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World ailment jolts the JSE
Contagion spreads rapidly in a global village. South Africa was not immune to the turmoil on bourses world-wide in the wake of the US subprime crisis in early August. Investors - local and international - showed their aversion to risk. By mid-month the Johannesburg Stock Exchange "was heading south", in the words of one broker. The Top40 index had fallen more than 14% since its peak on July 13. The all-share index has fallen from a high of over 30,000 to under 26,000. An early recovery is not expected.
Nevertheless, the Reserve Bank hiked interest rates by another 50 basis points on August 16, bringing the prime lending rate to 13,5%. The rate increase is designed to slow consumer spending on credit, and thus to put a brake on inflation. The authorities are determined to bring inflation back below their outside limit of 6%. Economists had mixed feelings about the wisdom of increasing lending rates while markets are falling.
Standard Bank economist Goolam Ballim called the move "a striking introduction to the need for prudent management of personal finance." A further boost to "prudent management" is the recently introduced National Credit Act, which has added rigour to the process of granting credit. Most immediately affected by the Reserve Bank"s action are homeowners with mortgages, a substantial portion of middle-income society. They are now paying 3% more than they did 14 months ago.
However, there is no suggestion that the national economy is in trouble. Far from it, South Africa"s revenue-collecting machine is expected to bring in several billions of rands more than predicted, offering the prospect of even higher Government spending on the under-privileged.
Political front
Turmoil in the ranks of the African National Congress continues as the battle for succession hots up. Though much of it is hidden, every now and then a public incident brings the differences to the surface. Early in August President Mbeki fired his deputy minister of health, Nozizwe Madlala-Routledge, widely seen as a leading campaigner for ARV treatment for AIDS. Amid public outcry over the dismissal, Cosatu general secretary Zwelinzima Vavi attacked Mbeki for "firing hard-working members while some Ministers were dying on duty." The ostensible issue was whether Mbeki was protecting his unpopular Minister of Health, Manto Tshabalala-Msimang, at the expense of an effective deputy. But the sub-text clearly related to the developing tensions between the Mbeki and the Jacob Zuma camps as each jostles to gain supremacy in the year-end party elections which will chose a new ANC president - and, in all probability, the next President of South Africa. Divisions are hardening by the day, but no observer is predicting that the alliance between the ANC, Cosatu and the Communist Party will split under the strain. All have too much to gain in terms of political power to make splitting a sensible tactic.
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