Since democracy in 1994, South Africa has been on an upward growth path when it comes to economic growth. The South African story of optimism and our hard working nature opened the country up to opportunities making us key trade partners for many global destinations.
Where did it all go wrong? Over the past two years, economic growth has slowed down and the lofty ambitions of a 5% economic growth by 2030 looked like a dream. South Africa is currently in a technical recession and will have to fight tooth and nail to avoid an outright recession by the end of the year. Added to this is the looming pressure of another credit rating downgrade.
These were topics that were discussed at the recently held Nedgroup Investments 2017 Investment Summit which saw a number of the country’s top minds in economics and politics share their view on the state of the nation.
The long road to here
While the economy is finding some traction, being driven by commodity and manufacturing demand, South Africa still has a long way to go to re-establish itself as a shining light when it comes to bustling economic activity.
Many will stand back and ask why we found ourselves on the road to here; but as Nicky Weimer – Senior Economist at the Nedbank Group – pointed out, the road to here has been a long one.
“We have been on the current economic road for some time. Some of the aspects that contributed to our current position include uncertain economic policy, a dysfunctional labour market, a public sector that is battling to maintain the standard of work that it used to, and weak government financing as well as growing public debt,” said Weimer.
While South Africa has mostly been its own worst enemy when it comes to this, our own actions are hardly 100% the cause. Weimer pointed out that South Africa has also had to deal with one of the worst droughts in the country’s history and a global economic landscape which took a long time to deal with the aftermath of the 2008 Global Financial Crisis.
The snowball effect
Because of the above challenges, it is safe to say that confidence is not a commodity that is abundantly found in the South African market.
In fact, companies are very skittish. As soon as they get a hint of governments that have poor economic policies or governments that could be involved in state capture, the aura of the country they hope to invest in becomes damaged.
“When companies don’t have confidence, they don’t invest. Local companies also do not invest in capital expenditure. They stop employing and start retrenching, which results in slower wage growth. This slow moving snowball effect puts pressure on household income which means that the favoured South African past time of consumer spending takes a backseat,” said Weimer.
Answering the question
While we are making progress in answering the question of how we got to this juncture, we still lack one vital element in the equation.
It is no secret that the rest of the country can do its best to kick start the country’s economy, but if government does not come to the party, we are throwing water into the wind. As Professor Piet Naude – a Director at the University of Stellenbosch – pointed out, South Africa’s main problem is that it is being let down by ethics.
“South Africa has a rich history – since democracy – of having leaders who were leaders of conviction; leaders who had a deeply rooted code of ethics that was driven by the preamble of the constitution. Can we say that this is the case now?” asked Naude.
He added that a sign that we are living in a situation where ethics is letting us down is when we blame and shame those who are trying their best to do the right thing for the country while adding to the social approval of those who do deplorable things. To explain this further, Naude pointed to the fact that when convicted fraudster Tony Yengeni was released from prison, the crowd carried him away on their shoulders.
Hard work
So we can see that the trust deficit regarding South Africa is based on fact rather than fiction. But even in our own industry, there are contributing factors to the current trust deficit the industry is currently experiencing.
Unfortunately, the public pay more attention to bad news than good. While the industry is filled to the brim with great advisers who move mountains for their clients, there is the small minority who don’t.
Regulatory reform aims to change this. Let’s just hope it doesn’t make the advisers job harder.
Editor’s Thoughts:
Ethics has been the major driver of the financial services industry for many years, and by-in-large, the industry is very ethical. However, hard work lies ahead for the industry and the country to adhere to even greater codes of ethics to re-establish growth. Are we ready for this push? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.