In the news today, waka waka Jun 10

How are you enjoying HA’s daily economic commentaries? Let us know in the comments section if the urge arises.

HA commentary

Slowly but surely, the mainstream will come around to the strong Rand view.

Robust rand reaches fresh high ahead of World Cup

“It all depends on what happens in the global economy but everything indicates we may be looking at a renewed bout of rand strength,” said Razia Khan, regional research head for Africa at Standard Chartered Bank.

MARIAM ISA / Published: 2010/06/10 06:39:09 AM

THE robust rand has taken a bow on the eve of the Soccer World Cup, rallying to a near three-and- a-half-year peak against the euro and clawing back some of its recent losses against the dollar.

At one stage yesterday the volatile currency traded at R9,21 against the European currency, its strongest since January 2007 and taking its gains versus the euro in the year so far to about 14%.

The rand should benefit from the world’s biggest sports event, which kicks off tomorrow, and could show its mettle over the rest of this year as long as the global recovery stays on track — which appears very likely.

Despite giving way to the dollar in the first five months of this year, the unit has notched up gains of more than 3% against a basket of trade-weighted currencies, which is what really counts.

“It all depends on what happens in the global economy but everything indicates we may be looking at a renewed bout of rand strength,” said Razia Khan, regional research head for Africa at Standard Chartered Bank.

“Emerging markets are still expected to do better, and barring any shocks we should be in an environment that supports high- yield currencies like the rand.”

Ms Khan sees the rand reaching R7,20/ in the third quarter, then pulling back to R7,30/ by the final quarter. It was at R7,75/ late yesterday, well off a low of R8,04/ hit a few weeks ago.

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HA commentary

Things will become worse for farmers, before they turn much better over the coming few decades.

Grain SA’s plea to export surplus maize

HOPEWELL RADEBE Published: 2010/06/10 06:39:08 AM

THE South African grain industry is to apply to the Competition Commission for an exemption that will enable it to set up a pool to export 5-million tons of excess maize to the highest bidder.

Grain SA, the body representing most of SA’s maize, wheat and soya producers, has asked the commission for an opinion on co-operating on exports, but was informed that setting up a pool would be anticompetitive.

The farmers want an urgent solution, given the danger of their produce being wasted because they cannot dispose of all of it in the local market. At present they have 5-million tons of maize available for export after meeting a national demand for 9-million tons.

If granted an exemption, the farmers would be given a chance to obtain competitive international prices, which they say would help offset high input costs like fuel and fertiliser.

Grain SA chairman Neels Ferreira called for the intervention of the Department of Trade and Industry, saying the application process for exemption, which is run by the Competition Commission, often took up to two years to conclude.

“By then it would be too late for almost 30% of our commercial farmers, who urgently need the resources to stay in business, and could completely destroy the black emerging farmers who have loans to service.”

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HA commentary

This is full-on MOPE.  Some points to remember:

1) Germany never implemented fiscal stimulus as did the UK and US in 2008, yet the economy recovered first.

2) How is fiscal policy tight when you’re breaching rules of the Maastricht Treaty that stipulates you cannot exceed a budget deficit of 3% of GDP?

3) The best thing for Germany is to drop the EU entirely and return to the Deutsche mark so they don’t need to bailout the profligate PIIGS.

FINANCIAL TIMES: German austerity overdone

Published: 2010/06/10 08:10:31 AM

GERMANY is the only country where puritanism is populist. Other countries have had fiscal frugality forced upon them by bond markets, but the government of Angela Merkel has chosen to cut spending and raise taxes as a vote-winner. The deficit, expected to be about 5% this year, will be back under 3% by 2013.

These cuts have been marketed as the biggest austerity drive in German postwar history. They are not: the plan is for a modest further tightening in a country with relatively tight fiscal policy. Ms Merkel noted that “the last few months have shown … how important it is to have solid finances”. True. But Germany’s public finances are already strong.

The annual cost to the German government of borrowing for 10 years is now a mere 2,52%. (The US government yield, over the same period, stands at 3,18%.) Bunds are the ultimate safe asset: recent price movements show the German state is considered a safe bet even when the euro zone itself is doubted.

This programme will not break a European recovery, but it encourages the notion that deficits are morally wrong. This is dangerous. The German economy is now running strongly but, as other governments cut spending, that might not last. Germany may yet need to deploy fiscal stimuli to get the continental economy moving. The Merkel government’s rhetoric risks making it politically impossible to do that. London, June 9

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HA commentary

Of course they knew.

U.S. knew of Gulf oil spill risk

Posted on Wednesday, 06.09.10

BY SHASHANK BENGALI

WASHINGTON — A decade ago, U.S. government regulators warned that a major deepwater oil spill could start with a fire on a drilling rig, prove hard to stop and cause extensive damage to fish eggs and wetlands because there were few good ways to capture oil underwater.

The disaster scenario — contained in a May 2000 offshore drilling plan for the Shell oil company that McClatchy has obtained — is now a grim reality in the Gulf of Mexico. Less predictably, perhaps, the author of the document was the Interior Department’s Minerals Management Service, the regulatory agency that’s come under withering criticism in the wake of the BP spill for being too cozy with industries it was supposed to be regulating.

The 2000 warning, however, indicates that some federal regulators were well aware of the potential hazards of deepwater oil production in its early years, experts and former MMS officials told McClatchy.

Yet over the past decade, the risks faded into the background as America thirsted for new oil sources, the energy industry mastered new drilling technologies and the number of deepwater wells in the Gulf swelled into the thousands. Then-President George W. Bush ushered in the new era with an executive order on May 18, 2001, that pushed his new administration to speed up the search for oil.

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HA commentary

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronald Reagan

Here’s what Ronnie meant: First, regulate.

SARS confiscate fake soccer jerseys worth R10m

Jun 4, 2010 4:32 PM | By Sapa

The SA Revenue Services (Sars) confiscated another shipping of counterfeit soccer shirts, worth R10 million in Johannesburg.

Sars spokesman Sibabalwenathi Mfabe said just after 4pm on Friday the Sars team was still on location at five storage facilities in a building on the corner of Bree and Von Willigh streets, where the Fifa-related gear was held.

The Fifa-related goods included Bafana Bafana (South Africa), England, Brazil and Argentina soccer jerseys.

They were confiscated after the owner of the goods could not produce documentation verifying their legal importation.

Mfabe said this was the second major bust of soccer-related goods this week. On Tuesday, Sars officials confiscated R7m worth of suspected counterfeit soccer goods.

“Given the size of the bust, Sars suspects that it is one of the major supply hubs of counterfeit clothing to traders in the greater Gauteng area,” Mfabe said.

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HA commentary

And when it’s dead, subsidise it.

Tax breaks for FIFA gear

Jun 10 2010 11:58

Johannesburg – The SA Revenue Service (Sars) on Thursday announced it would be giving tax exemptions of R750 on the purchase of FIFA-related products.

“The exemption will only apply to 2010 FIFA World Cup-related goods, such as t-shirts, jerseys and similar clothing, and match tickets,” Sars said in a statement.

The once-off exemption would be applicable to individuals for the 2010/11 year.

The exemption would also benefit employers who had encouraged their employees to wear soccer gear.

“In most cases these t-shirts, jerseys and similar clothing are acquired by the employees themselves.

“However, some employers are providing World Cup t-shirts, jerseys and match tickets to their employees at no or little cost,” read the statement.

These items from employers were usually taxed as a “fringe benefit”.

However, the tax exemption would create a limited exception to this rule.

- Sapa

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HA commentary

Note the subtle caveats in the article. Interest rates are at historical lows, yet what happens when they move back to historical highs? If the cost of living is going up in region of 20-30% per year while CPI inflation is heading down toward 3%, how fast do you think the cost of living will be going up when CPI inflation hits 10% again in 2 years time? Not bullish for real estate.

Smaller houses in big demand

Jacques du Toit / 10 June 2010

Financial pressure pushing South Africans to purchase smaller houses.

Good news for homeowners of small houses who are looking to sell up and buy something larger, is that smaller houses (80m²-140m²) are the strongest growth category in the year-on-year figures.

The average nominal value of small houses continued on the upward growth trend rising 29.2% year on year in May after rising by a revised 24,4 year on year in April. This brought the average nominal price of homes in this category to about R843 700 in May.

Medium sized houses (141-220 m²) experienced a 7.2% year-on-year growth in April, and increased by 9% year-on-year in May, averaging R998 600 in the same month.

This is because while many households are still under financial pressure, mortgage interest rates are at their lowest level since the mid 1970s and banks’ lending criteria less stringent than a year ago. So as a result of these latter conditions, demand for housing has picked up but financial stress has forced people who want to buy property to look at more affordable – thus smaller – housing.

Rising electricity prices, water tariffs, property rates and taxes linked to owning a property also have to be considered. Investors could also be more inclined towards buying smaller-sized houses. What this means is that buying property is becoming more expensive, especially in the smaller sized category.

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HA commentary

This is what money printing and lowering interest rates does, not only by the SARB, but worldwide money printing and interest rate cuts are also driving our manufacturing mini-bubble. This manufacturing boom is going to come down even harder than it did two years ago. Are you going to be buying all these extra goods that are now more expensive than two years ago?

April manufacturing output rises

Reuters | 10 June 2010 14:39

Interest rates seen steady.

JOHANNESBURG (Reuters) – South Africa’s annual factory output rose more than expected in April, official data showed, backing the case for the central bank to leave interest rates unchanged in July.

Statistics South Africa said on Thursday manufacturing production rose 8.7 percent year-on-year in volume terms in April compared with a revised 6.6 percent expansion in March, beating expectations of a 7.1 percent rise.

Factory production was hit hard by lower global and local demand, helping to drag the economy to its first recession since 1992 last year. It only started rising on an annual basis in December after more than a year of contraction.

Stats S.A. said on a monthly basis, output fell by a seasonally-adjusted 1.0 percent but was up 0.8 percent in the three months to April compared with the previous three months.

The South African Reserve Bank has reduced interest rates by 550 basis points since December 2008 to stimulate the economy.

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HA commentary

How will the internal road network hold up when people avoid the ring roads?  

Another clue that tax monies not going where they supposed to in the first place, so more taxes are painfreely extorted from citizens, the productive class. 

Pay, pay and you can have decent roads

David Carte|09 June 2010 22:52

So look at public transport – or arrange a lift club.

JOHANNESBURG – Gauteng motorists will pay to use their fancy new motor ways – but there will be discounts, says Nazir Alli, CEO of the SA National Roads Agency Limited (Sanral).

Alli still refers to the only official price indication so far – 50c a kilometre announced three years ago. His colleague Alec van Niekerk, manager for tolling and traffic, added inflation to that number to come to an estimate of 65c a km in 2010.

Alli points out that discounts of 20%-80% are already in place for certain toll roads. Those who qualify are:

•Frequent users

•Off peak-time users

•And possibly vehicles with high occupancy

Consideration is still being given to special public transport lanes.

Says Alli: “There will be costs to motorway users but the benefits will outweigh them.

“Did you know that congestion on the Gauteng freeways cost R15m an hour. Just the waste of fuel costs R4 500 a year per person! Gauteng generates 38% of GDP. Improved efficiency in this province will have national benefits.”

Alli points out that the highways will be a good deal cheaper than the Gautrain, on which a ticket from Sandton to OR Tambo International costs R100.

The new transport arrangements are being used subtly to change commuting habits. The present dispensation, in which the vast majority of cars have only a driver, is insupportable from economic and environmental perspectives.

We are therefore being gently prodded by price to use taxis, the Bus Rapid Transport system and the Gautrain.

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