Global Investing

South African rand slides as labour unrest grows

The South African rand has lost most ground amongst emerging market currencies, according to Reuters data, falling almost 10 percent so far this year to hit 4-year lows against the dollar.

That is perhaps not so surprising given the country’s high level of dependence on the minerals and mining sectors, which have been disrupted by labour strikes along the same lines evident in the summer of 2012. Lonmin, the world’s third largest producer of metal, said it stopped its production of its Marikana mine near Rustenburg following strikes over wages.

 

Net commodity exports – Morgan Stanley and UNCTAD

With the metals and mining sectors accounting for 60 percent of South Africa’s exports, the strong relationship between these sectors and the rand is not surprising. A falling currency has a knock-on effect of facilitating inflation, especially as imports grew faster than exports for the first quarter of 2013. Meanwhile platinum prices have been in a gradual downwards trend since February.

The currency could be in for a deeper slide if mining companies’ wage negotiations are not made within the July 1 timeframe, while the central bank is not expected to act. According to Phoenix Kalen, CEEMEA Economist at RBS:

The central bank of South Africa trusts that the currency will eventually stabilise. I don’t think they will intervene in the currency via interest rates hikes, and furthermore, rand weakness is a consideration against cutting interest rates.

Certain danger: Extreme investing in Africa

The Arab Spring, for all its democratic and political virtues,  put a big economic dent in the side of participating North African countries, particularly when it came to attracting foreign investment in 2011.

According to a recent UNCTAD report:

Sub-Saharan Africa drew FDI not only to its natural resources, but also to its emerging consumer markets as the growth outlook remained positive. Political uncertainty in North Africa deterred investment in that region.

So far, so logical. Except that simply can’t be all there is to it.

Why? Because plenty of African countries marred by political uncertainty have succeeded in attracting inward FDI.

from MacroScope:

Yet more lagging from Italy and Greece

At this stage in the euro zone crisis, we probably don't need to be reminded how uncompetitive the peripheral economies are. (Arguably, of course, they would not be economically peripheral if they were more competitive, but that is for tautologists to debate).  The United Nations, in the form of UNCTAD, has just pinpointed another weakness, however -- huge underperformance  in foreign directed investing, or FDI.

The numbers it has just released only go as far as 2010, so the real crisis cauldron has yet to come.  But they show that Greece and Italy have been punching way below their weight.

Greece has attracted a relatively small amount of foreign direct investment compared to other countries in the European Union (EU). In 2010, Greece’s share in the EU’s GDP was 1.9 per cent. In the same year, however, the inward FDI stock of Greece amounted to €26.2 billion ($35.0 billion), or less than 0.5 percent of the combined FDI stock of EU countries. Similarly, Greece’s share in the total outward FDI stock of EU countries was 0.4 per cent.