A slap in the face of the cup-half-full crowd
Not so long ago I penned an article titled More than two thirds of economists are upbeat [about prospects for the South African economy]. Of course, one of our audience immediately countered with “so one third of economists are downbeat”. For context, the piece was written following an economic overview presentation delivered by respected economist, Dr Roelof Botha, who commented that between 60 and 70 economists participating in the annual Economist of the Year webinar had indicated that they were hopeful for the economy over the near term… Based on his presentation, I surmised that Dr Botha was part of this majority.
Hope does not equal economic policy
Unfortunately, hope does not translate into economic growth. And that means that the seven-in-10 hopeful, cup-half-full economists who Dr Botha ‘quoted’ will eventually yield to the three-in-10 cup-half-empty crowd, whose views were no doubt informed by the country’s performance over the last 10, 20 or even 30 years. Our disgruntled reader, and the three-in-10 cup-half-empty economists will love the focus of today’s newsletter, because I will be sharing comment by director at Brenthurst Wealth, Magnus Heystek, who recently penned a scathing rebuff of the drivel sprouted by so-called sunshine economists. Love or hate him, the article on “the scourge of sunshine economists” is well worth a read.
Heystek’s opening premise is that both businesses and individuals rely heavily on the views of formal economists. “They buy cars, houses, businesses and make investment decisions on the strength of what this or that prominent economist has said or forecast; by and large, people place a lot of faith in what economists have to say,” he writes, before reflecting on how almost every large bank or asset manager has an official economist on the payroll. The concern, according to Heystek, is with the small group of economists who spread “optimistic and uplifting stories that are not always a reflection of reality”. No surprise Dr Botha is listed in this sunshine economist cluster, alongside the likes of JP Landman and Old Mutual economist, Johann Els. To illustrate his concern, Heystek shared some upbeat ‘snippets’ produced by these economists on various platforms this year:
- JP Landman, who wrote in an article in News24 that “the country is undeniably better off than it was five years ago”.
- Johan Els, who wrote a gushing piece about South Africa’s future in News24.com recently, saying that “the time has passed for talking about SA as a failed state and an economy that will never recover” and suggesting that the country was in a much better position than it was in 2017-18.
- And Roelof Botha, presenting to the 2022 Consult Conference in Cape Town, concluded that “at this stage in our history, where we are today, there is just so little downside; and that is why I chose the theme of the upside is in take-off mode for today’s presentation”.
If it looks, feels and smells like a fabricated narrative…
Heystek vehemently disagrees with Els and Landman, saying they were “trying to fabricate a narrative about the country’s future that simply does not exist currently”. And he would probably have responded similarly to Botha’s presentation too. Heystek bemoans the fact that the economists getting coverage from the mainstream media “far too often had mandates from their respective employers … to try and influence investment and consumer behaviour, regardless of what the possible outcome might be”. It is worth noting, dear reader, that conflict of interest exists in all spheres of life. In this instance we encounter economists who are remunerated by financial services firms and product providers that will, in turn, benefit from increased demand for their banking, insurance and investment products, especially when investor confidence is high. You can do the math from there, dear reader. But instead of dwelling on this conflict, Heystek offered six objective facts to dismiss the ‘South Africa is in a better position than five years ago’ refrain.
First, average wages in the private sector are lagging inflation. “The company Debt Busters recently calculated that average personal disposable incomes have declined by 43% over the past five years; and just before his death, Brenthurst Wealth consulting economist Mike Schüssler calculated virtually the same numbers … this is a devastating number [and] probably worse than the decline in spending power [around] 1985, during the sanction years”. [Yes, the writer notes the irony in Heystek having an economist on retainer]. Second, private pension and retirement funds in the three broad multi-asset categories of high, medium and low equity exposure have performed dismally between 2017 and 2021. According to Heystek, most of these funds failed to outperform good income funds let alone inflation over the period.
Your house is not your rock!
The third factor involves residential property prices, which “have shown very little nominal growth over five years, on average”. Heystek commented that average property prices had declined by 3-4% per annum in real terms over the period, with houses valued ZAR3.5 million or higher worst affected. “Not only have prices declined in real terms, while the rest of the modern world has experienced incredible growth, but it has become much harder to sell them,” he said. The fourth objective truth is that “the average South African household has suffered a drop of more than 40% against the US dollar, from around R12.40 in the months before Cyril Ramaphosa was elected as head of the ANC to its current value of around R17.40”. You, your clients and your potential clients are all struggling to make headway against the backdrop of the continued erosion of global purchasing power.
Commonly quoted macroeconomic factors featured under points five and six, with Heystek observing that our GDP per capita peaked at US$8 810,00 way back in 2011; today it stands at just US$6 994,00. “A country suffering a declining GDP-rate per capita means that we wake up a little poorer every morning,” he writes. And finally, the unemployment rate has plummeted from 27.4% in 2017 to a shocking 33.5%, on average, through 2021. “Unemployment for people under the age of 35 is as high as 65% and millions of people will probably never enter the formal economy, never have a stable income and will never get finance to buy a house or a motor car,” laments Heystek.
Dramatic declines in wealth
To conclude: “The average person / household has suffered a dramatic decline in wealth and personal living standards over the past four to five years, [with] middle-class and even upper-class South Africans seeing their wealth evaporate or stagnate, unless they have built up a substantial offshore asset base”. Heystek is frequently criticised for his ‘everything offshore’ view; but on a brutal, unpatriotic assessment of the facts one has to wonder whether there is any other option. Perhaps it is time for certain economists and firms to accept that being patriotic does not require a head-in-the-sand, cup-half-full default view on the economy!
Writer’s thoughts:
The concerns raised in today’s newsletter remind one of the age-old battle between independent and tied financial advisers. Many would argue that tied financial advisers will favour their employers products when structuring clients’ portfolios, even if there are better products on the open market. At the very least the incentive / temptation exists! How much faith do you put in the economic views shared by ‘tied’ economists? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
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