Country Report South Africa May 2009

Outlook for 2009-10

• Jacob Zuma will be officially inaugurated as South Africa's new president on May 9th, ushering in a further five years of ANC rule.
• The new president will need to balance the demands of his left-wing allies with those of the ANC centre, while also meeting the expectations of the electorate, in the midst of a sharp economic downturn.
• Given quickly declining business and consumer confidence, the government's fiscal stimulus package will have a limited effect and the economy is forecast to contract by 1.8% in 2009, before recovering to 3.1% in 2010.
• The rand will remain volatile and the Economist Intelligence Unit expects the currency to depreciate to R10.2:US$1 in 2009 and R11.5:US$1 in 2010.
• Inflation is forecast to subside to 6.6% in 2009 and 5.7% in 2010, helped by the introduction of a new, re-weighted price index and weaker commodity prices.
• After a slight increase in 2008 to 7.6% of GDP, the current-account deficit is forecast to narrow to 5.6% of GDP in 2009 and to 5.4% of GDP in 2010.

Monthly review

• The ANC won another landslide victory in the general election in April, capturing 65.9% of the total cast. However, the party slid below the two-thirds threshold following a strong performance by the opposition parties.
• The ANC has reiterated that there will be no significant shifts in fiscal and monetary policy. Tito Mboweni will remain as the central bank governor.
• The authorities cut the benchmark interest rate by 100 basis points to 8.5% on April 30th in response to an ongoing slowdown in the economy.
• The budget deficit amounted to 1.2% of GDP in 2008/09, slightly higher than the government expected, because of a slowdown in revenue.
• A new company law that comes into force in April 2010 will boost the rights of minority shareholders and provide an alternative escape route for struggling firms.
• The sector regulator has approved very generous feed-in tariffs for renewable energy, which will encourage investment in the sector.
• Key sectors continue to struggle. Manufacturing fell by 15% year on year in February, mining by 12.8% and retail by 4.5%.
• The trade deficit shrank year on year to R19bn in the first quarter, as imports declined more quickly than exports, but the gap widened quarter on quarter.
• The collapse of Frame Textiles, the largest producer in Southern Africa, and the loss of 1,400 jobs, highlights the crisis in the sectors.

This report covers the following industry codes:
SIC Code: 37;39;22
NAICS Code: 336;31;313