Nomura International’s emerging markets economist Peter Attard Montalto has commented on two important events of the day.
h3. BMW South Africa
The first of these, said Montalto, is BMW’s cancellation of a planned large-scale investment to boost output in the country. “We hear of these things all the time from companies but they normally are not in the public eye and in the media, because they are decisions made in quiet backrooms by management and not trumpeted. “However, BMW has clearly had enough of the labour situation and the risk/reward of further investment simply doesn’t make sense for them,” said Montalto. BMW is only of many companies thinking along the same lines, said Montalto. He points out that “in the car sector, electricity supply quality and the stalling by government of allowing major co-generation by manufacturers is a big issue”. Montalto said: “Remember the key issue of the last trade print was that it was too early for this car strike and other strikes to fully appear. It’s the next trade number that is going to be the bumper, scary one.
“Overall we must not forget that strikes are ongoing in a whole host of different sectors around the economy. It appears in nominal level data but not growth data because this is a yearly phenomenon to some extent on a macro level, though the car sector is certainly much worse than last year. Said Montalto: “The key areas to watch are this car sector strike given even the upside of investment being effected now, Eskom-related construction given delays in powerstations coming onstream, the platinum wage round which hasn’t even started yet (we are seeing restructuring strikes ‘only’ at this stage), and gold to see if Amcu tries and obtains a larger increase than NUM.”
The second issue Montalto commented on was Woolworths’ “remarkably bold statement” in its annual report that a new economic model is needed in the country. Montalto identifies a couple of significant points. Firstly, the “root cause is the model the ANC employs of state-led developmental state intervention in the economy, to think the state can solve all the problems”. This is most obvious in utilities but also applies to industrial policy and regulation at a lower micro level, said Montalto. The second issue is simply the fact that a statement was made at all, bearing in mind the corporate world is “normally so unbelievably quiet despite the regulatory burden it sits under, the labour issues it has to endure, the policy uncertainty, etc. They simply lap it up.”
This will be sure to liven up debate in election season, said Montalto. “If we are wildly optimistic, we might even hope that it could change policy for the better, but we wouldn’t hold our breath.”