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On My Mind
– Zuma survives, but a different ball game awaits
Former CEO of Sanlam Private Wealth
Aug 25, 2017
During a recent trip to London, it became clear to me that South Africa’s image abroad has taken a severe hammering of late. Personally, I was peppered with questions about the latest manoeuvring of Mr Zuma and his sycophants, and of course, the meaning and impact of the no-confidence vote and its aftermath.
The general sentiment towards South Africa – not aided by the ongoing Gupta leaks saga, including the damning revelations around embattled UK PR firm Bell Pottinger – was also reflected in the media. An opinion piece in The Economist entitled ‘Long walk to cronyism’ referred to the ‘mismanagement of the Zuma administration’, stating that it was ‘party loyalty and Mr Zuma’s considerable powers of patronage [that] kept him in the job’.
The Financial Times also didn’t hold back. In an article headed ‘Wary South African companies delay investment’, this esteemed publication wrote about ‘the political and corruption scandals [which] have battered confidence in Africa’s most industrialised economy, plunging it into its second recession in a decade’.
The article refers to a July 2017 policy brief by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, which states that the total reserves of the top 50 firms listed on the JSE amounted to R1.4 trillion in 2016, nearly six times the amount in 2005. According to the brief, the rate at which reserves have increased over time is notable, considering South Africa’s low investment and growth cycle. ‘Profits which could be invested … are being withheld,’ it says.
I found it a near impossible task to allay the fears of the people I spoke to – the unassailable fact is that our country’s woes are unlikely to improve in the months leading up to the ANC elective conference. It’s doubtful that the corruption that is devastating our economy will be reined in any time soon. Uncertainty in many sectors will continue, and we’re not likely to see any serious new initiatives to grow our economy and address our unemployment rate, which is at a staggering 28%.
Without meaningful reforms to stimulate growth, South Africa may well face further credit downgrades toward the end of the year. Even though rating agency Moody’s didn’t issue a review earlier this month as was widely anticipated, it said in a credit opinion statement last week that ‘political tensions and policy uncertainty’ would continue to constrain economic growth.
Last month, the International Monetary Fund stated in its latest World Economic Outlook update that with elevated political uncertainty and weak consumer and business confidence, the ‘outlook for South Africa remains difficult’. Indeed, according to the latest RMB/Bureau for Economic Research (BER) Business Confidence Index survey, South Africa’s business confidence is now at levels not seen since the 2009 global financial crisis – the index fell by 11 points to 29 in the second quarter of 2017.
Investor confidence in general remains low, evidenced by declined volume trading on the JSE – the value of trades during the first half of 2017 is down 15% from the same period last year. However, net foreign investment into JSE equities, which reached a decade-low quarterly outflow of –R55 billion in June 2016, saw some slowdown in this trend with the second quarter of 2017 recording an outflow of –R31 billion. There’s been a strong recovery in the third quarter to date, with net inflows of R10 billion on a trailing three-month basis. Given the low yields in developed markets, investors have been seeking out the higher yields offered in emerging markets.
Consumers appear to have lost faith in the country’s economic prospects, however. The FNB/BER Consumer Confidence Index fell from –5 in the first quarter of the year to –9 in the second. The question is when consumers – ordinary South Africans – will decide they’ve had enough. Citizens frustrated by political mismanagement, rampant corruption and lack of service delivery have taken to the streets in their thousands this year – we’ve seen protest after protest by concerned South Africans from across the political spectrum, the latest being multiple anti-Zuma marches just before the no-confidence vote.
What all this points to is that our MPs made a huge mistake in not showing Mr Zuma the door when they had the opportunity. The current rot and corruption will thus continue in the short term and most importantly, the economy will at best keep on treading water.
The big question is whether Mr Zuma’s scraping through yet again is a precursor of things to come – that Zuma ally Nkosazana Dlamini-Zuma, his ex-wife and former head of the African Union, will emerge victorious as the next ANC president at the end of the year. I don’t think we should assume such an outcome. Let’s not forget that a considerable number of ANC members – at least 30 – voted in support of the motion of no confidence. Both the ANC and the opposition claimed victory after the vote, but it’s become clear in the weeks since then that the large number of its members who supported the motion – brought by the opposition – is haunting the ANC.
The party loyalty that carried the day for Mr Zuma will not prevail during the ANC’s own conference come year-end. That will be a whole new ball game – there’ll be no opposition parties to sway members’ allegiances in favour of their own party. They’ll be required to vote in the best interests of the ANC, and – one hopes – the country. May they heed the voices of ordinary South Africans, and be captured by conscience – not the power of patronage.
We’ll be discussing the various scenarios that may unfold before and after the ANC elective conference, as well as their likely impact on investment markets, at the series of client events we’ll be holding countrywide in September.
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