Politics isn’t the only thing

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29 April 2019
It’s election time in South Africa, and our collective hearts beat faster in line with the rising noise of political manifestos reaching our ears. Each manifesto tries to outdo the other with ever greater promises to the electorate.
 
Change at the personal level is hard; changing the structures that support nearly 60 million people just cannot be that quick. Humanity hasn’t evolved the systems to achieve a substantive level of social change quickly.

We all react to the noise and uncertainty in the country, especially when taking into account recent events, and tend to make emotional judgements and decisions on this mostly negative information.

News of any kind first needs context and perspective before one makes any personal investment decisions or choices.

Government has done some fast changing since December 2017. Replacing boards of parastatals, admitting the appalling state of our power infrastructure, the State Capture inquiry, the shifts in cabinet and major ministerial positions, rebooting the National Prosecuting Authority, Ramaphosa’s drive for external investment, progress on the mining charter (although that has recently become stuck and is possibly going under judicial review).

These are fundamental changes, even if we cannot feel their effects just yet. This didn’t happen just because of politics, it happened because of strong individuals, governmental institutions, skilled bureaucrats, a free press and an independent judiciary.  

 South Africa needs greater levels of investment from a skills and capital perspective to achieve higher economic growth. Before we are able to attract investment we first need to build business and personal confidence. Business confidence and personal confidence are similar; they are virtuous cycles and your attitude will drive your behavior which will create results. It is no different with businesses and countries.

To give you some perspective, the last time business confidence was this low in South Africa was before the democratic elections in 1993. I think government has taken numerous positive steps for us to start seeing a rise in confidence, the effects of which will only become evident after the dust from our forthcoming election has settled.

Whilst there isn’t clear evidence to support this, I believe our local businesses will respond in time with increased investment.

Globally, South Africa is a relatively small player in a complex changing world. On some measures we represent less than 1% of the value of the world’s companies, and much of this is made up of companies listed on our stock exchange that earn revenue all over the world.

The value of these companies is affected by aspects as diverse as the gaming preferences of young Chinese gamers, the price of iron ore, platinum, rhodium and palladium and other minerals and resources, the Rand/ Dollar exchange rate, and the price of oil. An example of this is the 8% rise in the shares of the Johannesburg Stock Exchange from January to March 2019, broadly in line with other stock exchanges around the world.

This rise had very little to do with the financial state of South African companies and the severe Eskom load shedding that occurred in March 2019, but rather more to do with the strength of the US economy and progress on the US and China Trade War.

South Africa is part of one of the last continents in the world that has the greatest potential for human and economic development. Africa is a target for global investment and initiatives and over time this should translate into increased development.

The first of these major initiatives is the Belt and Road plan that aims to develop trade links between China and Europe, Asia, the Middle East and Africa through a serious of massive infrastructure projects.

The second is the progress made under the African Continental Free Trade Agreement, where 22 of the 55 African Unions members (including South Africa) have ratified the agreement establishing a huge free trade area on the African continent.

As the date of our national election looms, where everyone can have their say, it’s worth keeping in mind the bigger picture, that our country isn’t just a series of election slogans.

It’s much, much more and is part of the world economy and world political system. There are reasons to be negative, but there are just as many reasons to be positive.

  

Grant Locke
MD: OUTvest
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