News-Archive (Page 1)
In a first step to set up a development bank as counterweight to the US/EU-led World Bank and the IMF, the Finance Ministers of the BRICS member countries have met up this weekend on sidelines of the annual Spring Meeting of the World Bank and the IMF to discuss this important step.
In their consultations South Africa and other members of BRICS grouping have agreed on Sunday 22 April 2012 to establish a task force to come up with recommendations to set up a developmental bank, a move that has received "good vibrations" from the World Bank and IMF. "The fact that there would be a task force to elaborate on the proposal for a BRICS-led developmental bank has been agreed upon. We are all very enthusiastic about this," Kaushik Basu, the Chief Economic Advisor to the Finance Ministry of India said. There will be both policymakers from BRICS (Brazil, Russia, India, China and South Africa) and experts who will partake in this, he said. "The exact structure of such a task force or experts group will soon be worked out," Basu said, referring to the decisions made by the BRICS Finance Ministers when they met. "I have to say, contrary to earlier BRICS meetings, this time it was evident that all five countries are very enthusiastic about the importance of the new development bank. On this even from the World Bank and the IMF we have received good vibrations and they had conversations with several leaders of the Bank and the Fund," Basu said. They recognise that today's global economy is so large that another new development bank does not really take away from any existing bank; "there is space for much more; indeed there is need for much more," he noted.
This was pre-empted earlier this month already by Robert Zoellick, the outgoing president of the World Bank, when he announced his support for the plans of the BRICS nations to set up a development bank. Zoellick had expressed his support for the plans of the emerging economies already at their summit in New Delhi and pointed out that the World Bank will work with the new development body.
Good news was making the financial headlines in South Africa, when the inflation rate returned into the corridor of between 3% and 6%. Against the expectations of rising to 6.5% in the second quarter of 2012, the inflation rate put on further brakes and slowed to 6.0% in March.
This will spark further hopes of bondholders and debtors that the South African Reserve Bank (SARB) may further refrain from increasing interest rates.
The South African economy is currently outperformed by its retail sector, which showed a drastic jump to 7.2% annual increase compared with last year's figures. But this spike might be short lived when the increased fuel prices, the newly introduced e-Toll as well as the looming electricity price hike are coming to reality.
While mentioning currencies, the news is dominated by a different currency, other than the South African Rand: the Renminbi, also short known as RMB, general currency of the People’s Republic of China! While this term is used to describe the currency as such, one will not find its name on notes or coins though, those units are the Yuan, divided into 100 Jiao, which is in turn divided into 100 Fen.
In a new kind of currency war, the last one had devastating effects on the world trade in the late 1930s, it is the Emerging Markets predominantly set in the South of the globe, against the traditional economies in the North: USA and Europe. In a rather drastic move just before their upcoming war council in the newly found headquarter in New Dehli, India, the BRICS states (Brazil, Russia, India, China and – as the new kid on the block – South Africa) have decided that the trade currency within the emerging markets should not be the US Dollar anymore, but rather the RMB. A bold move by China and a carefully prepared attempt to find more new homes for its currency and over and beyond the BRICS countries Chile and Indonesia have already expressed their interest of following suit.
Currently the value of the RMB is rather determined by local, Chinese, managing powers, while opening the trade in RMB internationally will not only liberalise the RMB, but will also subject it to an market-related evaluation. As stated above: a bold move!
What does that mean for South African businesses? Well, the man on the streets will not feel a difference, but those businesses that are trading with other emerging markets and those following the Dollar – RMB change for starters will have to open a foreign currency account in RMB. In the first months and maybe years those businesses are also well advised to build in some currency fluctuation reserves, as the volatility of the RMB can for now only be speculation, but will need to settle in a stable environment once trade volumes have been established. Also according to Standard Bank, transaction costs for those done in RMB will be lower than in US Dollar, which will in turn ease the entrance barrier to do business outside South Africa.
The coming weeks and months will be exciting, new territory and will not only see the China Development Bank (CDB) underwriting RMB loans to BRICS countries, but according to the results of the recent BRICS Summit it will also see the foundation of a BRICS Development Bank as a counterpart challenging and maybe even ending 70 years of unrivalled reign of the World Bank and the International Monetary Fund; another milestone in the renaissance not only of Africa but of all emerging markets!
If you feel any of these changes might concern you and your business, please contact IBN Consulting. We will assist you in setting up RMB accounts as well as advise you as to any expected relevant changes in the near future.
Two weeks ago it seemed almost certain that in light of the increasing upward pressure on the inflation rate the repo rate was likely to be increased. Gill Marcus, Governeur of the South African Reserve Bank (SARB), announced on Thursday that this is not be the case - for now!
Economic recovery in South Africa shows a positive trend and the inflation rate - though the petrol price is surely not responsible - presented itself unexpectedly on a lower level at 6,1%.
This does not mean that a rate hike isn't still on the cards, but for now bond holders and debtors may breathe a bit easier with the repo rate remaining unchanged at 5,5% and therefore the prime lending rate of 9% on their 30-year-low....for the last 16 months and for the time being!!
South Africa’s trade account recorded a R7.5bn deficit in February compared with a R13.5bn shortfall in January, the South African Revenue Service (SARS) revealed today.
The trade deficit was R0.2bn in the same month in 2011.
Exports rose by 4.2% month-on-month to R56.3bn in February while imports decreased by 5.6% to R63.7bn, SARS data showed.
Economists surveyed by Reuters expected a shortfall of R5.0bn for February, but the data is volatile and thus hard to forecast.
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