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Advisers, brokers should brace for a slow growth future

20 September 2023 Gareth Stokes

The brokers and financial advisers struggling to grow revenues and profitability at the frontline of South Africa’s faltering economy should brace for a few more years of hardship, unless Hersov’s Dream becomes a reality. Until such time, this writer has some sad news to share. Even if government finds a miracle cure for Eskom, there are too many other constraints acting as a drag on the country’s GDP growth.

Inflation and interest rates ‘drag’

In its recent weekly economic update, FNB, one of the country’s big four retail banks, noted that “improved global growth prospects, the [slight] domestic load-shedding reprieve, and slower inflation” were not enough to offset the country’s weak economic fundamentals. 

The bank flagged the impact of higher inflation and restrictive monetary policy as key constraints acting through the second quarter of 2022. FAnews readers will be familiar with the impact of higher interest rate on their clients’ disposable income as debt servicing costs go through the roof. In this context, the country’s business and consumer confidence indices were “more subdued” in the second quarter of 2023 compared to the first. In fact, both indices are tracking 15 or more points below their long-term averages. 

One must feel a smidgen of sympathy for economics writers tasked with spreading the good word on South Africa. How else can you describe the bank’s “cautiously optimistic” decision to raise its target for the country’s 2023 GDP growth number from -0.1% to 0.2%? The bottom line is that anything below 5% leaves the country sliding backwards against its global peers; even mega emerging market economies (and BRICS buddies) China and India have pencilled in 5% or better for the coming year. Meanwhile, in SA, “growth is expected to gradually lift to 1% in 2024, reaching 1.8% in 2025 and 2026,” writes FNB. 

Oh boy. This writer can only imagine how this news will shatter business activist and global entrepreneur Rob Hersov’s dream for a better South Africa. PS, his presentation to Biznews’ 10th Anniversary Conference is worth watching and contains some very rare public condemnation of certain political parties, party leaders and even private business execs. 

Special place in hell for those ‘appeasers’

“I reserve a special place in hell for those business leaders in this country who are not standing up and speaking truth to power,” Hersov said. He could not find many positive things to say about South Africa circa August 2023, so he compromised by sharing a dream of a country under new political leadership; growing at 8% per annum; with unemployment falling to 20% [or lower]; and truckloads of foreign direct investment flowing into the country. “Money is not coming in because of the ridiculous overregulation; the racial bias to all our laws; the weakening of property rights through expropriation without compensation, which is theft; and all the incompetence and mismanagement and socialist ideology of the African National Congress,” he said. 

Hersov’s Dream is not unobtainable. During a recent Momentum Investments event, economist Sanisha Packirisamy commended Mauritius for “transcending its status as a struggling sugar-driven economy to [now] boast the second highest per capita income among African countries, earning the top rank in the World Bank’s doing business survey for all sub-Saharan nations in 2020”. According to Packirisamy, Mauritius has successfully charted a robust developmental path focused on sustained economic growth. “The country’s achievements can be attributed to a combination of factors including political stability, a robust institutional framework, minimal corruption levels and a favourable regulatory environment,” she said. 

All good, but what about electricity, inflation?

Electricity supply constraints featured strongly in FNB’s economic update, with the bank predicting stage 4 to 6 loadshedding to persist well into 2024. Salvation, per the bank, will take the form of a gradual easing in supply constraints as private sector energy generation comes online. 

Unfortunately, the South African Reserve Bank (SARB) is unlikely to enter an interest rate cutting cycle any time soon. “Inflation is moderating but interest rates look certain to remain higher for longer,” said FNB. Consumers can expect some relief from slower increases in food and fuel prices; but core inflation could prove sticky. “We forecast average headline inflation of 6.0% this year, slower than 6.9% in 2022, and falling to just above 5% for next year,” the bank said. Interest rate cuts will probably be pushed back to the second half of 2024. High inflation and interest rates have a significant impact on the poor and unemployed. 

“The bottom 30% of spenders in South Africa have experienced an average inflation rate of 10% in the past six months [and] the subsequent tightening of monetary policy added an extra pinch to struggling consumers,” Packirisamy said. The scriptwriters at Momentum Investments deserve praise for identifying five areas where government could score ‘quick wins’ for the economy; but this writer doubts the asset manager’s rosy account of Operation Vulindlela’s successes under headings like: electricity supply; freight logistics; water reforms; digital communication; and an improved visa regime… 

Time to switch dreams?

Should Hersov’s Dream be replaced by Packirisamy’s? “If authorities act quickly to promote these [five] low hanging opportunities by creating an enabling environment for more private sector participation, increasing competitiveness in the country’s product and labour markets, restoring the integrity of our democratic institutions and reducing corruption … we could get the economy going again,” Packirisamy said. The writer agrees, but encouraging sentiment only gets us so far. And unfortunately, the nightmare we face today derives from phrases like ‘national democratic (sic) revolution’ NDR and ‘radical economic transformation’ RET. 

Hersov challenged his audience, influencers and the wider business community to speak truth to power. “For those of you who still believe President Cyril Ramaphosa is a reformer … for those of you who believe he is not pushing forward with the NDR, for those of you who believe he is not part of the RET, the greater fool you,” he warned. Remembering his publisher’s instruction to “keep things positive”, this writer quickly dived back into the Momentum Investments for a concluding soundbite from the most positive negative speech ever. He found it in: “Let us not forget that South Africa has enormous potential supported by its diversified economic structure; an abundance of natural resources; deep capital markets; a first world financial system; strong institutions such as the Reserve Bank and an independent judiciary; and a free media”. All fixed, dear reader. All fixed! 

Writer’s thoughts:

Rob Hersov’s ‘no holds barred’ assault on government, the ruling party and private sector leaders was not unexpected; but the critical undertone in Momentum Investments’ economic presentation was somewhat surprising. Do you think the private sector is doing enough to hold government to account? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za

 

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