Bloomberg News - The President Who Caused a Recession

Jacob Zuma addresses the National Assembly in Cape Town, South Africa., on June 01, 2017.

 PHOTOGRAPHER: ESA ALEXANDER/THE TIMES/GALLO IMAGES EDITORIAL/GETTY IMAGES

By 

Amogelang Mbatha

Jacob Zuma’s erratic political moves are breeding policy uncertainty and reluctance to invest, helping explain why the economy of the continent’s most industrialized nation contracted for a second straight quarter in the three months through March. Finance, real estate and business services shrank for the first time since the second quarter of 2009.

Business confidence has yet to recover after falling to a more than three-decade low in September and the rand has been the world’s most volatile currency in the past year. All the while, Zuma was waging a battle with Finance Minister Pravin Gordhan over how to manage the economy—until he fired him.

Companies across industries say the political and economic instability is cutting sales, hurting profit forecasts and even inducing consumers to gamble less.

“There is no other factor to explain the recession,” said Iraj Abedian, chief executive officer at Pan-African Investments and Research Services in Johannesburg. “The only factor is the political shenanigans, policy uncertainty and the lack of leadership, which has hollowed out confidence both in the consumer and the investment community.”

Gordhan, who had been driving efforts to trim the budget deficit, improve state firms’ performance and ward off junk credit ratings, was canned in a March 31 cabinet shuffle, prompting two ratings downgrades to non-investment levels within a week and nationwide demonstrations.

Pioneer Food Group Ltd. said it ended talks about a potential transaction because of the downgrades. Since April last year, companies including Old Mutual Plc, the continent’s largest insurer and which has a 173-year history in South Africa, packaging maker Nampak Ltd. and retailers including clothing and home furnishings specialist The Foschini Group Ltd. and Dis-Chem Pharmacies Ltd., have warned that the political situation is clouding economic prospects.

“There’s been a massive loss of confidence,” Graham O’Connor, the CEO of Spar Group Ltd., a food and liquor retailer with more than 2,000 outlets in southern Africa, said by phone. “All of us are disappointed by the firing of Gordhan, and the cabinet reshuffle just breeds uncertainty and that’s not what we want.”

Zuma spokesman Bongani Ngqulunga said that while other countries too have been struggling for growth and recovery from the financial crisis, there's little room for fiscal and monetary policy to support growth. South Africa's focus is structural reform, he said.

“Reforms usually challenge the status quo and are necessary to change the structure of the economy,” he said in a text message. “There is very little doubt that once the reforms process is complete our economy will be set on a higher growth trajectory.”

Companies were less optimistic. The “volatile socio-political outlook” will create more difficult trading conditions, and, because many government departments and state-owned enterprises are in flux, “the finalizing and closing of contracts is challenging,” Bidvest Group Ltd., which employs 114,000 people across its automotive, services and freight businesses, said June 8.

Signs of improvement in the economy were “washed away” by March’s political events, Massmart Ltd., the retailer controlled by Wal-Mart Stores Inc., said March 25, noting the “unfavorable impact on sales” of discretionary products.

Nedbank Ltd., a lender controlled by Old Mutual, plans to reduce its full-year earnings forecasts, citing slower-than-expected revenue growth in the first quarter caused by the weak socio-political and macroeconomic environment, it said.

People are so discouraged they’re even cutting back on wagering, said Marcel von Aulock, CEO of Tsogo Sun Ltd., the continent’s biggest gaming and hotel company and owner of  the Montecasino and Gold Reef City entertainment complexes in Johannesburg.

“April was very tough,” Von Aulock said by phone, adding that the biggest impact was at casinos, where fewer people came to gamble. “We put a lot of that down to a change in sentiment in the South African economy—everyone in South Africa got miserable.”

Fewer of them had jobs, too: Unemployment rose to a 14-year high of 27.7 percent in the first quarter. South Africa’s growth slowed to 0.3 percent last year, the lowest rate since 2009, after low commodity prices, the effects of the 2015 drought and weak demand for locally made goods weighed on output.

The country is likely to miss its 1.3 percent growth target this year and may have to curb spending to stick to its budget framework, Finance Minister Malusi Gigaba said June 15. This despite growth in agriculture, which is improving as the country recovers from the 2015 drought. Commodities, the nation's biggest export, are seeing rising prices, but neither was enough to prevent the downturn. 

Zuma, who’s due to step down as leader of the ruling African National Congress in December and whose term as the nation’s president ends in 2019, has survived a series of corruption scandals and presided over the party’s worst electoral performance since the end of apartheid in 1994 in municipal elections in August.

In November, the graft ombudsman implicated Zuma in unethical conduct in a 355-page report about how the Gupta brothers, who are his friends and are in business with his sons, influenced his cabinet appointments and contracts at state companies such as power utility Eskom Holdings SOC Ltd.

Zuma, who has defeated numerous efforts to get him to step down, now is facing a no-confidence motion called by opposition parties in parliament. The United Democratic Movement has asked the Constitutional Court to order a secret ballot, which it hopes will enable lawmakers for Zuma’s ANC, who occupy 62 percent of the 400 seats in the National Assembly, to vote against the president without fear of losing their jobs.

“Zuma being replaced sooner rather than later will certainly help rebuild the confidence needed to turn the economy into a positive direction,” Ivor Sarakinsky, a senior lecturer at the University of the Witwatersrand’s School of Governance in Johannesburg, said by phone June 13. “Investors just aren’t going to bring in money in under this kind of uncertainty.”

—With assistance from Aarti Bhana, John Bowker and Simbarashe Gumbo.

BBC News - Business bodies come together in call for softer Brexit

Five major UK business bodies have come together to call for continued access to the European single market until a final Brexit deal is made with the EU.

In a letter to Business Secretary Greg Clark, they also ask the government to "put the economy first".

The letter is from the British Chambers of Commerce, Confederation of British Industry, EEF, Federation of Small Businesses and Institute of Directors.

Formal Brexit negotiations between the EU and the UK begin on Monday.

'Flexible'

The signatories say the "economic benefits" of the European Union single market, which allows free movement of goods, services, capital and people, and the customs union, which enables tariff-free trading within the EU, should be maintained until a final settlement between the UK and the EU is "agreed and implemented".

They have also called for a final trade deal that will allow tariff-free goods to be traded between the UK and the EU.

In addition, they want that deal to include "minimal customs formalities", mutual recognition of standards and regulation, and a "flexible system" for the movement of labour and skills.

"We have come together to urge the government to put the economy first as it prepares to start formal negotiations," says the letter to Mr Clark.

"This is a deal that when finally agreed will matter fundamentally for the UK economy, for UK companies and for citizens of the UK."

Monday's talks between Brexit Secretary David Davis and EU negotiator Michel Barnier follow preliminary negotiations in Brussels between officials.

Bloomberg News - Two Huge Diamonds Unearthed in Lesotho Mine

The two diamonds on show

 Source: Gem Diamonds Ltd.

Gem Diamonds Ltd. discovered two diamonds bigger than 100 carats at its Lesotho mine in southern Africa, bringing the struggling miner a step closer to ending a drought of large stones.

Gem unearthed a 104.73 carat D color Type IIa diamond and a 151.52 carat Type I yellow diamond at its Letseng mine, the company said in a statement Monday. Type IIa diamonds contain very little or no nitrogen atoms and are the most expensive stones.

Until now Gem had reported just one large discovery this year, after unearthing a 114-carat diamond in April. Letseng is renowned for the size and quality of its stones, with an average sales price of almost $2,000 a carat, the highest in the industry. Yet the company has suffered recently from a lack of big finds and discovered just five stones bigger than 100 carats last year, fewer than half as many as it found in 2015.

Gem gained 2.2 percent to 93.5 pence a share at 10:17 a.m. on Monday, paring this year’s decline to 15 percent.

Gem, which fell to a record low in April, has also been hurt by weakening prices for lower-quality stones produced at its Ghaghoo mine in Botswana. In February, the company said it was shutting the newly built operation because prices had fallen by one-third since 2015.

While the latest finds will offer some reassurance to investors, they’re not even close to the biggest found at Letseng. In 2015, Gem sold a 357-carat stone for $19.3 million and in 2006 found the 603-carat Lesotho Promise.

Last week, 27 percent of shareholders voted against the re-election of Chief Executive Officer Clifford Elphick.

by 

Thomas Biesheuvel

BBC News - UK election result 'may delay Brexit talks'

The UK general election result could delay Brexit talks and be negative for the economy, credit ratings agencies Moody's and S&P have warned.

The Brexit negotiations with the EU were due to start on 19 June but Moody's said the fact that the Conservatives had lost their majority would delay the start of the talks.

It will "complicate and probably delay Brexit negotiations", it warned.

Moody's said the election result could put pressure on the public finances.

The "inconclusive" outcome of the general election may mean the government placed less priority on cutting the budget deficit, the agency said.

This would be negative for the UK's credit rating and make it more expensive for the country to borrow money.

As a result, Moody's said it expected fiscal risks to increase because in its view the budget deficit will increase both this year and next.

"The election outcome, with significant gains for the Labour Party, which had campaigned for increased public spending, will likely be seen as a 'vote against austerity', it added.

"The public debt ratio will rise further and for longer than we had expected, placing the UK among the few highly rated European sovereigns whose public debt is still rising."

However, Moody's said the election result suggested an "electoral shift" away from the "hard Brexit" that Prime Minister Theresa May had ostensibly sought.

As a result, Moody's said the government may now consider "softer" Brexit options, which would be positive for the country's credit rating.

Earlier, Brexit Secretary David Davis told Sky News that negotiations on leaving the EU would begin next week. but not necessarily on 19 June.

"My permanent secretary is actually in Brussels today talking to them about the details," he said.

"It may not be on the Monday because we also have got the Queen's Speech that week and I will have to speak in that, and so on."

'Another snap election'

Meanwhile, S&P Global Ratings released a note saying the outcome of the snap election and the hung parliament should have no immediate impact on the UK's rating.

"Our ratings on the UK already take into account a less predictable policy framework following the vote to leave the EU in June 2016," it said.

It also said it believed the lack of an overall majority for any one part was likely to delay Brexit negotiations. "We do not exclude the possibility of another snap election."

Separately, S&P economist Jean-Michel Six said: "In terms of the [UK's] outlook for growth, it's clear that things are not going in the right direction."

"This latest bit of instability can only weaken the business environment and consumer confidence," he said.

S&P said the UK's outlook remained negative.

Moody's rates the UK as Aa1 negative - one notch above the other two big agencies, S&P and Fitch.

Reuters News - U.S. lawmakers to probe Tillerson on Russia, diplomacy budget cuts

U.S. Secretary of State Rex Tillerson stands at a press conference at the Australia-United States Ministerial Consultations (AUSMIN) at Government House in Sydney, Australia, June 5, 2017. REUTERS/Jason Reed

U.S. lawmakers will grill Secretary of State Rex Tillerson about President Donald Trump's unpopular budget, conflicting messages about foreign affairs and links between the administration and Russia, including his own ties, at congressional hearings starting on Tuesday.

The four hearings this week are a rare chance for members of the Senate and House of Representatives to question Tillerson, who has not testified publicly on Capitol Hill since his acrimonious confirmation hearing in January.

That hearing was dominated by Russia, as both Republicans and Democrats worried that the former Exxon Mobil executive, who had deep ties with Moscow, would be too soft on a country often at odds with the United States.

Forty-three members of the Democratic caucus voted against Tillerson's confirmation. It was the biggest "no" vote for a State nominee in decades.

Several senators planned to question Tillerson even more closely about his view of relations with Moscow. The Senate could vote on new sanctions on Russia as soon as this week.

"I haven't heard much from Mr. Tillerson, and what I've heard from him hasn't satisfied my concerns," Senator Ben Cardin, the top Democrat on the Senate Foreign Relations Committee, told reporters.

Tillerson testifies before Foreign Relations and a Senate Appropriations subcommittee on Tuesday, then before House Foreign Affairs and appropriations panels on Wednesday.

Lawmakers want to know where the administration stands after Trump seemed to side with Saudi Arabia and its allies in a dispute with Qatar, contradicting Tillerson, who sought to ease differences between the U.S. partners.

"The entire world has no idea where we stand with respect to the dispute between the GCC (Gulf Cooperation Council) and Qatar," said Democratic Senator Chris Murphy, a foreign relations committee member.

Lawmakers also promised close questioning about Trump's budget proposal, which features sharp cuts in spending on diplomacy and foreign aid, and big increases in military spending, a proposal several members of Congress dismissed as "dead on arrival."

Senator Lindsey Graham, the Republican chairman of the subcommittee that oversees the State Department budget, said he would argue against that proposal when Tillerson testifies to his panel on Tuesday afternoon.

"I'm going to make an argument that soft power is very important in winning the war against terrorism, it's important for our national security. When you look at the hard/soft power mix of this budget, it's way off kilter," Graham told reporters.

Separately, 16 retired four-star generals and other ex-military officers said they would submit joint testimony to the Senate on Wednesday about the importance of foreign aid to national security.

(Additional reporting by Amanda Becker; editing by Yara Bayoumy and Mary Milliken)

BBC News - Manufacturers call for Brexit strategy rethink

The government should rethink its Brexit strategy, following last week's election, according to the engineering industry organisation, the EEF.

It said without a more pro-business stance, the resulting political instability may force more firms to alter their plans "away from the UK".

The EEF is the latest business organisation to call for a rethink of the government's Brexit plans.

It wants access to the single market to be at the heart of Brexit negotiations.

The EEF said even before the election firms were already altering or thinking about changing their business plans because of the Brexit vote.

Terry Scuoler, EEF chief executive, said the government had already "wasted a year" and needed to "move away from its previous rhetoric and start repairing relations with EU partners".

For the EEF that meant putting access to the single market and staying in a customs union at the centre of the government's negotiations and involving business groups in the talks over trade.

It is also calling for a "suitable" transition period to be "firmly back on the table" as part of the Brexit talks.

On Monday Carolyn Fairbairn, director-general of the CBI, called for the government to "reset" Brexit negotiations, which are due to start next week.

Meanwhile, the uncertainty caused by the general election has led business confidence to sink "through the floor", according to the Institute of Directors.

A snap poll of 700 members of the lobby group found a "dramatic drop" in confidence following the hung parliament.

The main priority for the new government should be striking a new trade deal with the European Union, according to the IoD.

Business groups such as the CBI and EEF believe the election result has weakened the hand of those wanting a "hard Brexit", which would involve leaving not just the EU but also the single market, customs union and escaping the jurisdiction of the European Court of Justice.

They favour a deal that would give British business much the same access to the rest of the EU as they enjoy now and seem to be freshly emboldened to press their case.

By Jonty BloomBusiness correspondent, BBC News

Reuters News - May to try to form government after UK election debacle, uncertainty over Brexit talks

By Costas Pitas and Kylie MacLellan | LONDON

British Prime Minister Theresa May will ask Queen Elizabeth for permission to form a government on Friday after an election debacle that saw her Conservative Party lose its parliamentary majority days before talks on Britain's EU departure are due to begin.

Confident of securing a sweeping victory, May had called the snap election to strengthen her hand in the European Union divorce talks. But in one of the most sensational nights in British electoral history, a resurgent Labour Party denied her an outright win, throwing the country into political turmoil as no clear winner emerged.

May's Labour rival Jeremy Corbyn, once written off by his opponents as a no-hoper, said May should step down and he wanted to form a minority government.

But May, facing scorn for running a lackluster campaign, was determined to hang on. A spokesman for her office said she would go to Buckingham Palace to ask Queen Elizabeth for permission to form a government - a formality under the British system.

Sky News reported that Northern Ireland's Democratic Unionist Party (DUP) would back her, allowing the Conservatives to reach the 326 seats needed for a parliamentary majority. The DUP declined to comment.

With 649 of 650 seats declared, the Conservatives had won 318 seats and Labour 261.

The DUP, which took 10 seats, was considering an arrangement which would involve it supporting a Conservative minority government on key votes in parliament but not forming a formal coalition, Sky said.

"If ... the Conservative Party has won the most seats and probably the most votes then it will be incumbent on us to ensure that we have that period of stability and that is exactly what we will do," a grim-faced May said after winning her own parliamentary seat of Maidenhead, near London.

But with complex talks on Britain's divorce from the EU due to start in 10 days, it was unclear what their direction would now be and if the so-called "Hard Brexit" taking Britain out of a single market could still be pursued.

After winning his own seat in north London, Corbyn said May's attempt to win a bigger mandate had backfired.

"The mandate she's got is lost Conservative seats, lost votes, lost support and lost confidence," he said.

"I would have thought that's enough to go, actually, and make way for a government that will be truly representative of all of the people of this country."

Asked whether Brexit negotiations should be delayed, Corbyn told Sky News: "They're going to have to go ahead because Article 50 has been invoked."

"Our position is very clear, we want a jobs-first Brexit, therefore the most important thing is the trade deal with Europe," he said.

Corbyn said Labour was ready to lead a minority government. Chief among its potential allies would be the Scottish National Party (SNP), which suffered major setbacks but still won a majority of Scottish seats.

BREXIT RISKS

From the EU's perspective, the upset meant a possible delay in the start of Brexit talks and an increased risk that negotiations would fail.

"We need a government that can act," EU Budget Commissioner Guenther Oettinger told German broadcaster Deutschlandfunk. "With a weak negotiating partner, there's a danger that the negotiations will turn out badly for both sides."

The EU's chief negotiator said the bloc's stance on Brexit and the timetable for the talks were clear, but the divorce negotiations should only start when Britain is ready.

"Let's put our minds together on striking a deal," Michel Barnier said.

Sterling tumbled as much as 2.5 percent on the result while the FTSE share index opened higher. The pound hit an eight-week low against the dollar and its lowest levels in seven months versus the euro.

Britain's Prime Minister Theresa May waits for the result of the vote in her constituency at the count centre for the general election in Maidenhead, June 9, 2017. REUTERS/Toby Melville

"A working government is needed as soon as possible to avoid a further drop in the pound." said ING currency strategist Viraj Patel in London.

Craig Erlam, an analyst with brokerage Oanda in London, said a hung parliament was the worst outcome from a markets perspective.

"It creates another layer of uncertainty ahead of the Brexit negotiations and chips away at what is already a short timeline to secure a deal for Britain," he said.

"DREADFUL CAMPAIGN"

Conservative member of parliament Anna Soubry was the first in the party to disavow May in public, calling on the prime minister to "consider her position".

"I'm afraid we ran a pretty dreadful campaign," Soubry said.

May had unexpectedly called the snap election seven weeks ago, even though no vote was due until 2020. At that point, polls predicted she would massively increase the slim majority she had inherited from predecessor David Cameron.

May had spent the campaign denouncing Corbyn as the weak leader of a spendthrift party that would crash Britain's economy and flounder in Brexit talks, while she would provide "strong and stable leadership" to clinch a good deal for Britain.

But her campaign unraveled after a policy u-turn on care for the elderly, while Corbyn's old-school socialist platform and more impassioned campaigning style won wider support than anyone had foreseen.

In the late stages of the campaign, Britain was hit by two Islamist militant attacks that killed 30 people in Manchester and London, temporarily shifting the focus onto security issues.

That did not help May, who in her previous role as interior minister for six years had overseen cuts in the number of police officers. She sought to deflect pressure onto Corbyn, arguing he had a weak record on security matters.

With the smaller parties more closely aligned with Labour than with the Conservatives, the prospect of Corbyn becoming prime minister no longer seems fanciful.

That would make the course of Brexit even harder to predict. During his three decades on Labour's leftist fringe, Corbyn consistently opposed European integration and denounced the EU as a corporate, capitalist body.

As party leader, Corbyn unenthusiastically campaigned for Britain to remain in the bloc, but has said Labour would deliver Brexit if in power, albeit with very different priorities from those stated by May.

"What tonight is about is the rejection of Theresa May's version of extreme Brexit," said Keir Starmer, Labour's policy chief on Brexit, saying his party wanted to retain the benefits of the European single market and customs union.

Analysis suggested Labour had benefited from a strong turnout among young voters.

The campaign had played out differently in Scotland, the main faultline being the SNP's drive for a second referendum on independence from Britain, having lost a plebiscite in 2014.

SNP leader and First Minister Nicola Sturgeon said it had been a disappointing night for her party, which lost seats to the Conservatives, Labour and the Liberal Democrats.

Scottish Conservative leader Ruth Davidson said Sturgeon should take the prospect of a new independence referendum off the table.

(Additional reporting by Guy Faulconbridge, Alistair Smout, David Milliken, Paul Sandle, William Schomberg, Andy Bruce, William James, Michael Urquhart and Paddy Graham in London, Padraic Halpin in Dublin, Writing by Estelle Shirbon, Editing by Angus MacSwan and Janet Lawrence)