We've been Zuma-ed - Times LIVE
Tue Apr 25 16:24:01 SAST 2017

We've been Zuma-ed

Shaun Smillie | 2016-01-29 00:35:19.0

The "Zuma effect" of December - coupled with a worsening drought, falling commodity prices and a slowing Chinese economy - forced Reserve Bank governor Lesetja Kganyago to show a bit of tough love yesterday.

Kganyago took aggressive action when he raised the repurchase rate by 50 basis points to 6.75%.

The move, he explained, was because of inflation worries caused by the weakening rand, which had depreciated by 15% against the dollar since the Bank's last monetary policy meeting in November.

The rand's fall, as at least three economists have pointed out, was partly as a result of President Jacob Zuma's decision to fire Finance Minister Nhlanhla Nene and replace him with the unknown Des van Rooyen.

"The currency bombed because of Zuma's effect on the currency. I would say that at least 25 of the 50- basis-points rise was because of him," said economist Dawie Roodt.

"You can't say that decision did not affect the rand," said Isaac Matshekgo, adding that, before then, the rand was faring well.

The currency hit a record low of 17.9169 to the dollar on January 11.

Mike Schussler, however, felt that Zuma's role in the interest rate hike was minuscule , saying it had more to do with low commodity prices and volatility in China.

Other economic woes include inflation risks caused by the worst drought in more than a century, which will affect food prices.

Policymakers limited rate increases last year to help support an economy that is expected to expand by only 0.7% this year, the slowest since the 2009 recession, according to the IMF.

Roodt said yesterday's hike was a move in the right direction.

"This guy is doing what he is supposed to do. You can see this by the positive response of the markets after the announcement."

The rand rallied by as much as 1.7% to 16.1529 to the dollar.

Enoch Godongwana, head of the ANC's economic transformation committee, agreed with Schussler, saying "[Zuma's decision] can't be the reason for the sustained depreciation of the rand".

Matshekgo said that the going would get even tougher before long. But if all went well and there was a good Budget speech, the rand could recover significantly later in the year and there could be an interest rate reversal. But until then consumers would be hurt.

The 50-basis-points increase means an extra R165 a month on a R500 000 bond.

The macroeconomic environment is cause for concern for the City of Johannesburg, which said it "continues to negatively impact on the payment by our customers whose disposable incomes are decreasing".

"In the 2014-2015 financial year, the city achieved a revenue collection rate of 92%," said member of the mayoral committee for finance Geoff Makhubo.

"We continue to intensify our credit control. However, some customers have demonstrated affordability challenges due to, in some instances, the high level of household debt."

A turbulent economy is hurting several sectors, including mining.

Mining companies, battered by the downturn in commodity prices, have told the Department of Mineral Resources of their intention to scale down operations, which could result in 32000 job cuts.

This comes as the industry reels from the shock of Kumba Iron Ore's restructuring of its flagship Sishen mine, which will affect 2633 permanent employees and 1300 contract workers.

Kumba reported a 12% drop in its fourth quarter output, dragged down by lower performance at Sishen. Additional reporting by Olebogeng Molatlhwa, Bloomberg and Sipho Masombuka


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