IMF Lifts South Africa Growth Forecast to 3.2%, Says Rand is `Overvalued'

South African Rand is considered as a "commodity currency"..although not as well know.
IMF Lifts South Africa Growth Forecast to 3.2%, Says Rand is `Overvalued'
http://www.bloomberg.com/news/2010-0...ervalued-.html

The International Monetary Fund raised its 2010 growth forecast for South Africa to 3.2 percent, and encouraged the government to consider tax breaks for companies hit by an “overvalued” rand.

The economy will probably expand 3.6 percent in 2011 and 3.9 percent in 2012, the Washington-based lender said in a country report on its website today. The lender had previously forecast 2.6 percent growth for this year.

Africa’s biggest economy has rebounded from its first recession in 17 years after interest rates were reduced to a 30- year low and global demand for exports increased. The rand’s 32 percent surge against the dollar since the beginning of 2009 is undermining that growth, increasing calls from exporters and labor unions for the government to step up action to curb the currency’s gains.

South African authorities and IMF staff “saw some merit in temporary targeted intervention to help the enterprises that are being most adversely affected by the strength of the rand,” the IMF said. These include increasing the investment tax allowance for small- and medium-sized companies and reducing the cost of hedging against the rand, it said.

The IMF compiled its report after senior staff met in May with Finance Minister Pravin Gordhan, Economic Development Minister Ebrahim Patel, National Planning Commission head Trevor Manuel and central bank Governor Gill Marcus.

‘Fair Assessment’

The IMF report was a “fair assessment” of economic conditions and the government will consider the recommendations, the National Treasury said in an e-mailed statement today.

The rand is overvalued by between 5 percent and 15 percent, the IMF said, adding that there was a “large degree of uncertainty around these estimates.”

Easing foreign exchange controls further to help weaken the rand should continue, though a tax on portfolio inflows may not be effective, the IMF said.

South Africa’s ruling African National Congress is scheduled this week to discuss a proposal to impose the inflow tax. National Treasury Director-General Lesetja Kganyago said on Sept. 7 that such a tax won’t work because South Africa relies on foreign investment in stocks and bonds to finance its current account deficit.

Treasury Response

“The Minister of Finance has on numerous occasions, including in the 2010 budget, called for a stable and competitive real exchange rate,” the Treasury said. “National Treasury has agreed to support the South African Reserve Bank to accumulate foreign exchange reserves.”

The government should stick to its plan to curb expenditure to help reduce the budget deficit, which the IMF estimated will probably reach 4.7 percent of gross domestic product in the year through March 2012, from 5.9 percent this year.

Rising public-sector wage demands may “jeopardize” the government’s fiscal targets, it said.

Gordhan is due to publish revised budget and growth data in his Medium Term Budget Policy Statement on Oct. 27. In February, he estimated the economy would expand 2.3 percent this year and the deficit will reach 6.2 percent of GDP.

Business News: Wal-Mart offers to buy Massmart for $4.25B
http://www.baxterbulletin.com/articl...rt+for++4.25B+

BENTONVILLE, Ark. (AP) -- Wal-Mart Stores Inc. is offering to buy South African retailer Massmart Holdings Ltd. for approximately $4.25 billion.

A deal would give the world's largest retailer an opening to expand in Africa, a fast-growing region.

"South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy," Executive Vice President Andy Bond said in a statement.

Wal-Mart said Monday that it would pay 148 rands ($21.11) per share for Massmart, which has 201.5 million shares outstanding according to Thomson Reuters. Further details of the proposed deal were not disclosed.

Massmart, based in Johannesburg, runs 290 stores in 13 countries in Africa, with most in South Africa. It also manages eight wholesale and retail chains under various brand names.

The push to expand its presence in an emerging market comes as Wal-Mart faces sluggish sales in the U.S. Wal-Mart is aiming to pump up domestic sales with an aggressive push into urban markets, planning a small format that's a fraction of the size of its supercenters.

That expansion is expected to be detailed in October at Wal-Mart's meeting with analysts at its headquarters in Bentonville, Ark.

Wal-Mart has more than 8,500 stores under 55 different names in 15 countries. It has more than 4,000 stores in the U.S. Its fiscal 2010 sales were $405 billion.

South Africa's Zuma Seen Again Urging European Union to Lift Zimbabwe Sanctions
http://www.voanews.com/zimbabwe/news...103870103.html

After talks between US and Zimbabwean officials in New York last week, a State Department official said the United States was not ready to lift sanctions as rights violations were continuing in the country

South African President Jacob Zuma is expected to again ask European Union officials to lift targeted sanctions on President Robert Mugabe and his inner circle in meetings scheduled for Tuesday in Brussels.
Sources said Mr. Zuma will tell European officials that the sanctions are hindering Zimbabwe's economic and social recovery. The exchange will also examine the general condition of the Harare unity government, sources said.
President Zuma, who is mediator in Zimbabwe on behalf of the Southern African Development Community, has previously urged the EU and other Western powers to lift the travel and financial restrictions.
Following bilateral talks between US and Zimbabwean officials in New York last week, a State Department official said the United States was not ready to lift sanctions as rights violations were continuing in the country.
The EU sent much the same message earlier this year in meetings with officials of Zimbabwe's so-called re-engagement committee established by the Harare Cabinet to expand dialogue with the West.
Zuma foreign policy adviser Lindiwe Zulu told VOA Studio 7 reporter Ntungamili Nkomo from Brussels that although the summit will focus mainly on trade and bilateral relations, Zimbabwe will feature prominently.
"What will arise is the overall progress in Zimbabwe, but obviously the issue of sanctions will also be discussed," she said.
Commenting, Programs Manager Pedzisai Ruhanya of the Crisis in Zimbabwe Coalition told reporter Jonga Kandemiiri that Mr. Zuma should see to it that ZANU-PF conforms to democratic values before lobbying Brussels and other Western capitals to remove sanctions.

African News Update – South Africa: Zuma Rules Out Nationalization of Mines
http://allafrica.com/stories/201009250018.html

South African president Jacob Zuma ruled out the nationalisation of the country's mining sector as he closed a tense congress of the ruling party in Durban.

The week-long ANC National General Council was marked by fiery speeches and calls by the the party's left for the state take-over of the the economy's largest export sector.

South Africa is among the world's largest producers of gold, platinum and chromium, having reaped thirty-two billion euros in 2008 alone from its mining industry.

Zuma told delegates that while the ANC would continue to draw its strength from the aspirations of the people, any attempts to violate the culture of discipline and cohesion within the party would be dealt with ruthlessly.

Nevertheless, Zuma assured the 3,000 delegates that the ANC regards South Africa's minerals and petroleum as strategic national assets over which the state would retain custodianship.

SA's deficit at six-year low
http://www.sagoodnews.co.za/trade_in...-year_low.html

http://www.sagoodnews.co.za/images/s...tty_inside.jpg
hanks to improved exports and tourist spending during the 2010 Fifa World Cup South Africa�s current account deficit has narrowed

South Africa’s current account deficit has narrowed to its lowest level in six years in the second quarter of 2010. This is thanks to improved exports and tourist spending during the 2010 Fifa World Cup.
The shortfall on South Africa’s current account, the broadest measure of trade in goods and services in the country, dropped to 2.5 percent of gross domestic product (GDP) in the second quarter from 4.6 percent in the first quarter. Analysts had expected the deficit to have eased to about 3 percent of GDP, the SA Reserve Bank said on Wednesday 22 September 2010.

The trade account’s improved performance was boosted by a substantial narrowing of the deficit on the services, income and current transfer account with the rest of the globe following high tourist spending during the World Cup.

According to the bank’s latest Quarterly Bulletin, second-quarter spending by foreign tourists was estimated to have amounted to R15-billion, of which roughly R3.5-billion could be associated with the sporting event.

At the same time, the volume of South Africa’s merchandise exports resumed its upward trend in the second quarter, advancing by about one percent after contracting by 3.3 percent in the first quarter. The rebound was mainly brought about by a notable increase in the demand for South African-produced mining products, the bank said.

There was also a steady recovery in private consumption spending in a number of the country’s main trading partner countries, which raised the demand for domestically manufactured motor vehicles and transport equipment.

South African fruit exports, mainly seasonal citrus fruit, had also picked up in the latter part of the second quarter, the bank reported.

S.Africa's rand hits 2-1/2 year high, stocks gain
http://af.reuters.com/article/invest...68Q0LH20100927

JOHANNESBURG (Reuters) - South Africa's rand hit a 2-1/2 year high and local stocks rose on Monday after U.S. firm Wal-Mart said it would bid $4 billion for local retailer Massmart, boosting confidence that local assets will benefit from more cross-border deals.

Wal-Mart is in talks to buy Massmart, in a deal that would give the U.S. retailer a big presence in fast-growing Africa and bolster its emerging markets strategy.

The JSE blue-chip Top-40 index gained 0.86 percent to 25,740.17 and the broader All-share index added 0.85 percent to 28,959.42.

"Massmart is in focus today and that has somehow helped sentiment," Mitchell Gannaway, a trader at Thebe Securities said. "We also played a bit catch-up (because the market was closed on Friday for a public holiday."

The rand hit 6.9776 in the session, a level last seen in January 2008. Traders said they were looking for closes below the 7.00 level to confirm the currency's trend towards 6.85, the next key technical level.

As of 1538 GMT, the rand was at 7.0052 to the dollar, 0.28 percent firmer than its New York close of 7.0250 on Friday.

"We managed to break through the 7.00 level, the question is whether we close below that, if we do close below 7 that might be the bulls," Nigel Rendell, senior emerging markets analyst at RBC Capital Markets said.

He said the rand was also supported by the fact that the South African Reserve Bank would not intend to intervene aggressively to weaken the rand.

Although it was still early days for inflows, analysts said the Massmart deal was a positive for the rand.

Massmart gained 10.6 percent to 149 rand, making it the biggest gainer among the Top-40, and slightly above the potential offer price of 148 rand per share.

"It could well be that the guys think Massmart shareholders will stick it out for a higher offer. A 10 percent premium is not exactly lip-smacking," said one trader, who declined to be named.

Among other equity movers on the exchange, Absa, South Africa's largest retail bank, rose 3.5 percent to 135.02 rand. Massmart rival Shoprite fell 0.7 percent, while another retailer, Woolworths Holdings, rose 1.3 percent.

Government bonds firmed slightly, pushing yields lower. The yield on the 2015 note was down half a basis point to 7.875 percent and that on the 2026 issue fell by the same margin to 7.875 percent.