Has the Expropriation Act deflected from SA’s Davos performance

Today’s newsletter played out during happier times. It describes the world as it was when global decision-makers flocked to the World Economic Forum Annual Meeting in Davos, Switzerland, held from 20-24 January 2025, back when a South African delegation represented our country as ‘open for business’ and an excellent home for foreign direct investment.

In the final days, pre-expropriation

Yes, dear reader, these were the five wonderful days during which President Cyril Ramaphosa, shadowed by his Government of National Unity (GNU) partners and a handful of ‘Team South Africa’ acolytes, roamed the corridors of the global think tank, telling all and sundry about our land of opportunity. 

Alas, mere hours before the event ended, our esteemed leader inked his name on the new Expropriation Act. Global citizens and corporations considering investing billions on our shores might have interpreted this move as saying: “You can invest your dollars whenever you want, but they might never leave.” With apologies to The Eagles and their hit single Hotel California. 

There was so much hype around our participation at Davos 2025 that global investment bank Investec stumped for a three-part ‘special edition’ podcast to talk it up. Hosted by well-known journalist Jeremy Maggs, the first of three podcasts, and focus of today’s article, set out to determine what an increasingly uncertain and unpredictable global macro environment meant for businesses, economies, and financial markets. This show canvassed ‘on-the-ground’ insights from Investec South Africa CEO, Cumesh Moodliar, who was among the Davos attendees. 

“Over 3000 leaders from business, civil society, and government [alongside] pre-eminent cultural and scientific thinkers from right across the globe have gathered this week under the broad theme of ‘Collaboration for the Intelligent Age’,” said Maggs, before interrogating his interviewee on topics as diverse as growth, international trade, protectionism, and Trump 2.0. 

Beginning with economic growth, the host hinted that the United States (US) would have to contribute the lion’s share of the International Monetary Fund’s (IMF) 3.3% global GDP growth forecast for 2025, especially in the context of constrained outlooks for China and much of Europe. 

A decade of sub-optimal growth

South Africa’s GDP outlook is stark by comparison. After languishing at or below 1% for the best part of the last decade, the IMF’s near-term forecast of just 1.7% does not offer much hope. And the more optimistic growth estimates conjured up by domestic commentators could derail if the rand stumbles. “None of us assumed that we would enter 2025 with the rand hovering near R19,00 per USD; the risk from a South African perspective is one of imported inflation off the back of a weaker rand,” Moodliar said. Yes, the weak rand boosts exports, but this positive outcome is being eroded by our ailing logistics infrastructure. 

The combination of low growth and a weaker rand will weigh on financial advisers and planners as they contemplate the all-important asset allocation decision for clients. Yes, you can generate financial market returns in a low growth environment; but slow domestic growth tends to skew the all-important offshore versus onshore debate. Advisers face a tough choice; either back local equities to finally deliver on their value promise or stick with the trending return bonanza from offshore markets. 

Maggs asked his guest if South Africa was “on the right path to achieve economic growth.” The Investec CEO was overall positive, singling out 300 days of consistent electricity supply, ongoing collaboration between government and the private sector, and renewed investor interest in the southern tip of Africa as economic drivers over the coming years. He also noted potential spin-offs from the seat of the G20 moving to Johannesburg. On the flipside, he expressed concerns over the lack of urgency around critical infrastructure upgrades. Keep in mind these comments were made prior to the signing into law of the Expropriation Act on 23 January 2025. 

America First, the rise of protectionism

One of the major themes emerging from Davos was a decline in inter-country cooperation due to ongoing geopolitical tensions and the rise of protectionism. These shifts introduce significant challenges for asset managers and other allocators of capital. 

According to Moodliar, investors can look to a sort of ‘re-contracting in global trade’ over the coming year, exemplified by the ‘America First’ policy being broadcast by the Trump 2.0 administration. He added that many countries were taking steps to reflect political changes following a record number of elections held in 2024; case in point, the US’ posturing on the Paris Accord and WHO membership. 

Maggs asked which of the global developments would have the greatest impact on the domestic economy. “Our trade and economic engagement with the US will be under a microscope in the new Trump administration,” Moodliar said. The good news is that the AGOA trade agreement will remain in place through 2025. However, South Africa cannot take the trade benefits that flow from this arrangement for granted. The Investec CEO suggested it was prudent for South Africa to take a politically neutral view on geopolitical issues and warned that some of the country’s recent global engagements risked being viewed as partisan. 

It is not yet clear to what extent the US will enforce trade tariffs on other countries. To date, they appear to favour using the threat of tariffs as a blunt tool to achieve other policy concessions. Whatever the case, financial advisers will have to think long and hard about how clients’ portfolios are geographically positioned. A win-win for adviser and client is to explore diversification strategies that mitigate regional risks and ensure balanced exposures across both asset classes and sectors of the global economy. 

The flickering ‘open for business’ sign

What is the ideal message for South Africa to broadcast globally? “We are open for business; we are a business-friendly and investor-friendly destination; and we welcome the world platform that we now have to engage more globally [and from which] to showcase the beauty and opportunity that South Africa has to offer,” Moodliar said. He reminded Maggs that many international investors viewed South Africa as a gateway to the rest of the continent. 

The message that the Investec CEO suggested Team South Africa promote at Davos: “We still believe that many domestic assets, across asset classes and sectors, are undervalued; we have got to actively promote the narrative that South Africa’s framework has changed; that the underpins for growth are here; that we are rich in both human and natural resources; and that we want to engage … we must show a business-friendly and investor-friendly ‘face’ to the rest of the world, in an authentic way.” 

As for creating a friendlier investment environment, the podcast called for certainty across the regulatory landscape, with laws aimed at enabling business rather than perpetuating bureaucracy. “The perception we need to create is that we are an open, free-market economy, but with a significant obligation to create inclusive growth across all sectors of society and the economy,” Moodliar concluded. 

Mixed signals; and the timing sucks…

Alas, as is often the case, our government quickly undid its Davos progress. It undermined the major investment in marketing brand South Africa to the world’s rich by signing an act that gives it the means to fast-track expropriation of assets where such action is in the public interest. You might defend the new law as ‘in line with the old act’ or ‘necessary to address inequality’; but the timing still sucks. 

Writer’s thoughts:

Policy decisions such as signing an Expropriation Act can undermine government’s carefully crafted messages of economic stability. What can financial advisers do to reassure clients that their long-term investment strategies will hold up against these policy faux pas? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.