ANALYSIS: XENOPHOBIA UNDERMINING SA ECONOMY

Business Report/AFP, 23 May 2008

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Anti-immigrant violence in South Africa has already hit the mining sector, a mainstay of the domestic economy, and threatens to undermine confidence among international investors, analysts say. Even before the unrest broke out, the outlook for the South African economy, Africa's biggest, was clouded by uncertainty about its political leadership and major infrastructure problems. Added to the already sky-high crime rate, the recent tide of violence against foreigners, which has left at least 42 dead and 16 000 displaced in 12 days of rioting, is a further blow. Independent economist Dawie Roodt said the main danger was a shift in sentiment among foreign investors. "This is not a nice neighbourhood to be in," he said. "We have to prove we are different from the rest of Africa. If this carries on investors will say 'this is just another African country.'" Roodt said the past few days had put the currency under pressure, which threatened to add to inflationary pressures in the country which the central bank is already concerned about. Claude Baissac of the US company NSA Risk Management Services, based in Johannesburg, said most companies had adopted a wait-and-see attitude towards the violence. "The business community is shocked. 2007/2008 is a year of every danger with the electricity crisis, the high inflation, the crisis of political leadership and now the very serious social and civic crisis," he told AFP. "Companies are starting to realise that the risk profile of the country is changing." Political uncertainty stems from the possible influence of communists and trade unions on the direction of the ruling African National Congress party, as well as doubts about ANC leader Jacob Zuma who faces a corruption trial. Presidential elections are to be held next year. The electricity crisis is a result of chronic underinvestment in power infrastructure that has led to frequent power cuts since January and is set to crimp expansion in heavy industry. Those conducting the deadly attacks across South Africa might not want to believe it, but the domestic economy is also highly dependent on migrant labour, as illustrated by this week's problems in the mining industry. Chamber of Mines spokesman Frans Barker warned of long-lasting damage to the economy if violence was not "contained quickly" following reports from mines around Johannesburg area that their production had been affected. Companies and unions reported that many foreign employees had failed to show up for work this week. National Union of Mineworkers spokesman Frans Baleni said the Primrose Gold Mine on the eastern outskirts of Johannesburg, which has a workforce consisting 85 and 90 percent of Mozambicans "has not been operating since Monday." "It has affected our members, not only those who were physically assaulted but it has created tension and fear -- at the moment they are targeting Mozambicans, tomorrow it might be Lesotho, it might be Botswana," he added. The NUM estimates that 35-40 percent of workers in the mining area east of Johannesburg are foreign. DRD Gold, a major mining group, and Pamodzi Gold, a smaller black-owned South African gold mining company, both told AFP that they had had production problems around Johannesburg because of absent workers. Johannesburg, where the violence has been concentrated so far, sprang up after the discovery of the world's single richest gold deposit, the Witwatersrand Basin in the East Rand area. Leaders in the tourist industry are also concerned. For the first time, police reported Friday that violence had spread to southwestern Cape Town, a picturesque coastal city that is a key tourist attraction. Southern African Tourism Services Association chief executive Michael Tatalias warned Thursday that the attacks could do "untold damage" to the industry which contributes over eight percent to the country's gross domestic product. A farmer's union has also expressed concerns the violence could spill over into rural areas, and impact on the agricultural community. "It is not far-fetched that even farmers employing workers lawfully from neighbouring states could experience at first hand that xenophobia is not restricted to metropolitan areas," Transvaal Agricultural Union spokesman Paul Van der Walt said in a statement.