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South African economy declines by 3.2 per cent in the first quarter

SA’s GDP contracted by 3.2 percent in the first three months of the year compared with the previous quarter

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South Africa Business District

South Africa’s economy declined sharply in the first quarter of 2019, the National Statistics Authority said Tuesday, piling pressure on President Cyril Ramaphosa’s newly elected administration. According to Stats SA, gross domestic product (GDP) for Africa’s most developed economy contracted by 3.2 percent in the first three months of the year compared with the previous quarter, the largest quarterly drop in about 10 years.

The slump came in contrast to 1.4 percent growth seen in the fourth quarter of 2018 and was far below the average 1.6 percent decline predicted by analysts. The slip was driven mainly by declines in the agriculture, manufacturing and mining sectors which reported drops of 13 percent, 8.8 percent and 10.8 percent respectively.

Depressing economic activity further was electricity rationing, infamously known as load-shedding. Cash-strapped power monopoly Eskom, which generates 90 percent of the nation’s energy, sporadically imposed the rotational power rationing in February, plunging swathes of the country into darkness for long hours and sparking public anger at the ANC-led government.

The head of the North West University’s Business School, Professor Raymond Parsons, said rolling electricity power cuts had been grossly underestimated as the main culprits in the first quarter and had “probably shaved about 0.6 percent off expected growth for this year.”

The weak economy coupled with low wage increases was reflected by a 12.7 percent drop in the amount South Africans spent on clothing and footwear. Exports fell 26.4 percent in the quarter, while imports were down by 4.8 percent.

Ramaphosa, who held onto office in May when the ANC party won the national election, has vowed to revive the economy by attracting $100 billion in foreign investment and by fighting corruption. South Africa’s economy grew by less than one percent last year and even slipped into a brief recession during the third quarter.

Parsons warned that the poor first quarter performance signalled a “higher risk of the South African economy drifting into a technical recession in the first half of 2019.” Main opposition Democratic Alliance leader Mmusi Maimane said the contraction was proof the country “continues to move backwards and there is a need for reform”.

South African main opposition party Democratic Alliance (DA) leader Mmusi Maimane
South African main opposition party Democratic Alliance (DA) leader Mmusi Maimane (L) arrives at the Independent Electoral Commission (IEC) Results Operations Centre on May 9, 2019 in Pretoria, South Africa. – South African President’s ruling ANC will retain its parliamentary majority after polls but with diminished support, complicating efforts to revive the embattled party and the country’s flagging economy, results showed on May 9, 2019. The African National Congress (ANC), in power since 1994, surged into the lead with nearly 57 percent after more than half the voting districts were officially tallied following May 8 vote. (Photo by Phill Magakoe / AFP)

Peregrine Treasury Solutions’ corporate manager Bianca Botes said it was “the biggest decline in GDP since the 2008 financial crisis” and a sign of the “dire state of the South African economy.” After the data was released, the rand weakened by as much as 1.32 percent against the dollar to 14.64 rands per dollar.

Ramaphosa is to deliver his State of the Nation address later this month as South Africans and investors focus on soaring fuel prices and stubbornly high unemployment.

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Africa News & Updates

DR Congo’s government move to reform the economy as Cobalt prices dip

DR Congo is the world’s top producer of cobalt, a key component for rechargeable batteries needed for smartphones and electric cars

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The Democratic Republic of Congo’s new leadership is under mounting pressure to diversify the country’s economy from its dependence on raw materials following the plunge in the price of cobalt. Economic experts currently visiting the country have a sobering figure on which to base their work: over the past year, the price of cobalt on the London Metal Exchange has tumbled from $80,000 to $28,000.

DR Congo is the world’s top producer of cobalt, a key component for rechargeable batteries needed for smartphones and electric cars. But economic growth in Sub-Saharan Africa’s largest country is on the same roller coaster as the global cobalt price.

“GDP growth increased to 5.8 per cent from 3.7 per cent in 2017, driven by a sharp increase in cobalt prices,” the International Monetary Fund said earlier this month in a report of DR Congo’s economy. “GDP growth is projected to decelerate to 4.3 per cent in 2019 based on the assumption of a slowdown in mining activity in the context of lower cobalt prices,” it added.

In another sign of DR Congo’s heavy reliance on mining and metals exports, that deceleration comes amid growth more than doubling in the rest of the economy thanks to public investment and post-election optimism. Either way, DR Congo’s GDP is small when compared to the size of the country and its population.

At less than $40 billion for 81 million inhabitants in 2017, according to World Bank figures, that translates into less than $2 per day per person on average. The IMF mission “focused on policies that would lead to diversifying the economy and tackling high levels of poverty and unemployment in the context of a rapidly expanding population,” according to the report.

Diversification and transformation of the nation’s economy is also the theme of the sixth French Kinshasa week organised by the Franco-Congolese Chamber of Commerce and Industry. With 80 per cent of DR Congo’s export revenues generated by the mining sector, this “creates a vulnerability due to the volatility in the prices of its main raw material exports” noted the organisers.

Liberalisation amidst cobalt price dip

They said possibilities in numerous other sectors needed to be explored for growth opportunities: agriculture and food, textiles, tourism, communications, transportation services, forestry, energy, pharmaceuticals and recycling.

France is keen to promote an initiative recently unveiled by President Emmanuel Macron to provide 2.5 billion euros in financing to 100,000 African startups as well as small and medium-sized companies by 2022. But the best intentions in business development must confront the problems of doing business in a country still trying to fix its patchy tax revenue collection amidst corruption.

One economic analyst, who spoke on condition of anonymity said: “fifty per cent of the containers that enter the Matadi river port don’t pay customs duties”. The IMF urged the new president Felix Tshisekedi “to expedite the adoption of the proposed anti-corruption law” and the creation of an independent anti-corruption commission.

The IMF also expressed concern about low tax collection. Reforms in some areas are moving ahead, albeit slowly. The insurance sector has been liberalised with three operators licensed to take over from the former state monopoly Sonas. And mining multinationals will be meeting in Lubumbashi to discuss the plunge in cobalt prices and the impact last year’s reform of the mining code has had.

Mining expert Chantelle Kotze said the reform increased taxes and royalties paid on strategic minerals such as cobalt and coltan, an ore that is another crucial element for the production of electric car batteries.

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Africa News & Updates

Inside Kenya’s Sh 3.02 trillion 2019/ 20 budget

There is an estimated deficit of Sh 607.8 billion, an increase from Sh 562 billion this financial year

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Kenya's Cabinet Secretary for National Treasury Henry Rotich leaves with the budget briefcase for Parliament to read

Kenya’s 2019/20 budget will be the seventh under the country’s jubilee administration. Its National government plans to spend Sh 3.02 trillion, about 10 billion higher than the current (2018/19) budget.

There is an estimated deficit of Sh 607.8 billion, an increase from Sh 562 billion this financial year. The government is likely to borrow more in the next fiscal year to bridge the deficit as Kenya Revenue Authority (KRA) is expected to miss this year’s revenue collection target by Sh 118 billion.

Kenya's Cabinet Secretary for National Treasury Henry Rotich (C) poses with the budget briefcase before leaving for Parliament
Kenya’s Cabinet Secretary for National Treasury Henry Rotich (C) poses with the budget briefcase before leaving for Parliament to read the budget speech for 2018-2019 in Nairobi, Kenya, on June 14, 2018. (Photo by Yasuyoshi CHIBA / AFP)

Related: Kenya’s Safaricom, Equity bank seal digital banking partnership

Treasury Cabinet Secretary, Henry Rotich, has set a revenue target of Sh 2.2 trillion while KRA is expected to collect approximately Sh 1.9 trillion. Experts say the government might also heighten the tax regime to fill this budget deficit.

In the 2018/2019 financial year, the government was forced to introduce stringent tax measures to raise funds to support the budget.

This year, the government will likely raise Value Added Tax (VAT) from the current 16 per cent and Capital Gains Tax, which targets the wealthy. The betting industry will also be targeted.

Raising the VAT will contribute to a high cost of living as prices of basic goods such as food will go up. According to the Central Bank of Kenya (CBK), Kenya’s public debt stands at Sh 5.4 trillion.

In the financial year beginning July 1, 2019 Kenya will spend Sh 800 billion to repay maturing loans mostly owed to foreign lenders.

The budget as a share of Kenya’s Gross Domestic Product (GDP) is expected to decline to 28.1 per cent, from 32.4 per cent in 2018/19 financial year, a 4.2 per cent drop.

According to the Budget and Appropriation Committee, Sh 2.45 trillion will be allocated to the three arms of government, a slight increase from Sh 2.23 trillion in 2018/19 financial year.

Kenya budget: Kenya's National Treasury building is pictured in Nairobi
Kenya’s National Treasury building is pictured in Nairobi on June 14, 2018. (Photo by Yasuyoshi CHIBA / AFP)

Related: Kenyans protest bid to build East Africa’s first coal plant

The country’s judiciary remains the least funded of the three arms of government having been allocated Sh 18.88 billion. The Executive and Parliament have been allotted Sh 1.84 trillion and Sh 43.78 respectively.

In the past financial years, the Education sector has always received the lion’s share of the budget, likewise Sh 473.3 billion has been allocated to the sector; followed by Energy, Infrastructure and ICT which have been allocated a combined budget of Sh 406.7 billion.

Rotich’s budget today will crown the total Jubilee administrations ambitious spending to Sh 13 trillion over eight years against total tax collections of less than Sh 8 trillion over the same period.

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Tunisia to receive $247 million IMF loan tranche

The IMF approval will open the way for Tunisia to sell bonds worth up to $800 million this year.

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Tunisia to receive $247 million IMF loan tranche
(File photo)

The International Monetary Fund on Wednesday, approved the payment of a $247 million loan tranche to Tunisia, the sixth under its loan program with the North African country, according to Minister of Reforms, Taoufik Rajhi.

Tunisia struck a deal with the IMF in December 2016 for a loan program worth around $2.8 billion to overhaul its ailing economy. It included steps to cut chronic deficits and trim bloated public services.

Related: Court nullifies secret loans taken by Mozambique government

This will bring total disbursements to about $1.6 billion since 2016. 

The IMF approval will open the way for Tunisia to sell bonds worth up to $800 million this year.

Tunisia needs around $2.5 billion in external financing in 2019, officials said.

The country has been hailed as the Arab Spring’s only democratic success because protests toppled autocrat, Zine El Abidine Ben Ali in 2011 without triggering violent upheaval, as happened in Syria and Libya. 

Related: Kenya seeks $750 million World Bank loan for budget support

But since 2011, nine cabinets have failed to resolve Tunisia’s economic problems, which include high inflation and unemployment, and impatience is rising among lenders such as the IMF, which have kept the country afloat 

The IMF had wanted Tunisia to freeze public-sector wages – the bill for which doubled to about 16 billion dinars ($5.5 billion) in 2018 from 7.6 billion dinars in 2010. 

In order to cut the energy deficit demanded by the IMF, the government last March, raised fuel prices, the fifth hike in 12 months. 

The parliament also approved last April, a law to raise the retirement age for civil servants by two years and impose social security taxes on employees and employers, another key reform demanded by the country’s international lenders to stabilize its finances.

Related: IMF, Congo Republic provisionally agree on three-year loan deal

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