JSE CLOSED WEAKER AS THE RAND SUCCUMBED TO THE STRONGER DOLLAR

After a long haul of trading on Monday, local bourse looked to be recovering in the opening session on Tuesday morning yet it was the afternoon session that had the final say as the JSE closed the day weaker. On the international front, Nikkie closed 0.55 % while the Chinese markets were closed due to holiday although China pledged abundant liquidity to ingratiate with investors as reports of travel restrictions being issued in China because of Coronavirus surfaced.

In America, the Dow Jones rallied strongly, recording 0.79% increase amid risk-off trading conditions, Nasdaq dragging home 1.5% while S&P 500 closed 1.15% stronger.

European markets finished broadly higher with stocks in France leading the section. CAC40 was 1.07% up, London FTSE gained 0.93% and DAX closed 0.90% firmer.

Emerging markets currencies succumbed to a stronger Dollar. The Rand closed R14.63 to the dollar in Johannesburg, a unit of Pound Sterling would cost Rand holders R18.93 while R16.04 will get you regional currency,Euro.

Blue Label Telecoms closed at R2.72 a fall of 13.52% following the announcement that Cell c had defaulted on one of its loans which was in December 2019. Intu properties recorded a rise of 1.72% on the back of the reports that they are disposing one of their assets in Spain( Business Day TV) and its stock price was R3.55 at close.

Mining sector saw Impala Platinum closing 3.03% stronger at R134.64. Harmony Gold lost 5.74% to close at R49.23 and following the release of the resounding full financial year statements, Anglo American Platinum closed 0.1% at R1144.54. AngloGold Ashanti one of the loser in the Gold Mining on the day, shed 3.54% to close at R296.15. Northam Platinum closed at R116.48 after shedding 1.02%.

Financials slightly weaker on the day, Discovery lost 3.65% to close R119.23 and Remgro heading the same direc- tion losing 1.76% to close at R182.98

Woolworths fell by 1.3% to close at R45.55 while one of the biggest retailers Shoprite shed 2.11% to close the day at R118.

The JSE All-share index closed 0.35% lower while the JSE Top-40 index lost 0.3%. Financials index shed 0.51%, while the industrial fell by 0.18% and resources bled 0.33%.

Brent crude was 0.43% softer as it lost direction to close at $58.33/barrel . Platinum was 0.57% up at $988.76/Oz, gold was 0.44% softer at $1 575.78/Oz.

Cell C’s defaulted relates to the payment of interest and capital repayments on a US$184-million loan, which was due in December 2019, on a  bilateral loan facilities with Nedbank, China Development Bank, the Development Bank of Southern Africa and the Industrial and Commercial Bank of China.

By:Mmamoloko E Boshomane
eboshomane7@gmail.com

eraeconomist.blogspot.com

WILL CONSUMERS BE ULTIMATE BEARERS OF SARS MISSING COLLECTION TARGET?

Heading into the second month of the new decade, a lot will be expected from South Africa Finance Minister Tito Mboweni when he delivers the Annual Budget speech inter alia, whether the consumer will shoulder the ultimate burden of the country’s receiver of revenue’s inability to meet its tax collection targets for the financial year ending March 2020 which should be consistent and in the core complement of state budget. The CAGR for the period of 2007/08 to 2016/17 as the same as that of a decade 2009/10 to 2018/19 at 8%. The 2007/08 to 2016/17 period pencilled an upsurge of 25% in Tax Revenue average ratio as a percentage of GDP.

SARS’s last 10-year review was conducted back in 2017, Personal Income Tax as proportion of total tax revenue increased from 29.6% in 2007/08 to 37.2% in 2016/17, with CAGR of 10.8% and a contribution of 8.4%. Import and custom duties accounted for 17.7% of the total tax revenue, 4.5% towards a decade GDP and CAGR was at 7.2%. Weak economic activity over the past years restricted growth rates in Company Income Tax descending from 26.7% in 2007/08 to 18.1% in 2016/17 after perturbing hiccups in manufacturing and mining sectors coupled with electricity supply shortages. Value-Added-Tax (VAT) is the largest contributor accounting for 25.9% of the Total Tax Revenue and 6.4% of GDP. CAGR was at 7.5%.

YEAR	TAX COLLECTION	% CHANGE
2010	598,7
2011	674,2	12,61%
2012	742,6	10,15%
2013	813,8	9,59%
2014	900	10,59%
2015	986,3	9,59%
2016	1070	8,49%
2017	1144,1	6,93%
2018	1216,5	6,33%
2019	1287,7	5,85%

On the report of 2017 compiled by SARS, the financial crisis in 2008/09 looked to have had pernicious effect on the TAX collections, the Company Income Tax battled to rebound as it was the slowest component to recover. 2009/10 saw Import VAT plummeting 23.6% while Custom duties bled 14% in each of the 2008/09 and 2009/10.

For the past decade, SARS has seen their tax collection from different contributors increase at a diminishing rate after the last period they had an increase of double figures was back 2014 with 10.59% increase. But these increases were going to do the country a world of good if they were complemented by a controlled increase or decline of government deficit, ironically the latter has been on the has been dancing around 4.4% in the past decade and with no signs that it would soon come within the govt control as the Debt to GDP is hovering around 60%

The parastatals such as Eskom, SAA and SABC have become heavily and financially reliant on government as they are struggling to bootstrap and leading to more and more funds of bailouts being pumped into SOEs in an attempt to salvage their operations or defend against going concern risks. Recently, President Cyril Ramaphosa placed the South African Airways under business rescue whose main aim will be to salvage SAA business or atleast deliver a better return to creditors than a formal liquidation. This was before the country went dark to the stage 6 load shedding after losing capacity at Medupi coal-fired power station, while coal stockpiles and coal were flooded in Mpumalanga which ultimately compelled President to shortened his trip to Egypt to solve the problems at the power utility.

SABC was on the verge of a massive retrenchment with almost 1 000 employees expected to be offloaded and moreover, the public broadcaster failed to air the continental showpiece AFCON, ICC, IRB World Cup(have always been on our screens since the end Apartheid) and the start of domestic league matches(On SABC way before winning democracy) after citing financial constraints. The latter was resolved following an interventions by Communications Ministry, Sports Ministry and the league sponsors after SABC had ordered its Radio stations to stop airing even crumb of information and update relating to domestic league, leaving league sponsors with no choice but to force the Premier Soccer League to sort out their differences with the public broadcaster citing marketing risks posed by the issue

It is still not clear the SOE’s desparate needs for funds will be acceded to during this year’s national budget speech, as mid last year the only Rating Agency that still have South Africa on their investment grade, Moody’s vehemently said that a further and extensive bailouts from the state to an ailing power utility is credit negative and just recently, President Ramaphosa ordered the Eskom board and administrative team to provide him with a turnaround Strategic planning that will get the parastatal’s operations back on its feet.

Towards the end of last year 2019, SARS was reported to headed for a R215 billion shortfall by year end with experts also forecasting a record shortfall of tax collections for the year ending March 2020. While the unemployment rate gains momentum despite President Ramaphosa having pioneered youth employment initiatives, there’s been increase in the annual tax revenue perhaps thanks to increases in basic salaries earnings, bonus and overtime(STATSA 2^nd quarter, 2019) which contrast with number of graduates flocking into the job-market space coupled with a staggering number of job losses in the extraction sector that are eye-watering and fuelling the unemployment rate and then leaving efforts to address weak growth, poverty and dire standard of living puzzled.

If the Govt raises tax, this will push electricity prices even higher plus Eskom has been operating at times courtesy of imported diesil to avoid further load sheddings- this will further force consumers to deepen hands into their pockets and it gets far worse when the local unit depreciates which eventually makes foreign goods expensive

As the local currency becomes vulnerable due to the state financial mismanagement, then foreign goods become more expensive particularly fuel and travel costs. SA has a fragile creditworthiness and add the tax shortfall to the equation, would increase the cost of acquiring money causing an upward pressure on interest rates making it more difficult for consumers to afford cars, house and basic stuff such buying clothes on credit as commercial banks would look to drip the effect of an increase in rates down to the borrowers.

Government has been laboring to service its debt for sometime, SA creditworthiness has been warned with an outlook downgrade to negative towards the end of last year, SARS over the last 12 or less months has been hobbling against their collection targets and future of bringing the SOE’s debt is doubtful if not unlikely, most likely and further job losses could be expec and all of these posing sovereign risks and giving Moody’s more grounds of justification as to why SA should be downgraded. These would probably leave government with no choice but to plug increment on the tax rates to improve their SARS collection to keep it abreast with expenditure and deficit during the next budget speech.

By: Mmamoloko E. Boshomane

Email: eboshomane7@gmail.com

Blog: eraeconomist.blogspot.com

4TH Industrial Revolution informs Rwanda government policies

                             4^TH Industrial Revolution informs Rwanda government policies

Rwanda has seen their efforts to use technological advancements bearing them fruits that any African country have for some decades been striving to attain. After reeling from 1994 genocide that licked away almost 1 000 000 lives belonging to the Tutsi, Twa and , according to World Bank in 2011, Rwanda ranked 58 out of 183 countries in the Ease Of Doing Business survey by which World Bank measures the intricacies of running a business in differrent countries.

Since assuming power after serving as the Rwandan vice President between 1994-2000, President Paul Kagame his intentions of implementing business friendly policies a no secret. Rwanda policies are that of improving technology and communications to pave a way for entrepreneurial creativity and sustainable growth. In October of 2019, the East African country launched the first ever smartphone to be made in Africa and this was preceded by 6 months agreement between software development firm Andela and Rwanda governmen to offer free training to 500 Rwandans mid 2018.

The country incepted Information and Communication Technology which is a central engine to driving Rwanda’s transformation to a knowledge based economy, hence Rwanda remains one of the fastest growing African countries in ICT and there are several avenues for growth for the ICT sectors -from e-commerce and e-services, mobile technologies, applications development and automation to becoming a regional center for the training of top quality ICT professionals and research.

Smart card ticketing system developed by AC Group in December 2015 which allows to electronically pay for their busa fares through mobile phone or point of sale devices operated by vendors at bus terminals and barely 6 months after its launch, the company founder says they have received demands from other country to introduce the system. Furthermore, Tracnet uses mobile phones to improve communication between remote HIV/AIDS clinics and administrative centres. The system allow clinics to send HIV/AIDS patient information from mobile phones with SMS text messaging to a central database using a standard Motorola phone with a downloadable application. Using TRACnet, health care workers can track and follow up with HIV patients in remote areas with no electricity and little infrastructure. Clinics can also receive the results of laboratory tests and drug=recall alerts on their mobile phones. They can also send health alerts and inventory counts of antiretroviral drugs, as well as download treatment guidelines and training materials. The system is designed to increase accountability among health care workers through an electronic record that is created by every input into the system. TRACnet also facilitates better communication from clinic to clinic as well as from individual clinics to the Health Ministry in Kigali.

Few months following the signing of Andel deal, Rwanda brought yet another big fish in partnering with Alibaba to mark inception of the first ever electronic global trade platform in Africa. Back in 2015, the government of Rwanda approved a New Investment Code whose aim is to entice more FDI. 2018 saw the implementation and passing of visa-on-arrival for all Africans citizens.

What drives them ahead of the entire pack?

1. Cheap labor compared to other countries in the Region
2. Young and dynamic workforce
3. Most favorable business environment
4. Transparency international index
5. Remarkable ICT infrastructure
6. Strong and visionary leadership
7. Bi-lingual business environment (French and English)

West Africans recorded with the GDP averaging 2.69% in the last two decade reaching the all time high of 13.20% in 2002 and record low of -2.02% in Q1 of 2013. The recent data shows that this country with a small population of 12.2 million citizens achieved a GDP growth rate of 8.5% in 2018 (WORLD BANK,2019)

The recent reports shows that the unemployment rate in one the fastest growing economy in the world was 16% and trading economics is expecting the unemployment rate to come slightly to sit at 15.305 in the next quarter. The youth joblessness rate is hovering around 20.60% with the laborforce participation rate at 52.30%. Rwanda’s large industries include energy, agriculture, trade and hospitality and financial services. In 2019, the London Stock Exchange released their report showing that 14 Rwandan companies are amongst the fastest growing companies and most dynamic business in Africa. Those companies were Charis UAS, Bank Of Kigali, Africa Improved Foods, Mobisol Rwanda, AC Group, Axiom Networks.

Foreign Direct Investment (FDI) surged by more $305 million in 2018 and averaged $234 million from 2009 to 2018. The highest point ever reached was $341 million in 2014 anfd record low of $118 million in 2009. An increase in 2018 was bouyed by strengthening of diplomatic relations with its current approach to visa-openness, economic control and social progress. Investments are mainly targeting the sectors of mining, construction and real estate, infrastructure and information and communication technologies. The main investors in Rwanda are Portugal, UK, India ans UAE

Rwanda mostly exports coffe, tea, niobium, tntalum, vanadium and zirconium ore, tin ores and tungsten ore and according to their 1992 revision, they import refined petroleum, pakaged medicaments, broadcasting equipments, raw material and wheat. Their top export destinations are:1.USA,Germany, Pakistan, China, Kenya, Malaysia. Mostly Rwanda import from Uganda, Kenya, China, India and South Korea.

Exports rose to $82.34 million in October 2019 from $72.70 million of September 2019. In similar but contrast fashion, the imports also grew to $308.04 from $257.86 million during the same period pushing the trade balance further into deficit of -$225.70 million. Most of the improvements discussed here could be attributed to technological advances which added some impetus on their economic strides in past two decade. the truth is Rwanda is not an overnight wonder of the African development, it some some yeaars and accurate planning and time frame and most importantly, deviation from the corruption, autocracy, civil war which at some point left the East African country believed to be debris but now is a bird in the process of phoenixing off its ashes.

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Is South Africa flirting with Stagflation?

11:05   Thursday, 23. January 2020

By Mmamoloko E. Boshomane
eboshomane7@gmail.com


South Africa Economic growth contracted by 0.6% in the third of 2019 after pencilling 1.0% in the second quarter of 2019. Following MPC’s announcement to unanimously concurring on cutting the lending rates by 25 basis points to leave the repo rate at 6.25% on their first meeting of the new decade, the South Africa Reserve Bank Governor Lesetja Kganyago highlighted that the bank also have downgraded their GDP growth forecast to 0.4% after initial assessment had put SA economic activity prospects at a slight 0.5%. The global financial institutions such the International Monetary Fund has similar sentiments, slashing out their initial forecasts by 0.3 percentage points to expect our economy to grow at 0.8%, further expecting the SA economy to expand by a mere 1% in 2021. These figures a way below the sub-saharan average which grew by 3.3% in 2019 and expected to add 3.5% in 2020/21. Moreover, the fourth quarter of 2019 consumer confidence sitting at negative 7, the lowest level since Q4 2017 and an average of 1.42 points between 1982 to 2019. The said to be looming downgrade to the non-investment grade by the only rating agency to still have South Africa on the investment grade Moody’s, could possibly be litting fireworks on a tail of a sober dog when it comes to investors as the government needs foreign investments to facilitate social and infrastructural development and structural reforms to improve productive capacity and expand economy and open the economy up to new markets. Moody’s downgraded SA investment outlook to negative but still an investment grade from the agape mouth of non-investment grade.

At the of the causes of this economic quirkmire is the power outages and policy uncertainty tied to the slow pace of structural reforms that has been taking its toll on the economic activity. Joblessness is swiftly spiralling out of control reaching 29.1% before the end of last year, 0.1 percentage points increase from Q2 figure. STATSSA late in 2019 reported that four out of ten industries saw escalation in their labour force. Community and social services industry went up by 56 000, agriculture and mining both at 38 000 and private households increasing by 35 000 and surprisingly, one of the sector that a country needs to accentuate on as one of the catalyst for economic stimulation and structural reforms, coinstruction which will be pivotal in advancing infrastructural development was nowhere to be found. in the green in fact, it is amongst those that downsized their staff capacity, with 24 000 job losses behind another lion which is supposed to be playing an integral and colossal role in perking up activity manufacturing with 30 000 losses. Trade and Utilities industries left 21 000 and 18 000 households without a bread on the table, respectively.

Price levels have been threatening to gravitate to below the bottom level of the SARB’s target of 3%-6%. Before recording 4%  rise in December 2019, November inflation was 3.6%. On annual scale, the price level remained subdued in 2019 at an average of 4.1% lower than the averages of the previuos two years. Towards mid-year, it was reported to be hovering around the midpoint of the SARB target at 4.5% in May before hitting its lowest plateau in a decade( since December 2010) of 3.6% in November.

It is still unclear whether the boiling tensions between US and Iran would end in am amicable fashion or War after the  killing of the Iranian military leader for which US President Donald Trump quickly claimed responsibility. The  oil price appeared to have felt the most impact with UK crude oil jumping to $63 and one analysts immediately suggested that the oil price could parachute as high as $80. With Tehran having promised that form of voilent retribution, this would likely contaminate the global oil market with eye-watering implications on South Africa’s endeavors to stimulate activity. If this leads to violent animosity between the two nations and significantly loading on the oil market, actually causing upward pressure on oil prices which would potentially give birth to hindrances in the way of global growth. Global oil prices increases could also drip down to the local oil prices before local producers and corporates counteract the increase in cost of production ot transportation with an increase in price for consumers who will be ultimate bearer of this dilemma- As a result,  general price levels surge up amid sluggish growth if not stagnant and joblessness that promises to be perennial and perpetual socio-economic ill in South Africa

Through the issues discussed above, one can easily define and spot stagflation on the horizon for the continent’s second largest economy. Stagflation is economic period where inflation is high, growth is inert and unemployment is high. South Africa already has two (sluggish growth and unemployment rate is high) and with likelihood of the third(inflation) more than not. There is no prospect of a fast growing economy ,efforts to implement policies and measures to pave a way for efficient structural reforms and sustainable growth are retard and if what Iran has vowed and sworn in retaliation of the death of Iran Senior Military leader General Qassem Soleimani is what we should go by, this would not only arrest global growth, but prices levels might find another spike up after attacks on Saudi oil refineries later towards the end of last year. Following the killing of Soleimani, the oil price has spiked to $70 per barrel after the first week of January 2020. After a spike, the question is how long will the price would remain on the upward trajectory provided the advent US and Iran War does come and persist? Shouldn’t we start preparing our hospitality for stagflation?

JSE closed firmer, following a positive external economic data

The JSE on Friday closed firmer abreast with the other global markets poised by calming trade tensions and positive economic figures in the Asian regioin

Asia released their GDP data which discounted expectations, remained unchanged from the previous recording of 6%. The world second largest economy China Industrial production pencilled 6.9% upsurge, a noticeable improvement from last year figures at the same year-on-year of 5.9%. Meanwhile the UK retail sales fell by 0.6% after major UK retailers cited difficult trading environment

With the first phase of the trade agreements between Beijing and Washington DC already penned, the Rand lost some ground late yesterday on Thursday due to the MPC announcement of the 25 basis points lending rates cut, further losses were recorded in the afternoon session succumbing to the stronger dollar. ZAR was trading 0.26% softer at R14.44 to the greenback at 5pm in Johannesburg

One of the biggest winners on the local bourse was Richemont  rallied 5.82% to close at R121.25 after releasing its trading figures for the 3rd quarter which showed improvements in trading volumes across most the geographical area. Anglo American surged 3.29% to close at R424.17, BHP closes 3% firmer to close at R351.09, the widely diversified Naspers at R2510.51 a rise of 2.45%. Mr Price lost 1.91% to close at R188.73 after releasing a relatively their trading figures.

Ascendis Health had to battle the long haul of negative trades closing the day 5.8% weaker at R1.30. Financial index lost some strides following the softer rand, ABSA Group which shed 3.32% to close at R139.50, Nedbank which lost 2.85% to close at R207.54, and Standard Bank  which also recorded as one of the losers amongst the blue chips closed at R164.43 after losing 2.39%., while Woolworths closed 2.35% lower at R49.42.

Sectoral

Personal Goods sector was the biggest gainer on a sectoral scale, recording an increase of 66.62 points an upsurge of 5.82% to stand at 1221.08 during close, sniffing on their necks it was the country biggest sectoral exporters Industrial metals and mining with an increase of 5.24% after dragging in 1066.25 points. Consumer goods closed 3.80% firmer at 63057 points, Mining 2.66% stronger at 46618 points and to complete the top five best performing sectors it’s Basic Materials with 36601 points closing 2.25% firmer

The JSE All-Share index closed 1.35% higher while the JSE Top-40 index closed 1.48% stronger,the Financials index s laboured a bad day of trade to close at 1% weaker meanwhile, Resources were 2.26% winners at close and Industrials gained 1.87%.
Ounce of Gold trading at $1557.8 0.63% up, Platinum was at $1026.99 2.28% up, and Palladium jumped 6.9% higher to trade at $2475.00 per ounce.Brent crude was tradingr at $64.89/barrel  0.48% firmer at close in Johannesburg
NB!!! All eyes will be on companies who will be holding AGM in the coming, Phumelela (21/1/20), INDEQTY,Purple and AYO (all on the 22/1/20), RDI and AH-VEST on the 23/1/20 and Group 5 on the 24/1/20.

Reported by Mmamoloko E Boshomane
Facebook: Red-Economist, Personal Blog: eraceconomist.blogspot.com