Zimbabwean government will not mortgage minerals: Chinamasa

News Update as @ 1530 hours, Wednesday 2 July 2014Feedback: [email protected]: [email protected]

By Rumbidzayi Zinyuke

Government will not consider using the country’s mineral resources as leverage to mobilise funds needed to revive the economy before conducting geological surveys of the resources available, an official said today.

Speaking at a lecture on ZimAsset’s projected contribution to national security and development at the National Defence College, minister of Finance and Economic Development Patrick Chinamasa said government had rejected proposals from investors who had suggested they mortgage the country’s minerals.

“While most investors seem to be looking at leveraging our mineral resources, we continue to encourage them to explore other innovative fund-

ing models that do not insist on gov-ernment sovereign guarantees.

“They want sovereign guarantees that give them a whole mountain or the whole great dyke and l have said no.

l cannot make any guarantees that basically mortgage a whole mountain with mineral of which l don’t know what reserves l have underneath,” he said.

He said Zimbabwe has not done any geological surveys to determine the

quantity of reserves in the ground because of lack of funds for the study.

“Until we have done surveys, we are not in any position to avail ourselves to leverage resources against our mineral wealth. My priority at the moment is to secure resources to do geological sur-veys. When we know what we have, it becomes easier to engage financiers on that level,” he added.

Minister Chinamasa said government would instead identify mining opera-tions that are bringing in revenue and use their cash flows as guarantee for any loans availed to the country.

He also said potential investors should consider working with the private sec-tor to resuscitate the productive sector and expand and the economic cake and hence the taxable base. •

Government will not mortgage minerals: Chinamasa

Minister Chinamasa

By Tawanda Musarurwa

Struggling companies that have been failing to meet requirements to access the Distresses Industries and Mar-ginalised Areas Fund (DIMAF) will be relieved following indications that Old Mutual has agreed to relax conditions.

The Old Mutual-managed fund (and disbursed through CABS) was designed to address the capital constraints faced by local businesses.

However, the majority of smaller firms have been failing to access the funds due to what they termed "stringent requirements" such as high collateral and published financial statements for the past five years among others.

Minister of Industry and Commerce Mike Bimha told the Parliamentary Portfolio Committee on Trade and Industry Wednesday morning: "We have engaged Old Mutual or CABS to consider relaxing some of the terms of DIMAF and they have agreed and that is a starting point."

Minister Bimha has also came out and acknowledged that Government failed to honour is obligation to contribute $20 million to the DIMAF facility.

"Government and Old Mutual were both supposed to commit $20 million each to DIMAF, but while Old Mutual contributed its $20 million, Govern-ment is still to honour its pledge.

As a matter fact Old Mutual has con-tributed in excess of its pledge having put in $27 million to date." Compa-nies, mainly in the manufacturing sec-tor, remain under pressure from tight liquidity with significant levels of com-pany closures coming against a back-drop of declining industrial capacity uti-lisation, which worsened to an average

of 39.6% in 2013 from 44.9% in 2012.

In terms of disbursements to date, Minister Bimha said the $27 million had all been drawn-down and "only 48 companies had benefited", with 26 of these companies in Bulawayo and the balance of them distributed among the other provinces.

Minister Bimha said efforts are cur-rently underway to enlarge the fund as the Government together with Old Mutual had approached a number of financial institutions both locally and in the region. •

2 NEWS

Old Mutual to relax DIMAF requirements

Minister Bimha

By Lynn Murahwa and Funny Hudzerema

The Common Market for Eastern and Southern Africa (Comesa) is close to implementing a business visa for the region.

Speaking at workshop to finalise pol-icies and challenges hindering cross border movement, Deputy Minister of Home Affairs Ziyambi Ziyambi said the implementation of the business visa will allow business transactions to be done more swiftly.

“As Comesa we have already initiated a system where we want a business visa that is uniform. If we have our business people moving freely within the region it will allow decision making in terms of business to be made quicker than what it is now and that will boost our econo-mies,” said Ziyambi.

The meeting‘s agenda was to promote trade, free movement of goods, elim-ination of visas and the alignment of business laws to all the 19 member states in the Comesa Region.

“This workshop is particularly relevant

as it comes at a time when Comesa Ministers responsible for Immigration have highlighted to member states, the need to embark on the process of doc-umenting existing migration data for use at the national and regional levels.

“Zimbabwe has already demonstrated its commitment to the Comesa immi-gration agenda by being one of the four signatories to the Protocol on Free Movement of Persons, Labour and Ser-vices,” he said.

The Deputy Minister also said as Comesa, they were working on the relaxation of visa to allow free move-ment of goods and services to promote cross border traders since they contrib-ute to economy growth. “Already Zim-babwe is complying with the Comesa protocol on the gradual relaxation of visa requirements on a bilateral basis,” said Ziyambi.

Also speaking Wednesday morning, Brian Chigawa, Comesa division of legal and institutional affairs director said they are focusing on promoting trade within the region by simplifying movement of goods and people.

“The Comesa integration agenda has focused on promoting trade and investment through the launching of the Comesa free trade area. Comesa has made progress in terms of moving goods but you realise that when goods have to move people too have to move and we still have challenges in the movement of people,” said Chigawa.

He said a great deal of regional trade is done by cross border traders who meet many difficulties that need to be addressed. “As a trade facilitation you also have to realise that a greater part of our trade in the region is done by cross border traders and mostly

women. Those people meet a lot of challenges so in moving our integra-tion agenda forward there is need to ensure that people are able to move in the region.”

In addition, Chigawa said the difficulty of movement across borders can be a hindrance to investor support.

“You can use migration for develop-ment purposes because you cannot have a call for investors when it is very difficult for people to come into the country or try to promote trade when people cannot move across the bor-ders,” he said. •

3 NEWS

Comesa 'business visa' nears implementation

BH24

BH24 Reporter

• IDC to hold all financing facilities including DIMAF

The Industrial Development Corpora-tion is set to relinquish its holding of several companies following its com-plete overhaul.

Minister of Industry and Commerce Mike Bimha told the Parliamentary Portfolio Committee on Trade and Industry that the "complete re-organ-isation" of the IDC, which began under the chairmanship of now Reserve Bank of Zimbabwe governor Dr John Man-gudya, had moved a gear up.

"As envisaged in ZimAsset for the need of a financial institution specifically for industry, we want the IDC to be along

the same lines as the IDC of South Africa where they are not like what they are doing of holding companies and running companies."We want the new IDC to manage the funding of industry so that all these facilities like the Distresses Industries and Margin-alised Areas Fund (DIMAF), Zimbabwe Economic and Trade Revival Facility (Zetref) and any other facilities that come on board will come under one institution whose primary role is to ensure the development of industry," said Minister Bimha.

Although Minister Bimha described the restructuring of the IDC as a "complete re-organisation", both the IDC and the IDC of South Africa Ltd are officially described as 'self-financing, national development finance institutions'. The IDC has of late been disposing a num-ber of its subsidiaries in line with its envisaged “new” structure.

The firms, which have been lined up for disposal include Zimbabwe Grain Bag, Almin Metal industries, Surface Investments, Sunway City, Stone Hold-ings, Modzone Enterprises, Zimbabwe Copper Industries, Zimglass, Allied Insurance and automotive companies Deven Engineering and Amtec. •

5 NEWS

IDC to be modeled along lines of IDC of South Africa

BH24

7 NEWS

Hwange – Four-year-old Makomo Resources in 2013 overtook Hwange Colliery Company Limited (HCCL) to become the biggest coal miner in the country, latest data from the Chamber of Mines shows.

Owned 60 percent by locals and 40 by foreigners, Makomo is among the 20 companies that were given special grants to mine coal in the Matabele-land North province in 2010.

The firm’s grant covers 7 000 hectares but the mine’s production manager Bernard Zvigumbu told New Ziana current operations were only cover-ing 500 hectares. Latest data from the Zimbabwe Chamber of Mines shows

that coal production shot up 179 per-cent to around 4.9 million tonnes in 2013. “Makomo Resources emerged in 2013 as the largest coal producer con-tributing 74.5 of total production,” the Chamber of Mines said.

Makomo Resources director Raymond Mutokonyi said the firm had invested over $200 million in operations since it commenced operations. “Further investments are anticipated," he said.

The dominance of Makomo Resources will likely be short-lived as the Cham-ber of Mines noted that there remained huge potential to increase production in the sector on the back of invest-ments made by HCCL last year.

Dogged by capacity constraints and working capital challenges Hwange’s production averaged 150 000 tonnes a month in 2013. Makomo on the other hand could produce up to 300 000 tonnes a month but was held back by low product demand. HCCL chairman Farai Mutamangira recently admitted that emergence of new players had hit hard on the triple-listed firm’s once dominant position.

“In the past twenty four (24) months, HCCL has come under increased com-petition from Makomo Resources, Coal Brick (W & K) and Chilota Colliery. This competition has eaten into the mar-ket share of HCCL,” he said recently. Makomo recently acquired a $14 mil-

lion coal washing plant from South Africa which is expected to boost production of premium coal products which would be exported to the region.

The plant is expected to be commis-sioned this month.

Makomo also acquired 12, 100 tonne trucks as well as six front end loaders.

Zimbabwe Power Company (ZPC) is the biggest client for Makomo, taking up over 97 percent of its production.

It also supplies the agriculture indus-try. Coal products that Makomo is cur-rently producing include thermal, peas, rounds, duff, nuts and cobbles. ― New Ziana •

Makomo overtakes Hwange in coal production

AdM-DI156506-

BH24

CDE. JOSHUA NKOMO

a moral man, an archiever, a role model,the hero who was all of these things and more

A moral man, who possessed an unbreached commitment to reality and never indulged impulses.

An archiever, who attained ends that were objectivelylife-promoting, fulfilling reality-conforming purposes and

making freedom possible for all.

A role model, a rational archiever, worthy of emulation.

“ Your legacy lives on; because legends never die”

BH24

The local bourse turned bullish today, moving up 0.11 percent on the back of gains in a couple of heavyweights as activity on the market remains sub-dued as 38 counters traded.

Following today's trades, the industrial index gained 0.20 points to close at 186.69 points.

The positive shift was driven by gains in Hippo, which led the risers as it gained 5 cents to trade at 80 cents, while giant telecoms Econet was up a cent to trade at 68 cents. Zimplow rebounded by 1.50 cents to close at 6.50 cents and construction firm Masimba was mar-ginally up by 0.01 cents to 1.72 cents.

Four industrial counters traded in the

negative territory. Conglomerate Inn-scor lost 2 cents to close at 75 cents while TSL eased a cent to 27 cents. Bankers CBZ and insurer Fidelity Life dropped 0.50 cents to trade at 13 cents and 8 cents respectively.

The mining index however maintained the bearish trend, losing an additional 1.91 points (or 3.29 percent) to close at 56.12 points after Bindura went down 0.30 cents to trade at 4.50 cents.

Hwange was unchanged at 4.80 cents, while Falgold and Riozim had firm bids at 2 cents and 21 cents respectively.

Foreign investor sentiment remains in the negative with foreign sales out-weighing foreign purchases. Market capitalisation currently stands at $4,8 million. — BH24 Reporter •

10 ZSE REVIEW

Equities ends losing streak with marginal gains

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BH24

There have been a lot of calls from all directions for the authorities to enhance the local manufacturing sector.

But how are the 'authorities' supposed to address the problems of the man-ufacturing sector without addressing problems in the sector that is its pillar?

Zimbabwe is an agricultural economy. It therefore means that all solutions should start with the agricultural sector.

One of the critical challenges that small-scale farmers have been fac-ing has been their inability to access funding from local financial institutions due to the lack of collateral. Typically, the majority of smallholder farmers in Zimbabwe have few substantial capital assets that they can use as collateral. These farmers cannot afford to pur-chase modern farming equipment and

without access to credit, they often have no choice but to continue farming using methods that are largely ineffi-cient and therefore reduce productivity.

These farmers seldom meet the rigid collateral requirements or pay back the loan within the typical short-term lending periods. It is therefore a com-mendable move by Government to allocate permanent A1 permits to 221 470 resettled farmers. Critically, these

permanent A1 permits can be used as collateral by the farmers to borrow from local banks, which will go a long way to resolve the issue of funding for small sector farming.

When farmers are able to access fund-ing they can then acquire the requisite new machinery. And - at a basic level - access to such modern agricultural machinery can help them to increase their productivity and improve both food security and incomes.

With the new permanent A1 permit that are being launched today, the levels of private sector financing to the agricultural sector should increase this year as small-scale farmers begin to actively engage potential financiers.

This will certainly drive agricultural

mechanisation in the long-run and that will enhance Zimbabwe’s agricultural productivity. At the macro-level, the broader economy benefits too.

Especially as there are strong backward and forward linkages between the local agricultural and manufacturing sectors.

Enhanced productivity will also drive the development of small and medium scale agro-processing industries has been minimal, which has been con-strained by economic environment in the past decade in which production capacity dwindled due to lack of capital to import raw materials and compo-nents/machinery. It is clear then that enhancement of the operating envi-ronment of the agricultural sector is a key step to reviving the economy as a whole. •

12 BH24 COMMENT

Resolve agriculture first

BH24

Barclays Plc's African investment bank said it’s hiring more staff as it expands across the continent and sees a pick-up in advisory work.

“Corporate banking is going nicely but slowly and investment banking is doing very nicely,” Stephen van Col-ler, chief executive officer of the unit, said in an interview in Johannesburg on June 27.

Investment banking was helped after markets stabilized in the second quarter, said Van Coller, who took over the unit in 2010 and manages more than 2,500 staff in South Africa and 10 other countries on the conti-nent.

Capital raising and mergers and acquisitions are picking up, said Van Coller, whose team is advis-

ing Steinhoff International Holdings Ltd on its secondary listing on the Frankfurt Stock Exchange. Barclays Africa Group Ltd’s investment bank is ranked second after Morgan Stanley in equity issuance this year and third for debt, according to data compiled by Bloomberg.

Van Coller said in May that Africa won’t be affected by Barclays’s plan to cut a quarter of employees at its

investment bank. Antony Jenkins, who took over as CEO from Bod Dia-mond in 2012, said Barclays will place more focus on the continent as one of the British bank’s less capital-inten-sive businesses.

“Chairman David Walker is very supportive,” said Van Coller. “Board members come and visit us -- that never used to happen.” ― Bloomb-erg •

South Africa's striking engineering and metal workers union Numsa said on Tuesday it was reverting to a demand for a 15 percent wage

increase, because employers had failed to respond in kind to its con-cession of a lower 12 percent. "Even after we had moved to 12 percent,

employers didn't make any or move-ment or better offer," National Union of Metalworkers of South Africa (NUMSA) spokesman Castro Ngobese

said. "Since the negotiations have collapsed we must revert back to our initial demand." ― Reuters •

14 REGIONAL NEWS

Barclays Investment Bank hires in Africa as mergers pick up

South Africa's Numsa union says reverting to 15 percent wage demand

enjoy the CAIO ride!

BH24

16 DIARY OF EVENTS

The black arrow indicate level of load shedding across the country.

POWER GENERATION STATSGen Station

1 July 2014

Energy

(Megawatts)

Hwange 518 MW

Kariba 750 MW

Harare 38 MW

Munyati 32 MW

Bulawayo 20 MW

Imports -50 MW

Total 1360 MW

16 July - Mobile Markets & Telecoms Forum Conference & Exhibition, Place: Holiday Inn (Harare), Time: 8:00am

23 -25 July - Mine Entra, Place: Zimbabwe International Exhibition Centre, Bulawayo

24 July - OK Zimbabwe Thirteenth Annual General Meeting Place: OKMart Functions Room, First Floor, OKMart, 30 Chiremba Road, Hillside, Time: 15:00 hours.

THE BH24 DIARY

BH24

18 ZSE

ZSEMOvERS CHANGE TODAY PRICE USC SHAKERS CHANGE TODAY PRICE USC

ZIMPLOW 30.00% 6.50 BNC -6.25% 4.50

HIPPO 6.67% 80.00 FIDELITY -5.88% 8.00

ECONET 1.49% 68.00 CBZ -3.70% 13.00

MASIMBA 0.58% 1.72 TSL -3.57% 27.00

INNSCOR -2.60% 75.00

IndicesINDEx PREvIOUS TODAY MOvE CHANGE

INDUSTRIAL 186.49 186.69 +0.20 POINTS +0.11%

MINING 58.03 56.12 -1.91 POINTS -3.29%

Stocks Exchange

BH24

20 AFRICA STOCkS

Botswana 8,664.65 -11.96 -0.14% 12July

Cote dIvoire 246.37 +2.18 +0.89% 07Mar

Egypt 7,949.60 -75.68 -0.94% 06Mar

Ghana 2,352.45 +6.43 +0.27% 27June

Kenya 4,885.09 +51.07 +1.06% 30June

Malawi 12,662.47 +0.00 +0.00% 07Mar

Mauritius 2,074.51 -3.51 -0.17% 07Mar

Morocco 9,544.10 +21.01 +0.22% 07Mar

Nigeria 42,482.49 +714.93 +1.71% 30June

Rwanda 131.27 +0.00 +0.00% 24Oct

Tanzania 2,018.97 +25.40 +1.27% 07Mar

Tunisia 4,624.39 -39.32 -0.84% 07Mar

Uganda 1,503.90 +0.81 +0.05% 10Sep

Zambia 4,242.74 +14.95 +0.35% 10April

Zimbabwe 186.56 -0.52 -0.28% 30June

African stock round up Commodity Prices

Name Price

Crude Oil 1,300.91 -0.21%

Spot Gold USD/oz 1,292.63 -0.26%

Spot Silver USD/oz 19.38 -0.46%

Spot Platinum USD/oz 1,421.25 -0.33%

Spot Palladium USD/oz 798.50 -0.64%

LME Copper USD/t 6,770 -0.18%

LME Aluminium USD/t 1,780 -1.17%

LME Nickel USD/t 18,230 -1.73%

LME Lead USD/t 2,095 -1.41%

Quote of the day —"SucceSS equalS goalS... all elSe iS commentary." - Brian tracy

Globalshareholder.com

BH24

Technology and telecoms firms could be the big winners in a connected car market that may be worth $50 billion over the next decade, luring investors away from traditional automakers.

Chip-makers or tech giants such as Infineon and Google are among a vari-ety of companies involved in the rapid development and testing of intelligent cars from those that drive themselves to those allowing a driver to use mobile phone apps through the dashboard.

A number of carmakers are embrac-ing the trend, with Nissan Motor Co, Volkswagen AG's Audi and Toyota Motor Corp working with outside tech firms to test self-driving car technology.

However, it is the tech and telecom firms - from U.S. bellwethers to small European companies - that are seen benefiting the most, fund managers and analysts said.

"It's a whole new market emerging," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion.

"The best way to play it for investors in the long term is to buy names such

as Microsoft or chip makers such as Infineon, not (automakers) Peugeot and Renault".

If the new market grows to $50 billion as forecast by French bank Exane BNP Paribas that would be roughly half the size of German carmaker BMW's rev-

enues last year. Internet giant Google Inc is leading the charge among tech companies, trying to break into the century-old industry as it works on its own prototypes of fully autonomous vehicles.

It may be a few years before driverless

cars hit the road but Google is already shaking things up in the sector, saying last week that the first cars running its Android Auto - a voice-enabled soft-ware allowing drivers to navigate maps and send messages while behind the wheel - will hit showrooms later this year.

Apple is also in the race, with its new CarPlay - which integrates iPhone func-tionality - allowing drivers to use appli-cations directly via the dashboard to view maps, make calls, listen to music and send and receive text messages.

Only about 10 percent of vehicles have built-in connectivity today, but the number is expected to rise to more than 90 percent by 2020, according to the British consulting firm Machina Research.

"This is not a distant dream, but a five-year race where there is money to be made, or lost," Exane BNP analyst Stuart Pearson said in a note to clients, predicting that the market for con-nected car services would grow by an estimated 30 percent a year through to 2020. ― Reuters •

22 INTERNATIONAL NEWS

Intelligent cars draw investors to tech stocks

An opportunity has arisen to enable HelpAge Zimbabwe to facilitate the implementation of the Rural WASH project, to improve water, sanitation and hygiene in Bubi District

1. Carry out an assessment of the WASH related health risks and needs within - General Bookkeeping- Cash book and petty cash management the targeted population and make recommendations for actions which are - Order and control office stationery consistent with agreed guidelines and protocols. - Liaise with project staff in procurement and maintenance of project stocks

2. In conjunction with the local authority and relevant government departments records make recommendations regarding HelpAge Zimbabwe response to unmet - Preparation of Donor Financial reports needs. - Bank reconciliations

3. Facilitate the implementation of SafPHHE in conjunction with the WASH - Filing all office documentsofficer and/or other stakeholders. - Financial and programmes reports, vouchers, program and office meetings

4. Involve affected populations in assessment of the situation and in planning minutes activities and the design of water and sanitation facilities. - Monitoring and securing adherence to organization and donor administrative

5. Identification and training of ward based SafPHHE facilitators and health club processes facilitators. - General Office Administration

6. Write regular reports adhering to HelpAge Zimbabwe and donor reporting

formats as required.

- Degree in Accounting or equivalency and/or accounting

- Computer knowledge 1. Degree in Environmental Science or other relevant qualification

- Knowledge in Pastel/accounting package 2. Knowledge of public health and one or more other relevant areas (e.g. health

- Skills to manage own work and meet deadlines promotion, community development, education, community water supply).

- Clean Class 4 driver's licence 3. The post holder should have at least two years` practical experience in

appropriate community health programmes. 4. Experience and understanding of community mobilisation in relation to water

Send CV and an application letter to [email protected] sanitation activities. Deadline for application 30th June, 2014.5. Sensitivity to the needs and priorities of disadvantaged populations.

6. Demonstrated experience of integrating gender and diversity issues into public health promotion.

7. Good oral and written reporting skills. 8. Good communication skills and ability to work well in a team. 9. Ability to work well under pressure and in response to changing needs. 10. Ability to travel at short notice and to work under difficult circumstances 11. Good written and spoken English and Ndebele are essential.

2. Vacancy: Administration Assistant

Station: Bubi District

Key Result Areas Job Description

Qualifications and Person Specification

SKILLS AND COMPETENCIES

To Apply

- 2 years` experience in office administration

1. Vacancy: Participatory Health and Hygiene Education Officer

TLM-DI

159207

-T26

Two vacancies have arisen in HelpAge Zimbabwe.

BH24

By Jeffrey Cavanaugh

Labour pains

This past week saw the conclusion of the debilitating labour dispute that shuttered production at the world’s largest platinum producer for five months.

The strike, which saw members of the Association of Mineworkers and Con-struction Union of South Africa down

tools for five months, affected output at the country’s platinum mines and cost mining firms Lonmin, Anglo American Platinum, and Impala Platinum a com-bined $2.25 billion after they refused an initial demand by workers for an immediate doubling of wages at their respective mines.

After five months of labour strife that saw only a moderate increase in prices, the mineworkers succeeded in winning a 20 percent increase in wages.

Prior to the strike many of South Afri-ca’s platinum shafts were already los-ing money and the hit to the sector’s bottom line from the production stop-page and now a large increase in its wage bill will likely not help them return to profitability anytime soon.

Indeed, word from several companies involved in the just finished strike is that restructuring—code for closing loss-making mines—will soon start.

What’s more, the damage inflicted on the economy by the platinum strikes follows that inflicted last year when construction workers and gold miners struck for higher wages—an action which cost industry $40 million a day.

The 2013 strikes also triggered some of the worst instances of violence seen in the country since the days of apartheid when South African police open fire on protesting workers.

24 ANALYSIS

South Africa’s vicious strikes cycle could hurt the rand

25 ANALYSIS

Unfortunately for South Africa, how-ever, the ending of the platinum strike does not look to be ending the country’s labour unrest as now another industrial action—this time by the country’s engi-neering and metalworkers—looked set to start

Last year a four-week strike by more than 30,000 members of the same union at major auto makers cost indus-try $2 billion. Now it looks like industrial action will be much more widespread and include a far greater portion of the powerful union’s 220,000 members.

Among the companies likely to be targeted, say media reports, are Bell Equipment and the Dorbyl industrial group, but the big fear is that labor unrest could spread once again to auto sector as it did in 2013.

Another big concern though with the latest strike is that it could also impact the country’s electricity util-ity—Eskom—since 10,000 workers of the NUMSA have been picketing and demanding higher wages from the state-owned firm in recent days.

While legally prevented from going on strike due to Eskom’s classification as a vital service, labor unrest could none-

theless impede operations and there is no guarantee that the state utility might not see wildcat strikes that are not officially sanctioned by the union.

If this occurs large parts of the country could potentially see power outages, further dampening the country’s eco-nomic prospects.

All this is further bad news for South Africa, which has been trapped in a low-growth trajectory since the global financial crisis slackened demand for industrial commodities in 2008.

Indeed, S&P recently downgraded South Africa’s foreign and rand-de-nominated debt ratings by one notch each, to BBB- and BBB+, respectively, putting the country just above S&P’s junk-bond status. Combined with the Fed’s tapering policy and the result, as one might expect has not been pretty for the South Africa’s currency.

Indeed, though the rand has recovered somewhat from a multi-year low of 11.30 to the dollar it hit in January, it is still near lows last seen in the depth of the financial crisis in 2008 when South Africa’s currency hit 11.78 to the dol-lar in late October of that year—just a month after Lehman Brothers col-

lapsed into bankruptcy and the world fell into an economic chasm from which it has yet to totally recover.

This latest industrial action could once again put pressure on the rand and could lead to the currency hitting that previous low once again or even the dreaded 12.00 to the dollar mark if the strike is prolonged and severe enough—especially if Eskom is hit by the action.

Unfortunately, those hoping for a quick result may be disappointed as the string of effective victories that labor has won so far has likely both whetted the appetite for further wage increases and given both South African workers and the unions that represent them the impression that industry will eventually cave in.

While this might be true of the mining sector—after all mineral deposits can-not be outsourced elsewhere—manu-facturing is another story. If another wave of strikes hits the country’s auto sector and other manufacturers the long-term damage to this sector of the South African economy could be sub-stantial as firms look to relocate else-where in Africa.

So, watch what happen in South Africa closely. If labor continues to press its advantage through widespread indus-trial actions the South African economy will continue to do extremely poorly and could even slip much further.

This will mean continued downward pressure on the rand, the possibility of further ratings cuts, and a limit to how much foreign firms will want to see invested into what is now Africa’s num-ber two economy.

In the end this could choke off growth and put immense pressure on the ANC-dominated government to do something, anything to mollify the country’s angry workers. If that comes to pass, then the lows we are seeing the rand trading at now could be just the beginning. - AFKInsider.

Jeffrey Cavanaugh holds a Ph.D. in political science with a specializa-tion in international relations from the University of Illinois at Urba-na-Champaign. Formerly an assis-tant professor of political science and public administration at Mis-sissippi State University, he writes on global affairs and international economics. •