South Africa’s Russian relations threaten economy – Nedbank CEO

Uncertainty about South Africa’s stance on Russia’s war in Ukraine may hamper trade and further dampen an economy already struggling with crippling power cuts, the head of one of the nation’s biggest banks said.

The US has questioned South Africa’s so-called non-aligned stance on the conflict after accusing the government of shipping arms to Russia.

That’s raised concerns among investors that South Africa’s preferential trade access to the US may be in jeopardy as Washington prepares to review the country’s participation in the African Growth and Opportunity Act, or AGOA.

“The questioning of our non-aligned status in respect to the Russia-Ukraine conflict is certainly not helpful, and we do hope that it is able to be resolved soon, in particular as the AGOA debate comes up,” Nedbank CEO Mike Brown said in an interview with Bloomberg TV’s Jennifer Zabasajja.

AGOA expires in 2025, and US officials have previously said the qualifying criteria for beneficiaries could be revised or the program replaced.

South Africa exports cars and agricultural produce to the US under the accord. Last year, it exported $2.7 billion of goods using AGOA and the so-called Generalized System of Preferences.

Several US lawmakers have urged President Joe Biden’s administration to axe South Africa’s access to the trade deal due to the lack of clarity about its so-called non-aligned position on Russia and because some legislators argue that Africa’s most industrialised nation is too developed to participate in the program.

Nedbank CEO Mike Brown

“The possibility of South Africa’s expulsion from or reduced benefits from the AGOA trade deal, and the threat of follow-on actions from the European Union, are likely to undermine business confidence, resulting in softer fixed investment activity,” Nedbank said in a first-half earnings statement released on Tuesday.

Nedbank projects that South Africa’s economy will expand 0.3% in 2023 as the country grapples with record power outages that have been identified as a binding constraint on economic growth and as high-interest rates and sticky inflation pile pressure on consumers’ disposable income.

A cumulative 475 basis-point increase in interest rates since 2021 has pushed debt-service costs to 8.4% of disposable income, up from a 16-year low of 6.7% in the final quarter of 2021.

“We absolutely need to connect probably somewhere around about 20 to 25 gigawatts of new renewable generation capacity to the grid and improve Eskom’s own energy availability factor such that by the time we get to, let’s say, 2025, we can reduce this debilitating load-shedding to levels nought and one, which all of us have learned to live with and it’s not materially detrimental to the economy,” Brown said.

Brown’s comments come after the bank posted 10% growth in headline earnings for the six months through June, and rising interest rates fueled an 18% jump in net interest income.

Nedbank gets an additional 1.8 billion rand for every 100 basis-points increase in interest rates over 12 months.

The bank proposed an interim dividend of R8.71 per share, the highest distribution on record, according to data compiled by Bloomberg.

Nedbank shares rose as much as 3.4%, its biggest intraday increase in four months, before paring its gain to 1.6% by 12:55 p.m. in Johannesburg.


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