Tax could rise; IMF cuts growth forecast; Rand pounds sterling; pressure on PP grows; SA investment opportunities

By Linda van Tilburg

  • Finance Minister Tito Mboweni has signalled that tax rates may have to climb to bailout Eskom. This means the boost given to the economy by last week’s rate cut by the Reserve Bank may be fleeting. Mboweni told Parliament that the extra R59bn for Eskom, will come at a significant cost to taxpayers. South African bonds fell for a third day. He said the country is facing a very serious financial situation,” he told MPs during his introduction of the Special Appropriation Bill.
  • South Africa’s economic growth prospects keep diving. The latest institution to slash its growth forecast is the International Monetary Fund. The IMF expects the economy to expand by 0.7% in 2019, half of what it estimated in January and similar to forecasts by the Reserve Bank. At the moment, the World Bank is the only outlier with an estimated growth of 1.1%. South Africa is stuck in its longest downward cycle since 1945. The biggest shrinkage since 2008 was in the first quarter when the economy shrank by 3.2%.
  • Despite the rather gloomy news from South Africa, the JSE closed 0.61% higher tracking world markets. News that the US and China may soon resume trade negotiations lifted sentiment. The Rand reached its best level against the pound in 11 months intra-day trade. By the close of the day R17.34 could buy you a pound. This is after Boris Johnson was elected as the United Kingdom’s new Prime Minister. Moody’s and Goldman Sachs have both warned that a risk of a no-deal Brexit has increased with Johnson at the helm. Goldmans raised the chances of a no-deal Brexit from15 to 20%.
  • But the Rand slipped against the dollar losing momentum after the IMF growth forecast and it ended the day lower at R13.90. The biggest gainer on the JSE yesterday was Transaction Capital, up by more than 3%, while Mondi shares rose by 2% after a half financial year statement where the paper and pulp company indicated that there would a significant increase in earnings. Sappi shares also gained 2.5%.
  • Odds are mounting that Public Protector, Busisiwe Mkhwebane could be fired as the damning constitutional court verdict against her that accused her of lying under oath, added ammunition to her critics. Mkhwebane faces a request for her to be struck off the advocates role by the Legal Practice Council. ‘Accountability Now’ has written to the council asking them to take note of the case. Mkhwebane will be under considerable pressure if President Cyril Ramaphosa and Public Enterprises Minister Pravin Gordhan can successfully challenge her rulings against them in court. The High Court in Pretoria has reserved judgement to set aside binding remedial orders and interdict her office from enforcing them. A verdict is expected next week.
  • Delegates at the Allan Gray Investment Summit have heard that South Africa still presents an attractive investment opportunity despite the tough economic environment. Experts say the problems should be seen as short-term challenges. Chief Economist at Stanlib, Kevin Lings said corporate and government bonds are alternative opportunities. Lings said there could be decent returns. He however warned that there should be policy certainty on land expropriation and the National Health Insurance.