Retailers Pining for Stability Pin Their Hopes on Ramaphosa

(Bloomberg) -- Londani Nemaguvhuni's Sunday trip to the Mall of Africa north of Johannesburg is a finely balanced operation. The 29-year-old has to provide for his young son, but also needs to cut costs.

Like most South Africans, the construction foreman is feeling the effects of rising taxes, fuel costs and other bills alongside sluggish economic growth that's put a dent in consumer confidence. A flurry of electricity blackouts could lead to a fifth year of less than 1.5 percent growth, while the joblessness rate stands at 27 percent.

“In any economy that is suppressed, people have to make choices,” said Richard Brasher, chief executive officer of nationwide supermarket chain Pick n Pay Stores Ltd. “For the less affluent in society, their choices are a bit starker in terms of clothing, footwear, rent and electricity,” he said in an interview last week.

The impact on personal budgets and spending plans is brought into focus as South Africans gear up for a national election on May 8. The ruling African National Congress is on course to retain a majority held since the first all-race vote 25 years ago, according to opinion polls, a result that would extend the 15-month presidency of Cyril Ramaphosa.

Read More: Ramaphosa Can Win Over His Country. What About His Own Party?

Consumer confidence soared after he replaced Jacob Zuma, whose nine-year tenure was marred by a string of corruption scandals and the near collapse of state-owned companies such as utility Eskom Holdings SOC Ltd. But the surge of optimism popularly known as Ramaphoria has died down, and confidence is the lowest since late 2017, according to a closely followed index.

Pick n Pay has offered steeper discounts on several food items as the Cape Town-based company grapples with selling price deflation. Shoprite Holdings Ltd., Africa's biggest grocer with the bulk of its 2,738 stores in South Africa, in February forecast a drop in full-year earnings. Reporting on December holiday sales, Shoprite said back-to-school essentials outperformed discretionary purchases such as toys for the first time.

The pinch has even been felt by Woolworths Holdings Ltd., a seller of organic food and designer clothing that targets higher-income customers. Its South African fashion, beauty and home sales slid 2.4 percent in its first-half through late December, while food held up. The FTSE/JSE Africa General Retailers Index has dropped 5.3 percent this year, compared with the benchmark all-share index's 12 percent gain.

Even so, a clear majority for the ANC next week could boost shares in local companies including retailers and banks as it may enable Ramaphosa to enact bolder, investor-friendly policies, according to UBS Group AG. If the ANC wins 60 percent or more, RBC Capital Markets said it will likely help the South African rand strengthen to below 14 per dollar.

“Anything that gives us stability of exchange rates, stability of government and consistency of message will result in people feeling better,” Brasher said.

For Nemaguvhuni, who works about 2-1/2 hours outside of Johannesburg, it's unclear how long it will be before he can juggle the budget to pay near-record fuel prices and afford more regular trips home.

--With assistance from Prinesha Naidoo.

To contact the reporters on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net;Tshegofatso Mokgabodi in Johannesburg at tmokgabodi@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Bowker, Gordon Bell

©2019 Bloomberg L.P.