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June 28, 2013

Mandela Death Could Roil South African Economy

by Peter Cox

As South Africans focus on the health of former president Nelson Mandela, there is some speculation about what news of the anti-apartheid icon's eventual loss might do to the South African economy.

Big news can move financial markets.

When Italian Prime Minister Sergio Berlusconi offered to step down in 2011, Italy's markets responded positively. When U.S. President Barack Obama was re-elected last year, the U.S. dollar fell on the currency market.

As Nelson Mandela's health deteriorated, South Africans watched closely. There is an emotional connection most South Africans have with the leader whom many call 'Tata,' the Xhosa word for father.

Some are concerned that the death of Mandela, the man who led a peaceful transition from apartheid to democracy in South Africa, could shake the nation's economy.

Michael Furter, founder and director of Consequence Private Wealth, in Cape Town, said local markets could reflect such reaction.  "I would say that in any share market, or any tradable environment, big news events of course tend to move the market either up or down. We find that in the media environment in which we're in, markets tend to react quickly, and possibly too quickly, on big news events. There certainly could be in this case a draw down in share prices," Furter said. "I would anticipate that, based kind of on sentiment, based on reaction."
 
But he doesn't believe it would be long term.
 
"The short answer actually is no. I think you'll see a pull-back, but short of there being major unrest following the event, which I wouldn't anticipate, I don't think that you would see that result," he explained. " I think the event itself will be a huge event. Nelson Mandela obviously did just the most amazing things for the country. His loss will be felt. "
 
Adriaan du Toit, a strategist with Citibank in South Africa, said that for the country's currency, the Rand, there has been some volatility in the market since Mandela was hospitalized on June 8.  "I think the bottom line is there might be evidence of this effect filtering into the market, but its very difficult to assign a portion of the move to Mr. Mandela's hospitalization and news around that since that time," he noted.

Du Toit said that the emotional connection all South Africans have to Mandela could easily be reflected in the economy, given his stature.
 
"The bottom line is he's been great statesman, and he has kind of liberalized a country. From that angle I would argue, and as I highlighted I can't speak for other countries and other leaders, but I would argue that the emotional kind of effect, even then the emotional effect as reflected in the market, could be substantially more pronounced," said Du Toit. "But it is important to think about the direct policy influence has dwindled. and as a result it's not clear that from a policy perspective, things happening on a ground level, there will be substantial, if any, changes."
 
From that perspective, it is going to be difficult for all South Africans, Du Toit said.
"He's almost 95 years old, he is an old person, and we also need to bear in mind. While we all cherish him, it is a fact that he won't be around forever of course. And that makes it difficult and it means we are kind of hitting reality to some extent, and there will be kind of an emotional backlash, absolutely," he said.
 
On Tuesday, Cape Town Archbishop Thabo Makgoba offered a prayer that Mandela, the nation's first black president, be granted a "peaceful, perfect end."