Category Investments

South Africa, Ramaphoria and the global backdrop

28 March 2018 Wayne McCurrie, Ashburton Investments
Wayne McCurrie, fund manager at Ashburton Investments.

Wayne McCurrie, fund manager at Ashburton Investments.

A new word has entered the South African vocabulary. Ramaphoria. The warm fuzzy feeling that permeates the fabric of the new “New South Africa”. It is really amazing how (effectively) changing one person can make such a difference. The future looks much brighter.

Let’s give some background to Ramaphoria and the global context that currently prevails.

Global backdrop

The world is a good place for commodity producers like South Africa. Global growth has been fairly consistent for a number of years. There is however one possible storm cloud on the horizon, that will be discussed later. It is however necessary to give a backdrop to the global backdrop.

Backdrop to the global backdrop

Sometimes it is to our advantage to be a relatively small country in the bigger scheme of things. The Global Financial Crisis a decade back almost brought the world’s economy to a grinding halt. We only really experienced the GFC as a “observer” and were shielded to a large extent from the fallout. Make no mistake, if the world’s economy had collapsed (and this was a real possibility without decisive action), South Africa would have been sucked in.

To “save the world” the big central banks released massive amounts of liquidity into the system in the form of Quantitative Easing. This was really just “printing money” to throw at the problem, the biggest liquidity injection ever undertaken. In monetary terms, it was of the same scale as the monetary cost of the second world war.

Interest rates were dramatically reduced so that asset prices would be supported and consumers and companies did not drown in debt.

It worked.

Now that the patient has survived (and is now actually doing quite well) the medicine (Quantative Easing) is no longer needed and is busy being withdrawn. What we are now sporadically experiencing is some form of “withdrawal symptom”.

The commodity cycle

South Africa is a commodity producer. Commodity prices are probably the biggest swing factor in our economy. We had a wonderful time in the China years (2001-2008). The commodity companies thought that the good times would go on forever and embarked on massive production expansions.

Then the GCF caught them out. The massive increase in commodity supply came on stream when the world’s economy was still recovering and as a result, commodity prices collapsed.

Commodity prices fell to such a low level that commodity companies were in dire straits. To survive, they had to slash costs and production. The long and short is that commodity prices (most important to South Africa) only started to recover at the start of 2016.

The possible storm cloud on the horizon

As discussed above, the medicine (effectively low interest rates) has worked and is now being withdrawn. Interest rates are likely to drift up globally. This is of course VERY NORMAL for this (advanced) stage of the current global economic cycle.

The actual underlying economy, and the share market that reflects it, is typically stimulated by low interest rates. Now that rates are rising, some dangers exist. While not forecasting a catastrophe, it is probably accurate to say that the best years for investment markets are behind us.

The very favorable environment for equity in particular (low interest rates and a strongly recovering economy) is near its end. This may worry the market and will at certain times almost scare the market. Be prepared for this.

The very favorable environment has also (justifiably so), driven global equity markets to an elevated level. They are “highly priced” and could be unsettled by the specter of rising interest rates.

South Africa and Ramaphoria

The true cost of the President Zuma years is that our economy should have started recovering two years ago, when the commodity cycle turned. Mainly because of low confidence, brought on by the uncertainty prevalent at the time, our economy was held back from participating fully in this recovery. Now that this has changed and this uncertainty has dissipated (with one exception), we are playing “Catch-up”.

Unfortunately, we must be cautious. South Africa is not embarking on a multi decade period of expansion at 4%+ growth rates. To get the economy to this sort of growth path does not change by changing one person. It requires an extended period of competent and rational macro and micro economic management, accompanied by the structural reforms that are necessary. Hopefully we will get there, but are definitely not there yet.

What is Ramaphoria? It is returning to where we should have been, had we not had the Zuma years. It is most welcome and we almost deserve it, but a little caution is required.

South Africa can potentially deliver a growth rate of say 2% per year for the next few years, assuming that the global storm cloud does not arrive. The Rand will most likely not collapse, but will most probably weaken a little from current strong levels.

South African orientated shares have really done well. The darlings of yesteryear, Rand hedges, have struggled in the new “New South Africa”.

Land expropriation without compensation

This is the biggest uncertainly prevalent in South Africa at the moment. While it is vital that land ownership must be addressed to promote social cohesion, how it is done is vital to market stability. This “worry” will prevail until the market has certainty.

Until this happens, we are going to hear “Scare Stories” which will worry markets / investors. We will hear “Zimbabwe land grab”, “The state will own all land”, “Chaos will prevail”, “The end of the rainbow nation” etc. Be very aware that these are lobby groups postulating to their support base. Do not believe all the “Scare Stories”.

Our new President has assured the nation that this issue will be handled with caution in a responsible manner that will not threaten food security. Until a policy document / statement is issued by the new administration the uncertainty will unfortunately still prevail, putting a bit of a dampener on Ramaphoria.

Quick Polls


The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?


Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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