From the ed­i­tor

Finweek English Edition - - CONTENTS - JANA MARAIS

in his new book Africa’s Bil­lion­aires, the ed­i­tor of Forbes Africa, Chris Bishop, writes about Stephen Saad, the founder and CEO of Aspen Phar­ma­care. In the chap­ter on Saad, Bishop quotes from a speech the Dur­ban-based busi­ness­man de­liv­ered late last year: “You know, my peers are say­ing that they are not in­vest­ing be­cause the po­lit­i­cal cli­mate is not right; be­cause the eco­nomic cli­mate is not right. They are go­ing to wait un­til Je­sus comes!” Truth be told, Saad is right: the busi­ness cli­mate will never be per­fect, re­gard­less of the mar­ket in which you op­er­ate. Suc­cess­ful en­trepreneurs are the ones like Saad who find op­por­tu­nity amid the un­cer­tainty and man­age to earn re­turns that ex­ceed the cost (in­clud­ing the risk pre­mium) of cap­i­tal.

De­spite the per­cep­tion that South African busi­nesses are sit­ting on their cash piles, wait­ing for bet­ter days, this is not en­tirely the case, data com­piled by Stan­lib chief econ­o­mist Kevin Lings and pub­lished by Money­web shows. Lings writes that the pri­vate sec­tor con­tin­ues to in­vest hun­dreds of bil­lions of rand in SA – de­spite the weak econ­omy and pol­icy un­cer­tainty. In the first quar­ter of 2017, fixed in­vest­ment spend­ing by gov­ern­ment and the pri­vate sec­tor ac­counted for 19.5% of GDP, in line with the pre­vi­ous seven to eight years since the global fi­nan­cial cri­sis.

How­ever, this doesn’t mean all is well – Lings high­lights that we need fixed in­vest­ment to be a min­i­mum of 25% to 30% of GDP for at least a decade to meet eco­nomic growth, job cre­ation and devel­op­ment tar­gets. (This trans­lates into a cur­rent short­fall of be­tween R250bn and R450bn a year, Lings says – the equiv­a­lent of build­ing be­tween four and eight shop­ping cen­tres the size of Mall of Africa ev­ery sin­gle month for the next 10 years.) In ad­di­tion, the pri­vate sec­tor’s con­tri­bu­tion to to­tal fixed in­vest­ment has fallen to 60%, the low­est level since 1994, and has de­clined in seven of the past nine quar­ters.

But there is good news too. Large com­pa­nies mostly re­main in rea­son­ably good fi­nan­cial shape, with very low gear­ing, Lings says. In ad­di­tion, the re­duced lev­els of fixed in­vest­ment we cur­rently see re­main more than 100% higher than the av­er­age achieved in the eight years be­tween 1994 and 2002, ad­justed for in­fla­tion.

“Un­der these cir­cum­stances, it is highly likely that the in­tro­duc­tion of con­sis­tent and sup­port­ive eco­nomic, po­lit­i­cal and so­cial poli­cies would be ac­com­pa­nied by a sub­stan­tial up­lift in pri­vate sec­tor in­vest­ment […] in or­der to help de­velop vi­tal in­fra­struc­ture,” he con­cludes.

Is it too much to hope for a politi­cian or two who can spot the value for all of us in cre­at­ing an en­abling en­vi­ron­ment for in­vestors? ■

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