As predicted at the beginning of July, former President Jacob Zuma’s incarceration has unleashed waves of violence that have contributed to government uncertainty and policy volatility. It is no exaggeration to describe all of this as an insurrection – an attempt to create chaos to achieve political purposes, namely the early release of Zuma and the removal of President Cyril Ramaphosa. The former is unlikely to be realised, but the latter will likely lead to ongoing mobilisation within the ANC and society in the lead up to the ANC’s 2022 electoral conference.
According to our political advisor, Professor Ivor Sarakinsky, Ramaphosa must now demonstrate strong and decisive leadership qualities in order to restore even a modicum of government credibility. His Address to the Nation was a start when he outlined a number of security processes underway to quell the unrest. However serious concerns remain about the performance and failure of security agencies to act timeously which could have pre-empted the widespread outbreak of “coordinated” rioting.
Despite statements by key ministers trying to present their departments in a positive light, Ramaphosa chairs a bare Cabinet with questionable authority over weak and ineffectual institutions. Preventing and quelling any potential future violence and unrest of this magnitude would require concerted action and communication by government to its citizens to restore any semblance of confidence. A question that remains is whether state intelligence agencies and the SAPS even have the capacity to implement pre-emptive strategies and appropriate law enforcement, respectively.
Our local news section below looks at some of this week’s key developments. We also include points on the impact of the resulting chaos on the economy. Irrespective as to whether government is able to get all protests and looting under control relatively quickly, there will be untold repercussions, with the damage done to business and investor confidence remaining long after the last fire has been put out.
During these most unfortunate times, we take assurance from our offshore investment bias which has been steadfastly maintained.
In global news, other protests are emerging as people become increasingly frustrated with a lack of basic necessities.
“The riots are a blow to Ramaphosa and investors alike and if they persist, they could weigh on the reform course, the economic outlook and also the President’s legitimacy.”
– Trieu Pham, a London-based emerging markets strategist at ING Bank
Global News
- While South Africa burns, we are also seeing protests in other parts of the world. The New York Times reported that the biggest protest movement in decades is sweeping Cuba, as thousands of citizens went out and protested power outages, food shortages and a worrying lack of medicine. The island faces a dire economic crisis, as the coronavirus pandemic has cut off crucial tourism dollars.
- This comes as other countries are seeing a solid recovery, with US consumer prices rising 5.4% in June from a year earlier, with resultant inflation at its highest annual rate in 13 years. The main driver of June inflation was booming demand that outpaced the ability of businesses to keep up. Another factor was the recovery in prices for air travel, hotels, rental cars, entertainment, and recreation — all services having been hard-hit by the Covid-19 pandemic.
- BlackRock CEO, Larry Fink, has said that the World Bank and International Monetary Fund are outdated and as such require a total overhaul. Trillions of dollars in investment need to be marshalled to bring sustainability to the developing world. Bloomberg reports he specifically “called for a ‘rethink’ of their role as financiers — instead of lending money themselves to promote development and economic stability, the World Bank and IMF would be more useful in the transition to clean energy as insurers that reduce risk for private investors.’
- The New York Times reported that applications for unemployment benefits in the US fell to 360,000 last week, from a seasonally adjusted 386,000 a week earlier, as the labour market continues to heal.
- In China, the unemployment rate has been steadily dropping from last year’s pandemic peak. However, a lack of jobs for graduates and a shortage of skilled manufacturing workers point to underlying problems in the labour market. The urban jobless rate fell to a two-year low of 5% in May, but unemployment for those between the ages of 16-24 was more than double that at 13.8%.
- Meanwhile, US Treasury Secretary Janet Yellen has warned that coronavirus variants could derail the global economic recovery. She has called for an urgent push to deploy vaccines more rapidly around the world.
- This comes as England aims to end all social restrictions even though it is confronted with a large new wave of Covid-19 infections. The prime minister, Boris Johnson, has confirmed that England will end all restrictions on its citizens, including the legal requirement to wear masks in enclosed public places, starting on July 19th.
Local News
- One of the key actions we expect Ramaphosa to take is a cabinet reshuffle. This is long overdue, and a number of poor performers need to join the queue of the unemployed. Ramaphosa can no longer be held hostage by internal ANC power plays and decisive action is required forthwith.
- We also expect to see clear objectives for the short, medium and long term to be set. They must of course prioritise security, but focus is also required on socio-economic development on the premise that reform in the right direction is what will enable economic growth. In summary, strong leadership and a well-articulated vision are essential to contribute to an improved national mood.
- Government at all levels must begin cooperating with citizens who are protecting their communities, while cleaning up the mess left in the wake of the riots. Citizens and civil society are now leading government instead of being passive recipients of sub-standard service, and government cooperation would be construed as a positive development.
- It is becoming clear now that the ANC and its factional battles are paralysing government. There is now a large and open window of opportunity for those in government leadership positions to insulate themselves from party politics and to do the things that urgently need to be done.
- BizNews reports that the disruptions couldn’t have come at a worse time for corporate South Africa which is still battling from a 7% reduction in GDP in 2020. “This week’s disruptions are expected to reduce GDP by 0.4% this year. Many businesses, small and large, will be without an income for a prolonged period of time during the rebuilding phase.”
- On the back of this week’s violence, the rand plunged, ceding its position as the year’s top emerging market performer. The currency has weekend by 1.8% against the dollar since last Friday and 7.4% since the strongest levels of June. Investors are concerned that the unrest — the sternest test yet to Ramaphosa’s authority — will derail South Africa’s efforts to rebuild the economy in the wake of the pandemic. Citigroup Inc. reduced its overweight South African government bond position in its model portfolio and recommended selling the rand.
- The SA Property Owners Association (SAPOA) estimates the damage to property at more than R20 billion. According to Moneyweb some 800 stores have been looted and/or severely damaged while 100 malls have been either burned down or have suffered significant fire damage.
- It has been reported that Sasria (the state-owned insurer) will soon face record damages claims which we believe will run into billions, if not trillions, of rand. Dynasty’s research would indicate that the organisation will have the ability to fund these claims, despite doubts expressed by Moneyweb reporter, Adriaan Kruger.
- There is no doubt that retailers have been hard hit by the protests, as Massmart, owner of Game and Makro, has had 30 of its stores and a mass distribution centre in KwaZulu-Natal destroyed as thousands of rioters wreaked havoc across the province. At the same time, Clicks, South Africa’s largest drug and health and beauty retailer, has said that 52 of its 760 stores have been damaged. Outlets across the country have been shuttered, including South African Petroleum Refineries, which closed its doors, leading to fuel shortages.
- Meanwhile, South Africans are facing dire food shortages in the wake of days of violent unrest across KwaZulu-Natal and Gauteng, as rioters upend supply chains by looting supermarkets and torching goods trucks. Rioters pilfered food, electronic goods and medical supplies from at least 800 stores, and retailers have lost an estimated R5 billion to date, according to the Consumer Goods Council of South Africa. Beer depots and liquor stores, already unable to operate due to a ban to contain the pandemic, have also been a target.
- In closing, as a most unfortunate consequence of the many businesses that were destroyed in the unrest, it is certain that unemployment will continue to rise.
Sources: Dynasty, FX Solutions, BusinessLIVE, Daily Maverick, Reuters, The Economist, Bloomberg, Wall Street Journal, New York Times, Daily Maverick, Al Jazeera, etc.
