Jacob Zuma will be remembered for many things but, by most people, certainly not fondly.
In fact, I think history will deal with him harshly.
Much of the (seemingly declining) support for the president is based on unquestionable support for the African National Congress as a liberation party rather than its current leader.
The list of controversies Zuma has been involved in is long and varied, ranging from being accused of rape and impregnating a friend’s daughter, to Waterkloof-gate, Nkandla-gate, Gupta-gate, Spytape-gate, Nene-gate … you name it. Many of the past decade’s political controversies have had one man at their centre: Zuma.
It’s hard to find a modern country where one individual has caused so much controversy and damage recently. I wish I could describe him as a ‘one-man wrecking ball’ but my old friend Max du Preez used that expression first.
Thus far Zuma’s term in office has been one characterised by corruption, cronyism and scandals. I’m quite sure what the public is aware of is just the proverbial tip of the iceberg. More is bound to tumble out of the cupboard when Zuma vacates his office – either as a result of being pushed or his having an attack of conscience. Just joking….
Please step down sir
Over the weekend many voices were added to a growing chorus of calls for Zuma to step down, including that of struggle veteran Ahmed Kathrada, SA Council of Churches and even the New York Times.
I don’t think this is going to happen soon. Zuma will fight this fight for as long as he can. He strikes me as someone who will pull down the whole edifice and then find someone else to blame.
There are better-qualified commentators on the consequences of last week’s Constitutional Court judgment, which found he was in breach of the Constitution and needs to repay a portion of Nkandla’s construction costs.
What a delicious irony that finance minister Pravin Gordhan is now in charge of the process to calculate how much Zuma must repay the State in this regard. Prior to his move back into the finance ministry in December, he was probably planning his political retirement, having been unceremoniously moved from his position as finance minister into a ‘political backwater’ department.
Bad economic policies
In my view, Zuma will also be remembered for something with far more destructive, serious, longer-term consequences: bad economic policies.
Currency, bond and stock markets react immediately, as we’ve recently seen. Economic policies, good or bad, take longer to take effect. Economic growth is built on a virtuous circle of confidence, capital invested, rising employment, rising profits, rising tax receipts and so on.
Over Zuma’s rule, we’ve progressively witnessed the opposite.
Confidence, both consumer and business, is at 15-year lows and capital is not being invested – if it is, it’s elsewhere in the world where it’s more welcome. Unemployment is at record levels. Economic growth is set to be below 1% this year and could even turn negative quite soon. Then there is a looming downgrade….
Zuma has been so consumed by one scandal after the other, that he’s not had much time to try to find innovative ideas to grow the economy. How does one explain that Zuma allowed Home Affairs minister Malusi Gigaba to continue with destructive visa regulations?
When he does make reference to the economy in public speeches, it’s usually a re-hash of accelerating its ‘radical restructuring’ along the lines of what’s stated in the Freedom Charter. These pronouncements are usually met with a further bout of anguish by local and foreign investors, their fingers hovering over the ‘sell’ buttons.
Inflation catching up to investment returns
For a while local investors had some personal protection against economically-destructive policies. Stock market investments by and large were, until recently, beating the inflation rate quite handsomely, while residential property sort of kept pace with inflation – depending on whose statistics you used.
But at some stage financial returns have to come back to reality.
One cannot expect investment returns to operate in an orbit of their own. The laws of gravity have not been repealed. Companies operate in a certain socio-political environment and shareholder profits ultimately reflect that environment. It’s the same with listed and residential property and even bonds.
The inflation-adjusted returns of all local investments have over the past 12 months been negative versus the inflation rate. With inflation set to increase massively over the next few months – as a result of petrol, electricity and food price increases – expect to become poorer this year, perhaps dramatically so.
Let’s have a look at major local asset class returns over the past three years compared with the inflation rate:
- Listed equities
– Over the past three years the cumulative returns of a JSE-listed investment with dividends reinvested to March 31 2016 was 44% (CPI 16%);
– Over two years 15.8%(CPI 9.8%)
– Over one year a mere 3.5% (CPI 5.5% ).
- Listed property
– Over three years the cumulative return was 47% (CPI 16%),
– Two years 43.8% (CPI 9.8%)
– One year 4.2% (CPI 5.5%).
- Money market funds
– Over three years the cumulative return was 16.9% (CPI 16%),
– Two years 10.9% (CPI 9.8%)
– One year 5.5% (CPI 5.5%).
- Multi-asset high equity (pension and provident funds)
– Over three years the cumulative return was 34% (CPI 16%),
– Two years 16.3% (CPI 9.8%)
– One year 4.4% (CPI 5.5%).
There is not one trusted statistic for the residential property market. Various companies (banks, estate agents, property analytics companies, etc) use different samples and techniques to measure the performance of the residential property market.
Whichever method is used it still reflects a depressed residential property market, with average prices in real terms still 20% below peak-prices in 2008, with an increase in nominal terms on average not more than 5% to 6%.
If one strips out prices in the Western Cape (+12%), one gets property prices increasing by not much more than 2% to 3% per year over the past year in other areas.
In certain areas in SA, as I’ve written before, the traditional residential property market has ceased to exist. If you enter a town where the estate agency has been replaced by a Chinese goods store, you know the banks are not granting bonds anymore.
Statistics aren’t telling the true story
Matters could be even worse than what the oft-touted statistics portray. This is the view of property economist Neville Berkowitz who, after a lengthy sojourn offshore, returned to SA and created low commission estate agency HomeBid.
His figures suggest (national) residential property prices rose by less than 1% in 2015 – definitely not the 5% to 6% the market tries to project.
Berkowitz says the discrepancy lies in the limited sales and transfer samples used by the aforementioned companies. He looks at every house bought and sold in SA based on South African Property Transfer Guide figures.
For instance, in 2014 there were 2 642 transfers of homes valued over R10 million (less than 1% of the market). The bulk of transfers (about 27%) were in the R500 000 to R1 million segment. Prices, on average, rose by only 0.3% during 2014 – way off the inflation rate.
Middle class being crushed
In summary, the SA middle-class is currently being crushed by a combination of sharply-rising inflation – especially food – and under-performing investment assets. The proverbial kitty is empty and it’s unlikely that salaries and wages will keep pace with inflation this year, especially in the private sector.
This year’s wage and salary negotiations could be the most volatile and acrimonious in many years.
This trend is creating a dangerous cocktail of which investors should be aware. Car sales are dropping sharply, houses are getting smaller and debt levels are rising. Even Edgars recently announced that it’s discontinuing several imported clothing lines due to declining sales. This is just the beginning: the rand’s 25% drop in 2015 is putting the cost of imported goods beyond the average consumer’s reach.
But this all pales into insignificance compared with the poor who spend most of their money on food, transport and clothing.
Talk of social unrest as a result of food prices and shortages cannot be idly dismissed anymore. SA has to spend about R30 billion in the next year to import maize and other foodstuffs due to the drought.
Even the-so called rich feel the pinch. In fact, South Africa is far less rich than our politicians tend to think. In a country with more than 55 million people, there are only slightly more than 100 000 taxpayers earning over R1 million per year, contributing 26% of all personal income taxes. You could get them all into FNB stadium.
We need policies to create growth and prosperity, fast.
It would be churlish to blame the current situation all on one man. There are extraneous factors, such as the drought and the commodity cycle collapse. But a president more focused on national interest – especially considering the current dire economic situation – rather than his own survival, would have made a massive difference to the national mood.
*Magnus Heystek is an investment strategist at Brenthurst Wealth. He can be reached at firstname.lastname@example.org for ideas and suggestions.