Finding workable solutions
I often get asked why I write about the state of the South African economy as well as the financial services industry. At the end of the day, insurance is about economics. If we grow the economy, the public will have more money to save and more money to potentially spend on insurance.
It is this context that set the scene for the second day of the 2018 African Insurance Exchange, which was held at Sun City.
A wonderful mess
The key note speaker for the second day of the conference was Ludovic Subran – Head of Macroeconomic Research for Allianz.
He pointed out that the world economy is currently in a bit of a mess. However, this poses a few advantages as it is a fascinating time for investors.
To grow the insurance industry, one needs to grow the economy. Within the South African context, this is about South Africans growing the economy with South African money and not focusing solely on foreign direct investment (FDI).
Hail to the chief
For many years, the rest of the world looked towards the US for support when it comes to FDI which would drive their economies.
However, under the rule of Donald Trump, the US has become very insular with the President putting the US before the rest of the world.
“The US used to be the land of opportunity and free trade. However, Trump has continued implementing his trade bans and has continued his aggressive rhetoric towards countries such as Mexico, North Korea and Iran,” said Subran.
He has also imposed trade tariffs that have been unseen since the 1960s, and he is doing so without expecting any pushback from the countries that the trade tariffs are imposed against. The US has lost its allure and many countries are looking to strengthen trade agreements with other parties.
The unfortunate victims
These import tariffs have had a poignant effect on US citizens.
When these tariffs were introduced, the cost of vehicle imports increased. While an increase of 1% - from 3% to 4% - may not seem significant, it influences US citizens who finance a lot of their living through the acquisition of debt. Many reports have pointed out that for the first time since the Great Depression, some US families are having to face the reality that they may not be able to afford to finance an entry level vehicle.
“This has caused the US public to also become more insular. Many US investors feel that they are better off taking money that they previously invested in the European Union, Asia and Africa and putting them into sovereign loans within the US,” said Subran.
He added that since Trump became president, financial outflows from the US has been the lowest that it has been in 15 years.
Is it our turn
Does this not set the scene for South Africa to implement its own insular measures? Perhaps its time for us to focus on resolving our challenges and then growing the economy rather than looking for the US to come in and invest our problems away?
“Policymakers in South Africa have caused FDI to drop significantly. We cannot ignore this. According to recent research, South Africa is ranked 140th out of 190 countries when it comes to doing business with international partners. By contrast, neighbouring Botswana is ranked 50th within the same index,” said Subran.
He added that this is a dangerous game to play at a time when the rest of the world is looking at which emerging economy they should invest in.
Our possible way out
We need to find ways to grow our economy. And it is becoming very apparent that the South African public cannot rely on government to grow the economy by itself.
“For those who can afford it, South Africans like to invest in properties to grow the economy. And this is a good investment. However, there needs to be a greater investment in South Africa in the form of small and medium-sized enterprises. We need to create a spirit of entrepreneurship within the country,” said Subran.
Another change that needs to take place is that Subran feels that the South African public should become shareholders in State Owned Enterprisers rather than mere consumers of the products that they produce.
“If South Africans become shareholders of these companies, they will become contributors of the success of these companies. There will be an incentive to become more efficient,” said Subran.
He added that if this can become a reality, there could be a further 1% growth in the country’s GDP.
Editor’s Thoughts:
The challenges that we face are not easily overcome. Perhaps it is time for us to focus on resolving our own challenges before we try and entice FDI. I’d like to hear your thoughts. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
You are right, shares are made availible to certain members of the public.
The speaker was also an international speaker from Germany. I am assuming that he is not familiar with the level of public participation in South Africa, which is much lower than in Germany.
T think that the speaker was referring to every South African being given the option to be a stakeholder in a SOE. Report Abuse
Or am I incorrect? Report Abuse