South Africa calling: Burgeoning country remains steadfast on open economy path

BoE Private Clients has expressed confidence in South Africa’s short to medium-term future and investment climate, and has dismissed any notion that the country is “falling apart”.

But investors have to cultivate the ability to live with the ambiguities of South Africa if they want to realise the opportunities of investing in a developing economy, BoE Private Clients says.

Chris Cornell, Director at BoE Stockbrokers, says the “super-cycle” in which the world currently finds itself will continue to provide “outstanding medium and long-term investment opportunities”, particularly in developing countries which are due for a rapid growth in their middle classes.

“The market implications of this rise in the middle class, including in South Africa, is that the demand for financial services and consumer goods will continue to grow. Rapid and massive urbanisation drives a huge demand for commodities, while elevated global growth brings increased global trade,” says Cornell.

“However, it should be borne in mind that the business cycle still exists, and markets will be volatile.”

It is estimated that in 8 years’ time, by 2019, the South African population will have grown by six percent to 53 million people while the economy will be 29 percent bigger and per capita income will have grown by about 21 percent. Additionally, the ranks of the formally employed will have grown by 2.3 million.

Looking at the African continent as a whole, by 2030 per capita levels of income are expected to be 3 times higher than in 1980, compared with the growth in developed markets of only 2.5 times.

And globally the bulk of the growth in the middle class –projected to comprise around 4.9 billion people in 2030, up from 1.8 billion in 2000 – is set to take place in developing countries, as growth in the US and Europe is already flattening.

Cornell says that although Asia dominated opportunities at the moment, Africa, the Middle East and Latin America held “great investment potential”.

Addressing potential concerns over the stability of South Africa’s economic and investment climate, political analyst at BoE Private Clients, JP Landman, says savvy investors would do well to disregard the “foreboding mood and dark expectations” reflected in the news media, and instead make investment decisions based on observed trends. Trends do not make the news headlines.

“Despite warnings about an imminent shift to the left, the main trends since 2007, which marked the political change of guard at Polokwane, have been an increase in public sector investment and the removal of a number of binding constraints. The courts and other institutions have also continued to demonstrate their independence,” says Landman.

“Since 2007, the three basic building blocks of an open economy - a tough monetary policy, fiscal probity and a floating currency - have been retained. And both main political parties, the ANC and the DA, continue to congregate around a middle position.”

In contrast, many of the major risks predicted to come to pass under the administration of President Jacob Zuma have not yet materialised, including the passing of the Expropriation Bill, the packing of the Constitutional Court with ruling party loyalists and an ill-considered, rushed implementation of the proposed National Health Insurance scheme.

Looking ahead, Landman says he expects that the impact of government’s New Growth Path will be “lower than promised”, and concludes that past trends suggest South Africa will for the foreseeable future remain an “open society” with an “open economy”.

“By 2019, more people would have been drawn into modernity, and the social base of society would be strengthened because there will be more consumers and taxpayers,” Landman says.

“South Africa is not the miracle nation of 1994, but we are also not falling apart. We are a normal developing country with the aches and pains, but also the opportunities, which the term ‘developing’ implies.

“The skill one needs is the ability to live with the ambiguity. As an investor, if you could make money the last fifteen years, you should be able to make money over the next eight.”