Financial analysts said this week instability in Zimbabwe was fanning concerns, which are unjustified given South Africa’s accelerating growth, well-developed capital markets and credible economic policies. “People seem to assume that Africa is a vast homogenous region in which instability in one zone pre-supposes disasters everywhere,” leading analyst John Robertson said.
“But Africa is the second-biggest continent, with a wide range of divergence in economic and political systems – South Africa suffers almost uniquely from the sins of the continent.”
The recent woes of Zimbabwe, South Africa’s main trading partner, are seen as the key concern.
Despite being selected as the top performing emerging market for 2007 by several investment houses, the country’s bourse has slid by nearly seven percent since the start of the year, while its bond market has defied expectations of a rally.
There are also few signs that foreign direct investment, which amounted to US$1.3 billion in 2007 or a paltry 0.6 percent of the total flow to emerging countries, will pick up. Analysts say the main problem seems to be one of perception, rather than fact.
“The focus is still on investment flows and sentiment rather than strong fundamentals,” said Mike Moran, emerging markets economist at Standard Chartered. “There’s nothing that investors like more than stability, and … the events we’ve seen in Africa this year have not consolidated that view,” he added. Zimbabwe is embroiled in bloody post-election violence, with embattled Robert Mugabe seen stoking tension to try and woo voters in presidential election run-off due later this month.
South African Finance Minister Trevor Manuel highlighted the contagion issue in a speech to journalists last week, saying that the sooner stability was restored to Zimbabwe, the better for South Africa in particular and the region in general.
“The economic collapse of one of our largest trading partners in the region and the second-largest economy after South Africa in the region cannot be in our interests,” he said. “It’s difficult, given the proximity of an election, but we must try now to help Zimbabwe restore good management and good government.”
Part of the problem is that Zimbabwe – called Rhodesia before the white-run government surrendered power to the black majority 28 years ago – is seen as close to South Africa, both politically and economically.
Some investors fear that, in 10 years time, South Africa could be as turbulent and as cash-strapped as its neighbour. Most analysts think this is ludicrous.
“The progress of the disintegration of Zimbabwe since independence is seen by some as providing a forerunner of what will happen to South Africa – I dispute that completely,” Robertson added.
Analysts say a more legitimate concern is the fear of the South African government, voiced by Manuel last week, that any worsening of Zimbabwe’s problems could trigger a huge influence of economic refugees into its more stable neighbour despite the bloody xenophobic attacks on foreigners in Gauteng.
“I’m hoping the election happens and I hope whoever wins the election will take some unpopular decisions and get the show back on the road,” Manuel said.
Post published in: News