-induced slump.
The mining industry often takes center stage when South Africa’s economic fortunes dip.
Its gold industry — once the world’s largest — underpinned the nation’s transformation into the continent’s most industrialized economy. Bullion sales cushioned the economy against the impact of the oil-price and dollar collapse in the 1970s and as international outrage against apartheid rule a decade later resulted in massive capital outflows. The commodities boom in the 2000s provided the Treasury with a war chest to withstand the devastating effects of the global financial crisis.
The mining industry’s output surged 18.1% in the first quarter compared to the previous three months, helping buoy growth more than forecast. The sector accounted for 9% of gross domestic product during the period.
Last year, the mining industry, which employs more than 451,000 people, accounted for 8.2% of GDP, according to the Minerals Council South Africa, an industry lobby group.
Revenue for the fiscal year through March exceeded budget estimates for the first time in five years as the industry drove an increase in corporate income tax collections, and led to the shortfall on the main budget coming in below forecast.
That’s allowed the Treasury to reduce the amount of debt on sale at its weekly auctions for a second time since March and bodes well for its plans to achieve a primary surplus in fiscal 2024-25 and stabilize debt at 88.9% of GDP the following year.
The world’s top platinum suppliers’ exports of platinum-group metals surged 40% in 2020, even as Covid-19 disrupted operations and curbed output, the national statistics agency said in April. Sales of PGMs, which are in demand as stricter emission rules boost their use in vehicle autocatalysts, raked in 190 billion rand ($13.3 billion) amid a rally in palladium and rhodium prices.
South Africa’s terms of trade — a measure of export prices relative to import costs — increased 12% over the past year and more than 20% since the end of 2018, as the global economic recovery from the pandemic pushed up demand for commodities, according to HSBC Bank Plc economist David Faulkner.
The trade windfall is “one of the strongest gains on record, with past experience highlighting how South Africa’s macro fortunes can tilt on favorable commodity prices and a benign external backdrop,” Faulkner said in a note. “The result has been a period of respite, relief and rally.”
Still, a failure by Ramaphosa’s government to take advantage of the commodity rally to expedite a raft of reforms and attract investment to boost growth and create new jobs could counter the recent fiscal gains. The South African Reserve Bank forecasts that the commodities price rally may be temporary.
“These are economic challenges that will require sustained policy action to reverse,” Faulkner said. “They also leave South Africa with balance sheet vulnerabilities at risk of being exposed should the recent rise in metal prices prove transitory or risk appetite sour.”
What Bloomberg Economics Says…
“Rising commodity prices provide a welcome respite for the budget. They are, however, not a panacea. The government will still have to follow through with its consolidation plans to stabilize the debt trajectory.”
— Boingotlo Gasealahwe, Africa Economist
©2021 Bloomberg L.P.
China's economy didn't bounce back in the second quarter, China Beige Book survey finds – CNBC
BEIJING — Chinese businesses ranging from services to manufacturing reported a slowdown in the second quarter from the first, reflecting the prolonged impact of Covid controls.
That’s according to the U.S.-based China Beige Book, which claims to have conducted more than 4,300 interviews in China in late April and the month ended June 15.
“While most high-profile lockdowns were relaxed in May, June data do not show the powerhouse bounce-back most expected,” according to a report released Tuesday. The analysis found few signs that government stimulus was having much of an effect yet.
Shanghai, China’s largest city by gross domestic product, was locked down in April and May. Beijing and other parts of the country also imposed some level of Covid controls to contain mainland China’s worst outbreak of the virus since the pandemic’s initial shock in early 2020.
In late May, Chinese Premier Li Keqiang held an unprecedentedly massive videoconference in which he called on officials to “work hard” — for growth in the second quarter and a drop in unemployment.
Between the first and second quarters, hiring declined across all manufacturing sectors except for food and beverage processing, according to the China Beige Book report.
The employment situation likely won’t start to improve until China stimulates its economy more in the fall, China Beige Book Managing Director Shehzad H. Qazi said Wednesday on CNBC’s “Squawk Box Asia.”
So far, there’s been little sign that stimulus has kicked in, especially in infrastructure, said Qazi who is based in New York.
“Transportation, construction companies aren’t telling you they’re getting new products,” he said. “They’re telling you they’ve slowed investment, their new projects have actually slowed.”
Inventories surge, orders drop
Unsold goods piled up, except in autos. Orders for domestic consumption and overseas export mostly fell in the second quarter from the first. Orders for textiles and chemicals processing were among the hardest-hit.
The only standout domestically was IT and consumer electronics, which saw orders rise during that time. Orders for export grew in three of seven manufacturing categories: electronics, automotive and food and beverage processing.
“Weak domestic orders and expanding inventories indicate the presumed second-half improvement will be unpleasantly modest,” the report said.
The authors noted the services sector saw the greatest reversal. After accelerating in growth in the first quarter, services businesses saw revenue, sales volumes, capex and profits drop in the second quarter.
Across China, only the property sector and the manufacturing hub of Guangdong saw any year-on-year improvement, the China Beige Book said.
Official second-quarter gross domestic product figures are due out July 15. GDP grew by 4.8% in the first quarter from a year ago.
U.S. Economy Shrank Worse-Than-Expected 1.6% Last Quarter As Recession Fears Grow – Forbes
The economy last quarter posted its worst annualized showing since the pandemic-induced recession in 2020, the government said in an updated release Wednesday, blaming an unexpected decline in economic activity on the omicron variant of Covid-19 and decreased government assistance.
The U.S. economy shrank at an annual rate of 1.6% in the first quarter of 2022—the first decline since the second quarter of 2020, the Bureau of Economic Analysis reported Wednesday in a worse-than-expected update to last month’s figure, which showed a decline of 1.5%.
The update primarily reflected softer-than-expected spending on business inventories and residential investments, which was only partially offset by an uptick in consumer spending, the government said.
In the first quarter, a record wave of Covid-19 cases spurred by the omicron variant resulted in continued restrictions and business disruptions, while government assistance programs including forgivable loans to businesses and social benefits to households expired or tapered off—further preventing growth, according to the release.
Broad declines in exports, government spending and business inventories, along with increased imports, spurred the overall decline, the government said.
The overall drop stands in stark contrast to the economy’s better-than-expected growth of 6.9% in the fourth quarter, the fastest rate in nearly 40 years, thanks in part to a jump in exports and increased inventory investments by car dealers.
What To Watch For
Economists are widely calling for a return to growth this quarter, thereby avoiding the two consecutive quarters of negative GDP growth that constitute a technical recession, but a growing wave of experts have warned odds of a recession next year are growing. In a research note on Monday, analysts at S&P Global Ratings said aggressive Federal Reserve policy to combat ongoing price spikes will usher in low economic growth this year and potentially risk a recession, warning: “What’s around the bend next year is the bigger worry.” S&P put the odds of a recession in 2023 at 40%—more than the 35% odds Morgan Stanley issued last week.
Though the economy quickly bounced back after the Covid recession in 2020, the Fed’s withdrawal of pandemic stimulus measures, Russia’s invasion of Ukraine and lingering Covid restrictions have heightened market uncertainty this year. Last quarter, the stock market posted its worst showing since the market crash in early 2020, with the S&P falling 5% and the tech-heavy Nasdaq 9%. “Recession risks are high—uncomfortably high—and rising,” Mark Zandi, chief economist at Moody’s Analytics, said in a recent note. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”
In an email after April’s initial report, which estimated a 1.4% decline despite expectations for 1% growth, Bankrate analyst Mark Hamrick said the lackluster performance serves as a reminder of the “volatile and complicated times in which we live,” but that the contraction is “less worrisome” because key drivers of economic growth, such as consumer and business spending, have been holding up despite the widening trade deficit and big swings in business inventories.
Sudan’s economy dominated by military interests: Report – Al Jazeera English
C4ADS report says crackdown on patronage networks was a contributing factor to last October’s coup.
The Sudanese military and security forces have a sprawling monopoly over the country’s economy, a system that must be tackled to restore the country’s transition to democracy, a report has concluded.
The report, by the Center for Advanced Defense Studies (C4ADS), was published on Wednesday alongside a database that identifies 408 entities controlled by security elites, including agricultural conglomerates, banks, and medical import companies.
Under Sudan’s former civilian-military transitional government, which was tasked with guiding Sudan’s transition towards democracy, an anti-corruption committee was formed to confiscate assets from figures who made a fortune under the former President Omar al-Bashir.
Observers have argued that the confiscations struck at the core of the military’s patronage networks and played a significant role in compelling senior officers to topple the civilian administration in a coup last October, which has been followed by months of protests.
But C4ADS said that countries that seek to support democracy in Sudan have the tools to weaken the country’s “deep state”.
“Governments, non-governmental organizations (NGOs), and private companies have a role in dismantling Sudan’s deep state through economic sanctions, de-risked aid, and increased due diligence around private investments,” the authors of the report said.
The report zoomed in on two major banks, Omdurman National Bank (ONB) and Khaleej Bank, which the military and security forces use to access global financial networks, respectively.
The military – through a web of front charities – owned 86 percent of the shares in the former, according to the report.
Khaleej Bank, meanwhile, was controlled mainly by joint ventures that belong to the United Arab Emirates and the Rapid Support Forces (RSF) – two players that have strong political and economic relations.
The latter is a paramilitary force that evolved out of tribal militias that rebel forces called the Janjaweed, which committed massacres in the western province of Darfur.
The report estimated that the family of RSF leader Mohamad Hamdan Dagalo – better known as Hemeti – controls 28.35 percent of the shares in Khaleej Bank.
The report also reviewed Zadna International Company for Investment Ltd, a majority-army-owned agricultural conglomerate, on whose board of directors Hemeti’s brother, Abdel Rahim Dagalo, sits.
The company has run numerous irrigation schemes and leased out plots of land to private investors, according to Suleiman Baldo, an expert on the predatory economy in Sudan and the founding director of the Sudan Transparency and Policy Tracker.
“The story about Zadna is that it was a public company that was simply taken over by the military, which is monopolising its revenue and not giving the ministry of finance access to any of it. That’s the problem with Zadna,” Baldo said.
The spokesperson for Sudan’s military, Nabil Abdullah, denied accusations that the army has a monopoly over civilian sectors in the economy, and said that Sudan’s former civilian administration was unwilling to assume partial control of military-owned companies.
“[The army] has no economic control [of the country]. This is a lie and misleading,” Abdullah told Al Jazeera.
The report by C4ADS said otherwise. The nonprofit followed policy experts, rights groups, and United States officials in calling for targeted sanctions on enterprises owned by the military and the RSF.
Baldo acknowledged that such a move could unintentionally hurt everyday civilians who are already struggling to survive after billions of dollars worth of development assistance and debt relief were halted in response to the coup.
He added that sanctions may not be necessary since the US has already released a business advisory that warns of reputational risks to Western companies that try to partner with military enterprises in Sudan. The findings published by C4ADS could further deter foreign companies and institutions from conducting business in the country.
“Even without the sanctions, the deterrence effect that sanctions cause already exists,” Baldo said.
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