Economy
Russia Row Raises South Africa Investor Risk as Economy Founders
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(Bloomberg) — Investors have spent months fretting about everything from South Africa’s daily blackouts to inadequate laws on terror financing and political instability before next year’s elections. Now they have a new concern: geopolitical tensions.
On Thursday, US Ambassador Reuben Brigety accused South Africa of supplying weapons to Russia. The allegation escalated growing tensions over South Africa’s refusal to back the US stance on Russia’s war with Ukraine, and the African nation’s deepening relationship with the BRICS economic bloc. President Cyril Ramaphosa said his government was probing Brigety’s claim and called his remarks “disappointing.”
The rand slumped to its weakest level on record against the dollar on concern that any significant deterioration in its relationship with the US — its second-biggest trading partner — may put trade worth billions of dollars at risk.
While President Joe Biden’s administration dialed back its envoy’s hawkish tone and Brigety on Friday sought to “correct any misimpressions” created by his remarks, investor concerns about South Africa’s growing challenges remain.
Many businesses in the continent’s most-industrialized nation have no electricity for almost half each day because of rolling blackouts, known locally as loadshedding. Mining companies and food producers are struggling with the state-owned freight monopoly’s inability to fix logistical constraints, and as many as half of the population of 61 million depend on some form of welfare payment.
“The pressure points that are now coming to a head — load shedding and inferred political alliances — are rippling through financial markets and will increasingly weigh on the economic outlook,” Adriaan du Toit, London-based director of emerging market economic research at AllianceBernstein Ltd., said on Friday “A higher risk premium is clearly justified based on what we know today.”
Even before Brigety’s remarks, South Africa’s political risk had risen to a record while the nation’s economic risk score is at the worst in seven years.
In an effort to prevent the economic and political fallout from worsening, Ramaphosa’s government summoned the US envoy, while the International Relations and Cooperation Minister Naledi Pandor spoke to US Secretary of State Antony Blinken Friday. Statements issued in the wake of both of those meetings didn’t address the veracity of the envoy’s claim.
That may leave investors unimpressed. Foreign direct investment into the nation has remained stagnant, while fund managers are shunning stocks that rely on the domestic economy.
Shoprite Holdings Ltd., which is dependent on South Africa for about 90% of its revenue, has dropped 10% this year. That compares with a 48% gain for local billionaire Johann Rupert’s Cie Financiere Richemont SA, the luxury-goods maker that sources most of its revenue from Asia and Europe.
Meanwhile, AngloGold Ashanti Ltd. is speeding its retreat from South Africa, where the gold miner was formed more than a century ago, with plans to list in New York and make London its new headquarters.
“It does seem that South Africa continues to shoot itself in the foot, with many of the current issues self-made,” Michele Santangelo, a portfolio manager at Independent Securities in Johannesburg. The recent news reinforces the firm’s investment strategy, which is to have a “strong bias towards offshore investments and rand hedges,” he said, referring to investing in companies that make most of their revenue overseas.
‘Maybe I am Crazy’
Still, the volatility may entice some fund managers.
“I still like South Africa, maybe I am crazy,” said Ray Zucaro, the Miami-based chief investment officer at RVX Asset Management LLC. Zucaro said he wasn’t “panic selling” and hadn’t reduced his South African bond and rand holdings. He would consider adding if some of the noise around the US accusations died down.
Relations between South Africa and the US have soured over Pretoria’s insistence that it’s taken a non-aligned stance toward Russia’s war in Ukraine.
The former Soviet Union supported South Africa’s governing African National Congress during the decades-long struggle against apartheid and the party has maintained ties to Russia’s current leaders since the end of White-minority rule in 1994. Ramaphosa spoke to Russian President Vladimir Putin to discuss the “strategic relationship” between the two countries, the Kremlin said on Friday. It made no reference to the controversy over Brigety’s remarks.
The government’s stand on the alleged arms shipment alienated even local companies. Business Unity South Africa, a lobby group, said the administration’s response has been “unsatisfactory as it introduces uncertainty that we simply cannot afford.”
–With assistance from Colleen Goko, Paul Vecchiatto and S’thembile Cele.
©2023 Bloomberg L.P.
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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.
That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.
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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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