Beyond 100 Years

Jun 28, 2018 | Financial Planning, HomePage, Market & The Economy | 0 comments

Estimated Time To Read: 3 minute(s) 51 seconds

Many of us are unaware that South Africa’s stock market has been one of the world’s best performing for nearly 100 years, despite underperforming inflation for the last three years. So what makes us unique and what are the underlying reasons for this success and the key question, can we realistically expect this to continue?

One of the biggest factors contributing to South Africa’s success in the last 100 years has been the industrialisation of developed and, more recently, emerging markets. This created massive demand for our mineral resources and, coupled with China’s economic reforms, which led to the “commodity super cycle” in the 2000’s, this provided stimulus for economic growth and helped to give South Africa a unique selling proposition (USP).

But what does the next 100 years look like? By all accounts, the prospect of another 100 years of support from commodities is optimistic. Although industry will still need material inputs, it is unlikely that this sector will be a major driver for future economic growth.
Although confidence has improved since Cyril Ramaphosa’s was elected as president earlier this year, the contraction of 2.2% in GDP for the first quarter came as a surprise, and highlighted just how fragile South Africa’s economy still is.

Locally, private sector fixed investment needs to pick up from low levels. South African corporates have been reluctant to invest locally given low confidence levels due to a weak currency, slow growth and political uncertainty. The uncertainty around issues such as land reform and the solvency of state owned enterprises need to be resolved imminently. We need to rebuild confidence in South Africa, but that alone will not grow the economy sustainably.

President Ramaphosa is hoping to attract $100 billion in new foreign direct investment in the next five years. However, before we can attract foreign direct investment, the environment needs to be conducive for business to grow.

What should South Africa’s focus be for the future?
A future USP would need to have the potential to be significant in size, have a sustainable competitive advantage, and be a product of our South African “uniqueness”. Without it, there’s a likelihood we could become a consumer economy, reliant on others to produce our goods and provide our services. For the time being, we don’t have any obvious USPs, but the potential options that we can build upon include:

  • The ‘Gateway to Africa’
    With the largest undeveloped economy right on our doorstep, we may be the most effective access point for Africa to integrate itself with the global economy. Although it would be more complex than the India or China equivalent, there is massive potential to supply all forms of goods and services, including commodities. Some companies are already making inroads globally.
  • The emerging middle class
    This could be one of the key areas for growth, where improvements in standards of living create a wealth benefit, which is compounded across all sectors of the economy. This trend is apparent in many emerging markets, although South Africa has lagged due to historical factors. The government has started implementing the National Development Plan, which is aimed at improving socio-economic welfare for the population. The objectives are predominantly improved services, education and infrastructure. If executed well, this could attract foreign direct investment and encourage growth of the emerging middle class.

Which industries could potentially be a USP for South Africa to offer the world?

  • Tourism
    This is a key area for future growth. By attracting more people to this beautiful country, we can create a significant number of jobs, across all skill sectors. Creating employment has the potential to reduce crime levels, an imperative if the tourism industry is to thrive. Incentives could be provided to up skill employees in this sector.
    Although travelling in South Africa is relatively affordable in comparison to other countries, there are issues that need to be addressed. To attract visitors from other destinations, the cost of flights would need to be reduced, and visa requirements simplified.
  • Global outsourcing
    Our time zone, use of the English language and general education levels make South Africa a favourable destination for outsourcing services such as call centres and administration. Geographically, we may not be as favourably positioned as Ireland, for example, but global companies could be attracted with possible tax incentives. A further incentive is our relatively weak currency, which reduces costs. And call centres do not have to be located in major cities, which would reduce costs.
    Outsourcing to South Africa would provide valuable training and create employment on a large scale, with positive spin-offs for our economy. Financial services are a possibility given the high level of sophistication relative to many countries, although the volatile political environment would render it unsuitable as a safe custody domicile for global investors.

How do we attract local direct investment?

  • There are concerns about existing economic empowerment policies, which require entrepreneurs to risk their capital by donating a large portion of their profits or shares to someone who has not taken on any risk. Reviewing this would still encourage participation, but would improve confidence levels.
  • The lack of incentives to invest capital in the manufacture of goods from readily available commodities also needs addressing. The opportunities for growth and employment are enormous, but labour policies need to be reasonable in order to reduce the incidence of costly strike action. Government has promised that the mining charter will be finalised soon, which is a positive.
  • We could learn something from President Trump and look at introducing tariffs on selected imports, with the focus on goods that can be manufactured locally.
  • Tax incentives to invest in venture capital businesses have been well received, but growth in this area has been slow. These incentives need to be promoted and the time frame extended to encourage more investment in these companies.

There are many possibilities that could drive the next 100 years of growth in South Africa, despite the fact that currently we are not well positioned in the more obvious fields of technology and science.

What has been apparent in all of South Africa’s success stories of the past 100 years is that as a nation we are resilient, hard-working and optimistic, with an inherent ‘can do’ and always ‘make a plan’ attitude. These are qualities that we will need to continue to build up and work with when navigating the next 100 years and beyond.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Share This