16/02/2018 We need to grow, our time has come

Optimism has entered the South African market like a breath of fresh air after Jacob Zuma’s resignation.

Buoyed by the victory of Cyril Ramaphosa at the African National Congress’ Elective Conference in December 2017, it may be time for South Africa to finally retake its place among the emerging market success story.

A tough year

There is a collective view that 2017 was a year where everybody was scared about the fate of South Africa.

There were demonstrable signs that international investors were keen on investing in emerging markets, and China, India, Brazil and Mexico reached the halfway point of the year as the major winners. Investors gave South Africa a wide berth as political instability took centre stage.

Speaking at the 2018 PSG Outlook, COO Greg Hopkins said that short-term decision making was the order of the day, and because of this, growth was hard to come by.

“We learned a lot of lessons in 2017, benign growth made investors more aware of the importance of good corporate governance and accounting practices. As we saw with the Steinhoff saga, accounting is boring until a company starts to lose money,” said Hopkins.

Lessons learnt

Not everything in 2017 was bad news though. Because of the local situation, local investors increased offshore exposures of pension funds and flocked towards rand hedges as there was no cloud with silver lining in sight.

“This meant that there were a lot of investment opportunities within South Africa that were lonely places for investors to be. There was very little investment into South African companies that had no international exposure; and there was very little investment in cash and government bonds,” said Hopkins.

But then an epiphany occurred, politicians woke up to the dire situation that South Africa was in and drew a line in the sand. This line played out in the dramatic end to the Jacob Zuma era.

When Ramaphosa became the President of the ANC, it was as if South Africa was open for business again. Investors flocked back towards local investments and those investors who dared to make their presence known in the lonely places when others did not are reaping the benefits of this.

Aware of bottle necks

For the first time in 24 years, South Africa is on the precipice of extraordinary change. The difference between dreams and reality are shorter than ever before. We may be ready for an age of accelerated growth.

Speaking at the recent Old Mutual Investment Group’s Investment Insights session, Tinyiko Ngwenya – Economist: Macro Solutions at Old Mutual Investment Group – said that the South African political ship is turning.

“A new South African story is being written. Commodity prices are increasing, there is positive news for our current account balance which has been a perennial problem for the country, and the low inflationary outlook may possibly see the South African Reserve Bank cut the repo rate in the future,” said Ngwenya.

She added that there is also good news in that the price of maize is increasing, which may bring food inflation down. All of this points to an influx of foreign investment.

Beware of extreme optimism

While there is optimism on the horizon, Ngwenya warns that there is danger in extreme optimism.

“The legacy that Zuma left behind will take a while to shake off. However, Ramaphosa is a businessman and he is aware of the structural bottlenecks that are currently plaguing the economy. It will be his mission to resolve it,” said Ngwenya. 

For more than a year, there has been political infighting and there has been a number of different political models that have been trying to wrestle for the soul of the country. Now is the time for South Africa to stop this and to be singular in its view.

One of the greatest success stories of our time is China. The country is a single party state but is so focused on capitalism that it perused this relentlessly. What is the result of this?

In 1980, the percentage of the Chinese population who lived in abject poverty was 88%, 33 years later (in 2013), the percentage of the Chinese population who lived in abject poverty was 1.8%.

South African politicians have made some very poor, self-centered, decisions in the past. This has had a negative effect on the investment industry. The country has taken a stand and now we must self-correct.

Until next time, take care.


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