Baby boom – times 5 with 1 still “brewing” …
Hearty congratulations to our Kirsten and her husband, Zane, on the safe arrival of their twin daughters on 25th August 2019. In just over a year the “Finlaw Family” has celebrated the birth of no less than 5 “little ones” – a son for Kerry, a daughter for Nolan, twin daughters for Kirsten and a new grandson for Marcel – and there’s still one more due to arrive within the next month for Stacey. Now if only we could all enjoy that kind of GROWTH in our local equity markets! It’s certainly not for lack of effort on the part of the “youngsters” in the Finlaw Team!
Quo Vadis?
You may remember that a year ago, in our August 2018 Newsletter, we lamented that South Africa seemed “rudderless” and that we pinned our hopes on the 2019 General Elections to set a path forward to prosperity for all. Almost 5 months later and we find the efforts to kick-start the economy largely thwarted by the faction within the ruling party still hell-bent on self-enrichment and fault deflection. Sadly, in the result, capital and skills continue to exit the country at a time when inflows and local investment are so critical to the country’s turn around strategies. The graph on 
the right shows the total return of the three major components of our local markets, Bonds, Equity and Listed Property over the past one year. The All Share index is down by -2.6%, the Property index is down by -5.5% and only the Bond index is positive by 11.2%. The picture is clear – and really shows how little confidence there is in the Country’s future. Bonds rally like this when there is no appetite for taking risk. It is also the sector favoured by foreign investors chasing the high interest yields they can enjoy here compared to the very low yields in First World countries. A five-year review of the same indices, below, clearly demonstrates how low investor confidence has been in our country. The Listed Property sector enjoyed abnormally high growth until the bubble popped in late 2017, partly in response to a Global sell-off in this sector. However, its continued decline locally is driven by our faltering economy, business closures and rising vacancies in both the office and retail sectors.
After 5 years the Bond index leads with 45.7% growth, followed by a disappointing All Share index return of 26.0% and Property of 19.5%. Not good enough!!
Cause for optimism?
As we have said so many times before – the print, television and social media services tend to fill our lives with doom and gloom. So much so that we often miss the green shoots and positive actions taking place. On the 27th August 2019 our Treasury Department released a document entitled “Towards an Economic Strategy for South Africa”. It begins with the statement “The combination of low growth and rising unemployment means that South Africa’s economic trajectory is unsustainable”. Recognition at last that continuing to do the same old thing and expecting different results is sheer lunacy! Here are some of the proposals taken from the Executive Summary: –
- Improving educational outcomes throughout the educational lifecycle, with a particular focus on early childhood development;
- Expanding effective, affordable, and integrated public transport systems and prioritizing targeted housing and urban development interventions to overcome spatial legacies;
- Addressing the skills constraint through a combination of short-term solutions (such as the easing of immigration regulations for individuals with tertiary qualifications from accredited institutions) and the long-term educational reforms discussed above;
- A stable macroeconomic policy framework underpinned by a flexible exchange rate, inflation targeting, and credible and sustainable fiscal policy;
- An independent transmission company, to be created from the unbundling of Eskom, should buy electricity transparently from independent power producers. Consideration should be given to regulation that enables households and firms to sell excess electricity they generate;
- Government should release spectrum through an auction with a small set-aside for a government-controlled network, and competition should be allowed in Telkom’s infrastructure that connects the local exchange to residential homes and businesses;
- There needs to be a comprehensive management strategy for investment in water resource development, bulk water supply, and wastewater management; including applying lessons from the successful renewable energy independent power producers programme.
These are just some of the really positive aspects of the lengthy and detailed report. As can be expected some Unionists are unhappy while Economists have generally welcomed the proposals. The document is open for Public comment until 15 September 2019 – so let’s hope the Naysayers are outnumbered by Yaysayers so that President Ramaphosa and Tito Mboweni can be encouraged to move to implementation.
The just announced GDP Growth of 3.1% in the second quarter of 2019 is a welcome relief, even if coming off a low base after the first quarter slump into negative territory. The result beat expectations so let’s be positive and hope for the implementation of the reforms identified in the above paper.
John Wallace.
