Terrorist attacks are nothing new, and since the World Trade Centre fell in 2001, a number of radical Islamic attacks have taken place across the globe.The latest crisis, however, is closer to home than ever before, as our neighbour Mozambique grapples with an Islamic State-linked insurgency.
CRISIS IN MOZAMBIQUE
Driving through the streets of Mozambique, the scars of the past are still visible following the civil war that lasted from 1977 to 1992. To this day, the country is still struggling to rebuild, and now finds itself facing another battle. This time, however, the battle is not between political factions but rather against religious extremists. Shocking footage of ISIS-linked attacks in our neighbouring country has flooded news stations, with news of trapped South Africans capturing local headlines.
Mozambique is on South Africa’s doorstep and we share a 493km border, further giving rise to fears of a geopolitical spill-over. The South African National Defence Force (SANDF) thus moved swiftly to assist in the fight against the militants and to ensure the safety of South African citizens.
But safety concerns are not the only issue at play. South Africa has become one of Mozambique’s largest trade partners, and recently published data indicates that South African applicants own approximately 5,500 national trademarks in Mozambique. This is second only to applicants from the United States, who own approximately 5,850 national trademarks.
Additionally, it is worth noting that the country has become an attractive investment destination of choice owing to its vast resources, and one of the latest development projects is that of the Total natural gas project in Afungi, situated near Palma in the northern part of Mozambique. Unfortunately, however, this $20 billion project has come to a complete standstill following the complete withdrawal of all employees from the area in the wake of the attacks.
While employees are expected to gradually return now that the militants have been driven out of the area by government forces, allowing operations to resume, one cannot discount the effect that the attacks have had on the operational ability of the plant, as well as on the mental state of the employees and their desire to return to work. It is also impossible to say with absolute certainty that the extremists will not return.
So, while the humanitarian crisis is catastrophic, the economic implications are just as noteworthy – especially given the strain that the global economy is already under as a result of the pandemic. Ultimately, these attacks have not only lead to numerous deaths, but will also act to drive further poverty as a result of business closures, the withdrawal of investments and job losses, with the total cost of economic damage running into the billions.
It is therefore positive to see that the South African Development Community (SADC) has rallied around Mozambique, holding a double troika summit with officials from six countries to discuss plans going forward, including potential military intervention, the sharing of intelligence and assistance with maritime monitoring and surveillance.
FED MAINTAINS SUPPORTIVE STANCE
The Federal Reserve released the minutes of its March Federal Open Market Committee (FOMC) meeting on Wednesday, which indicated that the central bank will not look to tighten policy anytime soon. The minutes highlighted that while the inflation target rate is 2%, it will tolerate moves above this level until such a time as its economic objectives are met. One of the Fed’s key focus areas is the labour market and its ability to reach pre-pandemic levels. At the meeting, the Fed’s policymaking arm voted to keep short-term borrowing rates anchored near zero and to continue buying at least $120 billion in bonds each month.
In addition, the committee adjusted its economic growth and inflation outlook upwards. The median outlook for GDP in 2021 rose to 6.5% − a significant upgrade from the 4.2% forecast in December. Policy makers also indicated that the unemployment rate could fall to 4.5% by the end of the year and that inflation could run to 2.2%, slightly above the Fed’s traditional 2% target.
The US Treasury Department published a report this week describing President Biden’s new tax plan. The report indicated the new plan would bring back around $2 trillion in corporate profits into the US tax net and noted that only 45 large companies would pay the proposed 15% minimum tax.
Meanwhile, the International Monetary Fund (IMF) and World Bank kicked off their annual meetings this week, with special drawing rights (SDRs) taking centre stage. Kristalina Georgieva, Managing Director of the IMF, noted last month that a new $650 billion allocation of SDRs would provide a cash injection to poorer countries without adding to their debt burdens, freeing up much-needed resources for member countries to help fight the pandemic. But while the Group of Seven (G7) nations support the proposal, many countries are opposing the matter, noting that countries that have put off development and reforms should not be handed free money.
The UK, despite being one of the leading nations in the vaccinations race, remains in lockdown, and the AstraZeneca vaccine is now facing yet another setback in both Europe and the UK as health officials have found a link between the vaccine and possible rare blood clots. The suspension of the use of these vaccines in the two regions poses a significant setback to vaccination rollouts, as this particular vaccine is currently the most broadly administered. Notably, it is far cheaper and easier to store than some of the alternatives, making it the vaccine of choice in over 111 countries.
Taking a look at currencies, the euro has regained momentum, passing the $1.19/€ mark on Thursday to reach its strongest level since 24 March 2021 after rebounding from last week’s five-month low of $1.17/€. This came as markets focused on the prospect of a strong economic recovery, despite the uncertainty around rising infection rates and the slow rollout of vaccines. EU leaders agreed on the need to urgently accelerate the vaccination campaigns last month, but said that they would keep restrictions in place for the time being, including on non-essential travel.
The British pound weakened towards $1.37 on Thursday, trading around its lowest level since 24 March 2021, as investors feared that the slowing pace of the COVID-19 vaccinations in the UK could delay the government’s plans to reopen the economy.
The South African rand traded around R14.50 against the greenback on Thursday, its highest level since 25 February 2021. This came on the back of a softer dollar, as the Fed released minutes from its most recent meeting which reinforced the US central bank’s commitment to an accommodative stance.
Examining some of the data released this week:
|Forecast or ∆%
|Markit Services PMI Final MAR
|ISM Non-Manufacturing PMI MAR
|Initial Jobless Claims 03/APR
|Unemployment Rate FEB
|Markit Composite PMI Final MAR
|PPI YoY FEB
|Caixin Composite PMI MAR
|IHS Markit PMI MAR
|SACCI Business Confidence MAR
|Manufacturing Production YoY FEB
Locally, investors remain cautious over the evolution of the pandemic given predictions that the country will likely see a third wave of COVID-19 infections in late April or mid-May, as the country heads into winter. We will also continue to keep a close eye on developments in Mozambique, as increased tension in our neighbouring country might spill over into local investor appetite.
The local currency remains largely range bound following its recent rally, struggling to breach the R14.50/$ mark, with a range of between R14.59 and R14.48/$ prevailing.
There is little new by way of market drivers as we head into the weekend, and we start the day at R14.54/$, R17.31/€ and R19.97/£.
Written by: Bianca Botes
Director: Citadel Global