“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair”, wrote Charles Dickens in the famous opening sentence of A tale of two cities, a historical novel that plays out in London and Paris, before and during the French Revolution, penned in 1859.
Drifting aimlessly through 2022
If South Africa Inc were a story, it would probably open with the darker sections of Dickens’ introduction, which we have underlined for emphasis. Each of the five highlighted phrases are spot-on in describing our beloved country’s economic, political and social reality as we drift aimlessly through 2022. In fact, things are currently so sketchy in South Africa that we can conclusively link any or all of these five phrases to all or any of the quadruple-whammy calamities mentioned in today’s headline.
Yes, dear reader, a quick review of the local news feeds proves adequate fodder to link C19, Eskom, the July 2021 looting and rioting that affected parts of Gauteng and KwaZulu-Natal (KZN) or the April 2022 KZN floods to our self-christened, five-factor model of despair. Allow me to complete the first hub-and-spoke diagram by placing Eskom under the microscope and explain why “it was the worst of times” is such an apt descriptor. After all, how else would you describe a scenario where citizens are forced to buy power from a single, state-owned electricity producer that currently has three times as much of its capacity on unplanned versus planned maintenance? Put Eskom in the hub and fill the first spoke with failed monopoly supplier.
Abundant foolishness, always on display
Our second spoke, “the age of foolishness” is complicated only by the thousands of examples of foolishness one can assess and choose from. Our favourite, recited anecdotally from a fragment of a piece we reviewed a week or two ago, is that Eskom intends reducing its maintenance in the winter months in a last-ditch attempt to keep the lights on, or on for longer. Why, one wonders, is much-needed maintenance always on the chopping block when the lack of maintenance over multiple decades is what got us to where we are today? Put Eskom in the hub and fill the second spoke with the folly of selective maintenance.
To address spoke number three, “the epoch of incredulity”, requires some lightning-quick Googling to avoid inadvertently falling victim to the aforementioned abundant foolishness! Epoch is defined as ‘a particular period of time in history or a person’s life’, for our purposes the period under the African National Congress (ANC) spanning from 1994 to present day. Incredulity, which is a far tougher word, is described as ‘the state of being unwilling or unable to believe something’ and an appropriate response to any positive Eskom-related news. You might say: South Africans responded with incredulity following President Cyril Ramaphosa’s opening address to the 4th South Africa Investment Conference held in Johannesburg, March 2022.
“We are moving with pace and determination to bring new generation capacity online in the shortest possible time [and] are doing so while undertaking the far-reaching reforms that will secure a reliable, affordable and sustainable supply of electricity well into the future,” said the President. This speech, like many previous State of the Nation and National Budget Speeches, is littered with promises to placate voters, and most government assurances around power generation and supply have rung equally hollow. Put Eskom in the hub and fill the third spoke with promises to placate the masses.
100 plus days of power outages!
How lucky we are that the fourth phrase refers to “the season of darkness”. According to an article published by TimesLive.co.za, South Africa could face up to 100 days of load shedding in what is left of 2022, with another piece on Daily Maverick hinting at elevated chances of load shedding all the way to April 2023 and beyond. Put Eskom in the hub and fill the fourth spoke with 100 plus days of power outages. We complete our rather lengthy rant with a look at the fifth and final phrase, “the winter of despair”. There is no other way, dear reader, to describe a three-month winter that promises between 37 and 100 days with some or other level of power cut. To complete our hub-and spoke diagram, put Eskom at the centre and fill the fifth spoke with a promise: winter is coming.
There must be some among my readership wondering what Dickens and the five-factor model of despair have to do with financial advice in the fields of healthcare, insurance and investment. The short answer is that all stakeholders in the broader financial services sector are influenced by the economic outlook, which is in turn being throttled by the harsh realities described in this piece. It is tough doing business in a country constrained by sub-par economic growth, rising inflation and spiralling unemployment but almost impossible when one has to navigate a series of manmade and natural catastrophes too. Do not, however, take our word for it…
Eskom, floods and looting a drag on return outlook
A recent interview broadcast on Moneyweb.com raised awareness about the difficulties facing locally listed businesses… These are the same firms that local asset managers, financial advisers and investors must line their (and their clients’) portfolios with to generate market-beating returns. JSE-listed “Cashbuild staggers under impacts of looting and KZN floods” screams the headline, as the experts reflected on the impact of 36 of the firm’s 300 stores being affected by the former event. Unemployment got a mention to: “It is a very tough call to be investing in a company … that is at the mercy of the consumers of Africa, the majority of whom do not have jobs,” said a fund manager CEO.
We close today’s article with some thoughts on the banks, insurers and resources firms that disprove our narrative with record profits despite the myriad disasters and murky outlook we have described. There does appear to be some “best of times” for these firms and, by extension, “a spring of hope” for those investors who are lucky enough to back asset managers and / or invest through financial advisers who have gone all in on the sweet spot in the domestic economy. We could write an entire column on the resources outperformance being entirely fortuitous, being entirely due to commodity price action rather than increased production. Our point is that even the outperformers are constrained by the harsh economic environment.
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