Every so often, your writer succumbs to the pull of a long-forgotten song lyric to introduce an article. In this case, after watching a YouTube video comparing ex United States (US) President Barack Obama with incumbent President Donald Trump, the lyric that came to mind was from a 1964 track by UK rock bank, The Animals, titled ‘Don’t let me be misunderstood’. In full, the lyric reads: “Oh Lord, Please don’t let me be misunderstood.”
Disclaiming Trump’s greatest hits
This lyric works well as a disclaimer or preamble to everything the 47th (and 45th) President of the US says, and will hopefully ‘stick’ with anyone reading today’s article too. The aforementioned Obama-Trump YouTube clip was designed to ridicule Trump, but instead underscores his abrasive, direct, and often provocative delivery. In the end, their vastly different communication styles meant that one was celebrated for his eloquence while the other became the butt of a comedy sketch on social media.
Trump 2.0 has been a major focus of the economic and financial market outlook presentations your writer has attended since the US Elections in November 2024. Those involved in asset management, economic number-crunching, and financial advising are all trying to figure out what the leadership change means in their respective disciplines. For asset managers and financial advisers, the focus is on the impact of Trump’s somewhat brash global posturing on financial markets and asset class allocations, while economists are more concerned over the inflationary impact of tariffs (globally) and tax concessions, in the US.
Sanlam Investments’ chief economist, Arthur Kamp, offered his thought on recent geopolitical developments during the asset manager’s second half of 2024 update, held early February 2025. “The aftermath of the US election continues to shape market sentiment as President Donald Trump is expected to pursue pro-American and pro-business policies in his second term,” he said. He offered some interesting context for the looming tariff war between the US and its main trading partners, most notably that the impact of previous tariffs was significantly lower than threatened.
Global growth and inflation projections
Entering 2025, the number crunchers were having a field day trying to figure out the economic impact of the looming tariff war. Offering a ballpark digest of analysts’ views, Kamp suggested the introduction of 25% tariffs on imports from Canada and Mexico, plus 10% on China, would add around three quarters of a percent to US inflation. The impact on global GDP could be significant too.
Sanlam Investments offered a base case for 2025 global GDP of 2.2%. They estimated that under a ‘trade war light’ scenario, this GDP number would fall to 2%, and to just 1.3% under a scenario branded ‘trade war worst case’. For the US, the Fed funds target interest rate could worsen from 3.5% under the base case, to 3.75% under the light, and 5% under the worst scenarios. South African investors will not emerge unscathed. In the same analysis, the asset manager shared forecasts on domestic GDP, headline inflation, and Repo rates.
The base case estimate for South Africa for 2025 is for 1.7% GDP growth; headline CPI averaging 4.5% over the year; and the Repo rate dropping by 25 basis points to 7.25%. If Trump goes gung-ho on tariffs, triggering the ‘trade war worst case’ scenario, local investors could see just 0.7% GDP growth while average inflation rises to 5.1% and the Repo rate worsen to 8.75%. Local investors will have to hope that the US does not respond to South Africa’s hardline, pro-BRICS posturing with direct measures, triggering a worse ‘worst case’ outcome.
Central banks could get skittish over rate cuts
The inflation and interest rate fears were echoed by STANLIB chief economist, Kevin Lings, at his opening address to the Glacier by Sanlam Investment Summit, held 6-7 February 2025 in Johannesburg. If Trump moves ahead with the proposed tariffs in a month’s time, you are going to have more inflation and central banks will become very nervous about cutting interest rates,” he said. Local investors will be holding thumbs that Canada and Mexico can negotiate significant concessions over the 30-day tariff implementation freeze, announced early February.
Lings spent a great deal of his 40-minute talk trying to explain Trump 2.0, adding his name to a long list of financial market commentators who have used the phrase ‘love him or hate him’ to frame the debate. He said the major benefit Trump brought to the table was an appreciation for the contribution that small businesses make to the US economy. “America’s 34.8 million small businesses are the backbone of that economy,” Lings explained, before enthusing over the surge in US small business confidence since November 2024. In just under three months, this measure hit its highest level in 23-years.
Whether you fawn over Trump or not, he gets what business wants, and makes sure to deliver it to them. He understands that that businesses do not want the hassle attached to the regulatory creep under President Biden, and baked ‘making it easier to do business’ into his election campaign. So, even before he signed the first stack of executive orders on 21 January 2025, US investors were relishing the prospect of deregulation that would encourage businesses to invest in the economy, to expand their activities, and hire more people. If only South Africa’s leadership would take notes.
Dead last in ‘ease of doing business’ survey
Referring to a recent report by the International Monetary Fund (IMF), Lings revealed that South Africa came in dead last out of 47 countries based on the level of business regulation. “Business employs people, business invests, business expands, business pays taxes, and business grows your economy, not the government; if you truly want South Africa to do better, then you should tell business you are going to make it easier,” Ling said, coaching President Cyril Ramaphosa on the eve of the 2025 State of the Nation Address (SONA).
Lings was hyper-critical, saying that action was needed, because the President’s words “have no weight anymore”. And as expected, the 2025 SONA word fest offered little concrete hope for South African investors. Instead of introspection, our government responded to recent US criticisms with belligerence, fists raised. And without directly responding to the recent baiting by Elon Musk, Trump, and the US Secretary of State, Ramaphosa served up the usual SONA nonsense. The speech kicked off by reminding a likely dwindling audience of the Freedom Charter and the overarching goal of sharing the country’s land and wealth, without expropriation, of course.
“We are witnessing the rise of nationalism and protectionism, the pursuit of narrow interests and the decline of common cause {aka the way America is going}. This is the world that we, as a developing economy, must now navigate {ah yes, poor, poor South Africa, moral compass of the world}. But we are not daunted. We will not be deterred. We are a resilient people. We will not be bullied.” Ramaphosa said. PS, the content in the curly brackets chipped in by your writer. The maligned US did not warrant a mention in his hour-long address, except for a lament over the 90-day halt of US A.I.D funding for certain HIV and TB programmes.
Foreign investors are taking their cash elsewhere
These are fighting words; but pointless. The rest of the world has already responded to the issues that America is flagging. Under the continued erosion of property rights, and the insane race-based based business ownership requirements introduced via the Broad-Based Black Economic Empowerment (B-BBEE) Act, foreign investors are increasingly avoiding South Africa. Lings shared two slides that illustrate the corrosive impact of these and other government policies on South Africa’s economy.
The first added some colour to South Africa’s lamentable 10-year GDP growth record. Lings pointed out that consumer spending, or household consumption, had weighed in with around 138% of South Africa’s GDP growth over the past decade. So, despite government’s continued bleating over the potential from manufacturing and mining, our resource rich country has become a glorified shopping mall. According to Lings, “We have got to get more real about South Africa, and we must get government to recognise where they need to focus their attention, [by] making it easier to do business here.”
The second shocker was a multi-year bar chart showing foreign investment flows into South African equities. From 1994 to 2011, foreigners invested USD75 billion cumulatively, helping the asset class to a 14% annual return over the period. Between 2012 and 2015, the net inflows dried up as foreign investors took a wait-and-see approach in the early Zuma years. Since 2016, offshore investor holdings in local equities have bled down to USD10 billion. “Every month in the last 20 months, foreigners have sold equities; and over that timeframe, equities have underperformed or given just above inflation,” Lings said.
Unlocking corporate balance sheets
Lings believes that South Africa Inc will excel once government addresses its infrastructure challenges and creates an enabling policy environment to unlock corporate balance sheets. From your writer’s perspective, we need to move from words to action, with the serious caveat that these actions are sensible. As Lings noted, “You may strongly disagree with some of the stuff that Trump is doing; but you cannot disagree that he is effective … he gets stuff done … and he knows what businesses need to achieve growth.”
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