At the mercy of uncertainty, all we can do is stress and save
• SA’s political and economic future looks murky — but anxiety is having a positive side effect
Iwish the ANC would just put us out of our misery. For the past six months, the only thing on everyone’s mind is whether we can expect a continuation of the Zuma regime under his heir apparent, Nkosazana DlaminiZuma, or whether Deputy President Cyril Ramaphosa and his quietly assured campaign will see him rise above party politics to be elected president of the ANC.
The consequences of each outcome are far-reaching for South African investors, businesspeople and the average person on the street. There could be further ratings downgrades, currency volatility, cabinet changes, policy shifts, legal challenges and many, many smallanyana skeletons.
With so many unknowns, there is a great deal of uncertainty about the future, and that uncertainty creates high levels of anxiety and stress for those who want to plan for the coming months and years.
For most people, high levels of uncertainty result in a sort of paralysis. In an environment where there are too many unknowns it is extremely difficult to make a decision, so most people would rather wait until they have more information. Home loan applications, corporate stockpile figures and newcar sales figures show the very real effect uncertainty is having on the economy.
On a physiological level, several studies have shown a direct relationship between uncertainty and stress. Uncertainty generates a strong “threat” or “alert” response in limbic systems, and this in turn limits the ability to focus on other issues, as well as increasing awareness and anxiety.
Studies have even found that for some people uncertainty is far more stressful than dealing with a clearly negative outcome – a case of “better the devil you know than the devil you don’t”.
In other words, the amount of uncertainty you are under is directly correlated with the level of stress you experience.
So when columnists blithely write that “we can expect further political uncertainty in the run-up to the ANC national conference in December” what they really mean is you are going to be measurably more stressed than you would have been if it were clear who President Jacob Zuma’s successor would be.
The reason for this is that the human brain craves certainty. It’s the reason why children are happier if they have a routine, and why adults find watching sitcoms with predictable storylines comforting.
As a species, we are hardwired to look for patterns and make predictions about the future, so when we aren’t able to, it freaks us out. The brain is so averse to uncertainty, it avoids uncertain situations in the same way it avoids pain.
The brain also likes to plan ahead, whether it is for the next half an hour or the next 10 years. We feel more comfortable when we know what is going to happen and in many cases, would prefer to know the outcome of a situation even if it was not good rather than be kept in suspense.
So, how do South Africans manage our stress in the run-up to the 54th national conference of the ANC?
As a consumer, the easiest way to reduce your risk in the face of this uncertainty is to reduce your debt. This limits your exposure to future interest rate hikes and should allow you to start saving for darker days if the fuel price goes through the roof and food-price inflation doesn’t moderate quite as much as expected. It’s not a sexy solution, but whichever way the wind blows, you’ll be pleased you’re no longer hocked to the hilt.
The good news is that many South Africans are already doing this. Despite high levels of household debt, consumers have been deleveraging to some extent since 2008.
Whether as a response to uncertainty, or just the old-fashioned facts of life, they’ve seriously picked up the pace over the past few years.
Household credit growth has slowed, household debt as a percentage of disposable income has been falling and debt servicing costs as a percentage of disposable income are falling.
In an ideal world, this would hopefully translate into an increase in disposable income and a much-needed increase in personal savings, but in reality, it will probably be eaten up by increases in personal income and consumer taxes.
This might not sound like a great outcome, but it would be a lot worse if you were already overspending on your household budget and then the price of fuel went up R1.20 per litre, inflation stayed above 6% and you only got a raise of 3% (and were told you were lucky because you kept your job).
In another dose of uncomfortable truth, Sasfin Securities deputy chairman David Shapiro says the most important element in managing risk and uncertainty is to face the facts.
“The best way to prepare for uncertain times is to be real. Whether you are an investor or a consumer. Don’t be scared to be honest with yourself,” he says.
One of his biggest complaints is that people always ask him to give them the good news, “but we’re risk managers, so we need to look at the risks, measure those risks, and manage them as best as we can”.
Although Shapiro believes global conditions are looking up, if we can’t get a handle on local politics, SA won’t be able to take advantage of that growth.
“For the first time in 10 years, it feels like corporate results are pointing in the right direction and SA should be doing better, but we aren’t. Uncertainty is probably the worst obstacle to expansion because people don’t want to invest,” he says.
As much as we can manage risk and uncertainty, we also have to realise there are some things we can’t control. As tough as it might be, we have to live with those uncertainties.
SA will always remain at the mercy of international capital markets, and the behaviour of the US Federal Reserve remains one of the biggest factors in the performance of our currency and share market.
Global growth and global commodity cycles have the ability to help or hinder domestic growth, but our ability to respond to these macro drivers depends on what is happening at home. If conditions remain as uncertain as they have been, it’s fair to say we won’t be in a position to protect ourselves from the worst or benefit as much as we should from the good times.
“Things are going to get worse before they hopefully get better, so be careful and try to save as much as you can. Tighten your belts, work hard at your job and don’t be quick to look for another job because it might not be so easy to find one,” says Shapiro.
He may be accused of being grumpy, but it’s hard to find fault with that advice.
THE BEST WAY TO PREPARE FOR UNCERTAIN TIMES IS TO BE REAL… DON’T BE SCARED TO BE HONEST …