Own goals aside, the bounce of the ball has been unkind to SA
• Ramaphosa’s ascent seemed like we were getting Cristiano Ronaldo to lead Bafana Bafana
When #CR17 (the Cyril Ramaphosa 2017 campaign) won the ANC elections, a sense of euphoria gripped local markets reminiscent of clinching the 2010 World Cup.
In the final quarter of 2017, SA Inc shares embarked on a mazy run, with apparel retailers up 23% and banks up 28%, shaking off earlier jitters caused by the red carding of two finance ministers. In footballing terms it was more akin to recruiting Cristiano Ronaldo, the Real Madrid forward, to lead Bafana Bafana and a hat-trick of successes followed: the country escaped a debilitating downgrade to junk for our local debt, regained investor confidence — which led to a sharp strengthening of the rand — and this was crowned by a confidence-boosting 3% economic growth rate.
The headlines heralded a new era, and foreign investors drew parallels with the Brazilian market. Two years ago Brazil’s GDP had contracted by almost 6%, with massive fraud at stateowned firm Petrobras, one of the largest companies in Latin America. With two presidents on trial, the Brazilian equity market started a breakneck rise of about 125% from mid-2015, despite GDP growth being lacklustre (the latest number was about 1.8%). In a typical case of Fomo, foreigners came off the bench and elusive equity inflows materialised, supported by a credible budget.
Few remember that Bafana Bafana were at one stage leading their World Cup qualifying group before losing both home and away to so-called minnows Cape Verde, leaving us with a mountain to climb to qualify against Senegal. To make matters worse, Fifa forced SA to replay its final qualifying games, which was the final nail in the coffin for the national team.
Similarly, our local economy has been sputtering, with manufacturing and mining production going backwards. Private investment in productive capacity has been on strike for a decade and the recovery in credit growth after the financial crisis has been the weakest in over half a century.
Of late resilient corporate credit growth is petering out, alongside weak household credit. The bounce of the ball has not been kind to us either, with oil cartel Opec officiating over a higher oil price, which has pushed the petrol price at the pump ever higher.
While footballers have to contend with a team of videoassisted referees who scan the game for potential infringements, our new president has to deal with bots and social mediaassisted commentators hellbent on ensuring any misstep is highlighted and magnified.
While many feel it is incumbent on the coach and his staff to turn our team into world-class contenders, winning on the global economic stage is dependent on several exogenous factors. After missing out on a World Cup spot, the US seems focused on knocking out China and other trade partners. Equity markets bled out in June, with over $13bn of outflows. In the final week alone we saw emerging markets shed over $5bn of investment flows. As a result, a number of markets have entered bear territory, with the bellwether Shanghai stock exchange seeing red.
It remains crucial that we avoid scoring own goals. The Mining Charter was reissued but the proposed version is unlikely to drive investment in the sector, and the land redistribution debate lacks structure and pragmatism. The latest wage dispute at Eskom is a litmus test for the challenges facing our administration. The staff complement at the state utility company has increased by a third over the past decade, while electricity production has declined, hampering the ability of an already constrained fiscus to increase the wage bill further.
It is a good thing hooliganism was driven out of the beautiful game, and it remains crucial that the rule of law and the strength of our Constitution remain the bedrock of our society. To restore SA to financial fitness we will need our new president to take the whole economy on more regular walks to unwind a decade of morass and endemic mismanagement.
But lest we despair, the green shoots are starting to sprout. Durable goods spend — including passenger vehicle sales, which slowed since 2010 — have started to recover as six monthly momentum accelerates into double digits.
Consumer confidence has rebounded strongly and household balance sheets are looking healthier as we wean ourselves off unsecured credit. Final demand has tentatively showed signs of life, but the improvement will have to be sustained by an increase in disposable income and job creation, bearing in mind that the private sector has hardly created any jobs for over a decade. Private sector investment will only follow if we see an improvement in profits, but captains of industry must believe that a stable tax regime, improving growth prospects and business-friendly government favour capital allocation locally over the rush to expand in developed markets. Together with the targeted $100bn from offshore, investment spending is targeted to rise from the low 20% to the president’s goal of 30% of GDP. A sharp fall in inflation and subdued credit growth should allow the Reserve Bank to slash interest rates further.
Winning the World Cup is not easy, as shown by all African teams crashing out in the first round for the first time in 36 years and reigning champions Germany exiting ignominiously. This quarter, as retailers retreat by almost 21% and banks by 12%, we may need a shot of vodka.
AFTER MISSING THE WORLD CUP, THE US SEEMS FOCUSED ON KNOCKING OUT CHINA AND OTHER TRADE PARTNERS