Private funds fare better than listed
Domestic private equity funds outperformed listed equities in the three years to the end of the first quarter as funds sold investments profitably and innovative risk assessment models paid off.
SA used to get the credit for being quite a good kid in a bad neighbourhood. Now it is increasingly becoming the laggard in an improving neighbourhood.
Two reports in the past couple of weeks make the point in different ways.
The first, from the World Bank, shows SA plunging down the global rankings on the annual Doing Business index – not because SA has got any worse, but because others are rapidly getting better.
The second, from ratings agency Moody’s, shows SA as one of a dwindling number of countries that is on negative outlook for a downgrade, at a time when the global backdrop is benign and other countries are sorting out their public finances.
SA’s decline from 74th to 82nd of the 190 countries the World Bank ranks follows poor performances on several other global indices.
SA has fallen 14 rungs down the ladder on the World Economic Forum’s global competitiveness index, on concern about governance and institutions as well as political stability. It fell one rung, to 53rd, in Swiss business school IMD’s world competitiveness ranking of 63 countries and for the first time this year, lost its number one ranking in RMB’s Africa attractiveness index, with Egypt taking first place.
Indices such as those of the World Economic Forum and IMD rely in part on surveys of executive perceptions, so they have a greater or lesser degree of subjectivity in their measurement of how attractive countries are to investors.
The World Bank’s index is different. It measures the ease of doing business for small and medium-sized businesses, which are crucial engines of job creation and innovation in an economy. And it does so using objective, nitty-gritty measures of the regulatory burden involved in starting, expanding and running a business — such as the time taken to jump all the regulatory hoops required to register a company or to get a permit to build a warehouse or to get electricity.
We know that SA does badly when it comes to how much smaller, newer businesses contribute to the economy; the Doing Business survey suggests why and SA’s fall down the rankings reflects the fact that it’s done absolutely nothing to reduce red tape at a time when other countries including many other African countries, are doing a lot to make it easier to do business. As a result, SA, a decade ago ranked as high as 32nd on the index, is now only in joint fifth place in sub-Saharan Africa, behind countries such as Rwanda and Kenya, not to mention Mauritius (at 25).
Moody’s 2018 sovereign outlook, released this week, looks at economies through the rather different lens of their ability to service and repay their debts.
But here, too, the picture is one in which SA is on the brink of a downgrade to junk status, while the outlook for many others has become more stable.
SA is one of only 22 (16%) of the 137 sovereigns that Moody’s rates that has a negative outlook on its rating — and the number has fallen from 35 (25%) in 2016, so fewer downgrades are likely in 2017. There have been 12 upgrades in 2017.
Sadly, SA gets a special mention in the Moody’s report following our downgrade earlier this year – sub-Saharan Africa and the Middle East were the worst regions for downgrades in 2017, says the ratings agency, and “the two regions’ most highprofile downgrades included those of SA in response to its weakening institutions, declining growth and rising debt”.
Importantly, though, the World Bank and Moody’s reports both suggest that SA’s woes could be relatively easily turned around if the political will was there to fix them.
The World Bank’s in-depth study of doing business in each of SA’s cities a couple of years ago found that some of the cities made some aspects of doing business really easy, so if SA as a whole took best-practice regulation from each city and combined these, it could score much more highly on the index.
And the list of upgrades in the Moody’s report this week demonstrates how countries that embark on economic and fiscal reforms, even if these are unpopular or costly, can start to turn themselves around and get their sovereign ratings upgraded. Something to aspire to, at least.
SA’S FALL REFLECTS THE FACT THAT IT’S DONE NOTHING TO REDUCE RED TAPE AT A TIME WHEN OTHERS ARE DOING A LOT