Source: Supermarket & Retailer
South African consumers face more pain from potential global trade wars and fuel increases, global payments company MasterCard said.
The retail sector has been flailing in recent months, with consumers feeling the strain of VAT increases and three consecutive months of fuel price increases.
Consumer spending accounts for more than 60% of GDP. The economy is still reeling from a weak first quarter in which the sector contributed significantly to the decline.
“It’s brutal. The ongoing fuel price hikes is the number one risk to global growth, but the global trade wars are SA’s biggest macroeconomic concern. Consumers need to watch this closely,” said Mastercard senior vice-president of market insights, Sarah Quinlan.
SA imports most of its petroleum products from abroad at prevailing global prices and exchange rates.
“If consumers spend more on transport, they will have less to spend on any discretionary items,” said Old Mutual Multi-Managers chief investment strategist Dave Mohr.
As tensions rise between major trading partners China and the US, with ripple effects globally, the cost of living is expected to go up significantly.
“We know that we have some challenges in global trade that have been introduced into the global economy. Unfortunately for the South African market, which is heavily export dependent, this will take a serious knock,” Quinlan said.
Added to this, while China was once more open to importing SA goods, the country is now focusing on its domestic market.
“China has made a conscious decision to domestically focus their economic growth, so SA really needs to focus on diversification and stop relying on imports,” said Quinlan.
This was made clear by SA’s current account deficit, which widened in the first quarter as exports fell dramatically.
“The sharp fall in exports shows that SA truly has a structural problem,” said Citibank economist Gina Schoeman.
Business confidence also plummeted to levels last seen nine months ago on the back of a weaker rand and slower retail sales. The risk of a global trade war had alerted certain industries in SA, who had indicated it would affect industry and employment negatively, according to the South African Chamber of Commerce and Industry’s business confidence index.
The technology industry is the crowning glory of America’s economy. It supports 7-million well-paid jobs at home, and allows America to set standards globally.
Silicon Valley generates almost $200-billion of profits from abroad each year, several times the benefit that America gets from having the world’s reserve currency. But after losing its lead in exports and manufacturing, is America’s tech supremacy now under threat from China?
For years Silicon Valley dismissed Chinese tech firms—first as an irrelevance, then as industrial spies and copycats. Most recently China has been seen as a tech Galapagos, where unique species thrive than would never spread abroad. But as our Schumpeter column explains this week, China’s technology industry has been catching up far faster than expected. American venture capitalists return from trips to China blown away by its energy. China’s government has set a goal of becoming dominant in artificial intelligence by 2030.
China still has huge weaknesses. Its tech firms are only worth about a third as much as America’s, and their investment budgets pale in comparison with those in the United States. They generate relatively little revenue abroad, and are puny in semiconductors and business-related software. Moreover, Chinese companies in other industries make less intense use of technology products than their American counterparts do. And although China does have two giant tech firms in Tencent and Alibaba, as well as lots of small ones, it has relatively few mid-sized companies in the range of $50-$400bn.
Nonetheless, China is now approaching parity on the most forward-looking measures. In e-commerce and mobile payments, its industry is now bigger than America’s. Its universe of “unicorns” (unlisted firms worth over $1bn) is almost as large, as is its venture-capital sector. Both are proxies for China’s ability to produce tomorrow’s giant firms. And in cutting-edge areas such as facial and speech recognition, China now has recognised leaders. There are even some signs that it is catching up in hard science: it has produced nearly as many papers on artificial intelligence cited by parties other than their author as America has.
At its present pace, China is still 10-15 years away from reaching tech parity with America. But for American tech firms, the time to get paranoid is now.
Source: The Economist