15 Jul South Africa’s economic COVID recovery knocked by serious civil unrest
The South African rand has hit a three-month low and stocks of property firms and retailers dropped as much as 7% in a single day, following the nation’s worst civil unrest in years which has resulted in more than 70 deaths.
Rioting initially linked to the imprisonment of ex-president Jacob Zuma effectively wiped out a market rally in South African stocks and sovereign bonds that was underpinned by an export boom earlier this year, particularly in platinum group metals.
Despite being the best performing emerging market currency in late April and hitting a more than two-year peak in early June, the rand ceded all its year-to-date gains this week following the protests against Zuma’s jailing, which quickly mutated into wider anger around unemployment and inequality levels across South Africa.
“This is an economy that has been bouncing back faster than many expected from six months ago, but for the average person unemployment remains one of the highest in the world and recovery has been concentrated on exports, so doesn’t necessarily lift all boats,” said UBS’s head of emerging market strategy Manik Narain.
Africa’s most industrialised economy was on track to grow more than 4% in 2021 after recovering from a recession that started before it recorded its first COVID-19 incidence last March.
“There is never a good moment for riots, but now the timing is particularly unfortunate,” said Viktor Szabo, portfolio manager at fund manager abrdn. “It will dampen economic activity through temporary business and infrastructure closures, just as the economy was recovering from the COVID shock.”