Is the cup half full crowd too bullish on South Africa Inc?
A couple of days back, I attended a fund presentation by one of South Africa’s leading diversified financial services providers to a group of independent financial advisers (IFAs) and tied agents. The presenters shared the usual macroeconomic world views and fund return statistics before diving into the asset allocation strategies that they hoped would place their funds ahead of both fund benchmarks and peers over the coming 12-months.
The cup half full frenzy felt a bit OTT
Today’s op-ed is less about what these experts revealed about optimal weightings to bonds, cash and equities, locally and offshore, in a balanced fund or fixed income world, and more about the enthusiasm they shared for South Africa’s economic and political prospects.
It is not uncommon for large corporates to fawn over government. But there comes a point where overtly ‘cup half full’ assessments transcend the rational, plunging the audience into an Alice in Wonderland world where Eskom and Transnet are fixed and fully operational, the Government of National Unity (GNU) is the best the country has ever had, and businesses can power ahead totally unrestrained.
Eskom is fixed, declared one presenter, citing the end of loadshedding as unequivocal proof. Sitting in the back benches, I wondered what parallel universe this fund manager was investing in. Earlier that day, courtesy 702 Talk Radio, listeners heard that Eskom was anything but free and clear. Yes, its energy availability factor (EAF) is above its worst levels ever, with a year-to-date 60.14%. And yes, there has been no loadshedding for what seems like ages. Even so, the state-owned enterprise has already used up 40% of its 2025-26 diesel budget, burning R5.842 billion of the fuel between 1 April and 7 August alone.
Burning this diesel has not guaranteed the lights stay on. One caller to the talk show lamented that her suburb was still on a two-hour-per-day cut, every day. And this is not an isolated case. In a media statement issued on 8 August 2025, the electricity producer confessed, “To protect critical infrastructure, Eskom is compelled to implement load reduction by switching off power during peak hours in high-risk, isolated areas to prevent potential damage.” What is that if not loadshedding?
Consumers pay for Eskom’s inefficiencies
The cost of keeping the lights on places an unnecessary financial burden on business and household consumers, who are forced to soak up above inflation price hikes year after year. Eskom, in my view, continues to weigh on the country’s economic growth prospects rather than being the enabler the presenters suggest it is. Their upbeat comments about recent improvements at Transnet should be filed in the same drawer.
Turning to politics, your writer agreed with the classic description of the GNU as a “dysfunctional, loveless marriage” but found the suggestion that this marriage would last until 2029 less palatable. Yes, there are signs of a turnaround at government departments headed by new or reassigned Ministers, notably the Department of Home Affairs and Department of Public Works. But one is left wondering how much better the GDP growth outlook might have been had the country’s resources sector been allowed to prosper sans the seven-year-long light touch (sic) regulatory approach of one Minister Gwede Mantashe.
The presenters seem to be pinning their hopes on Operation Vulindlela (OV), a joint National Treasury and Presidency initiative launched in October 2020 to reignite economic growth. The initiative aims to fast-track structural reforms in key sectors such as digital communications, electricity, freight logistics, water and the country’s visa regime, to name a few. Phase 1 focused on removing barriers to growth and improving the investment climate; and Phase 2, from 7 May 2025, builds on these reforms by tackling bottlenecks and accelerating delivery.
The unending policymaking faux pas
The big question mark is whether government’s broader policymaking aligns with the pro-growth reforms proposed in OV. One could argue that a government keen to attract foreign direct investment might steer away from policies that cause investors to think twice. Obvious examples include the Broad-Based Black Economic Empowerment Act (and amendments) and the recently-assented Expropriation Act, neither of which ring an ‘invest here’ tone. Mining legislation and government’s confrontational anti-US stance are not helping matters.
The presenters were critical of US President Donald Trump throughout, and dismissive of his trade tariffs, trotting out statements like “BMW has already found a market in Canada” and that it only affects 4% of our agriculture exports. Less than a day later, Fin24.com led with a piece titled ‘Government mulls big changes to auto subsidies, as BMW warns of existential crisis in SA.’ Clearly, BMW SA is concerned about the impact of tariffs, with the likely outcome being either local taxpayers pay even more to keep auto manufacturers here, or plants being mothballed and jobs erased.
As an aside, your writer remains perplexed by South Africa’s indignation over US tariffs. Our country has long used subsidies, tariffs and other protectionist measures to shield local industries from foreign competition, notably in its automobile manufacture and steel industries. Although these policies protect jobs, they often entrench inefficiencies and saddle taxpayers with the cost of sustaining uncompetitive businesses. Case in point, the long steel division that Arcelor Mittal is contemplating closing, again.
Too many models to mention
Decades of government support have also contributed to a sprawling automotive manufacturing base that produces way more vehicles than the domestic economy can absorb. Ironically, the costly protections paid to local manufacturers have been eroded by an ‘all comers welcome’ attitude towards Chinese and Indian motor brands, an aspect not lost on the presenters. They estimated that South African consumers could choose from well over 3500 motor manufacturer / model combos compared to the UK, a far richer economy, with only 1400 or so.
The presenters’ joy over the JSE All Share index topping 100000 points for the first time was well received, but tempered by the latest gains being entirely carried by the gold and platinum stocks. Big price moves in Anglo Gold, Gold Fields, Impala Platinum and Northam – with cameo performances by the likes of British American Tobacco and Naspers/Prosus – were weighted by downward moves in consumer-facing stocks such as Foschini, Mr. Price and Truworths. Even Nedbank was down around 16% year-to-date 13 August 2025.
To end on an upbeat note, the current precious metals rally promises to address a few thorny issues. First, the boost in mining royalties and income tax should bolster National Treasury’s 2025-26 revenue collections. And if gold and platinum can retain today’s levels (for exports) and oil (for imports), we could see positive outcomes on our balance of trade. These improvement, coupled with the Reserve Bank’s recent move to a 3% inflation target, should also lend support to the rand against the US dollar and other developed-market currencies.
Eskom and Transnet reforms critical
The fund managers were bullish on South African bonds and selected equities, but noted that GDP growth of 2% or better was non-negotiable to lure foreign investors back to our shores. Much of their optimism hinged on progress at Eskom and Transnet translating into sustained, multi-sector productivity gains. They argue that unlike during the last commodity price boom, we now have the electricity to haul minerals from the ground, and the transport capacity to get it to market.
Upon reflection, this presentation was a masterclass in selective optimism. The fund managers’ confidence in South Africa was infectious; but built on a narrow set of positive data points and best-case scenarios. An optimal outcome depends on political will and policy execution keeping pace with the market’s expectations. For now, investors would do well to temper their enthusiasm with a healthy dose of scepticism, remembering that even the rosiest forecasts fall flat absent political cooperation.
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