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Quo Vadis: Where to now for South Africa? Where are we going?

The questions on everyone’s lips regarding the state of South Africa’s economy.

This is a question that unfortunately does not have a definitive answer. But first, a commentary on commentaries:

Forecasters for the future

Whenever you see people on TV, hear them on the radio or read their articles, remember that nobody knows the future. This includes this article. Predicting the future is a very inexact science to say the least.

Forecasters of the future for South Africa

As in any society, you have the “glass half full” type of people and the “glass half empty” types. There have been many predictions for South Africa and as you can expect, there are optimistic people and pessimistic people. At the time when predictions are made you have no idea who is going to be proved to be correct and to what extent they will be correct.

In the past, there have been many predictions that have proven to be excessively optimistic or excessively pessimistic. The reality has turned out to be far less excessive than either of these prediction outliers. This is typical of a bell curve type of probability outcomes. What I am trying to say is that, despite many excessively pessimistic predictions over the decades, South Africa is still here and is still functioning and still has many problems to overcome. It is not the utopia with sustainable 5% growth rates as predicted by the optimists, nor is it the disaster predicted by the pessimists. The future will most likely also fall between these two polar predictions. Remember this is also a prediction.

South Africa is an emerging market and has been so, basically since the gold rush 100 years ago. This is not going to change in the foreseeable future. So, while we should always strive to improve, we must realise that as an emerging market our country will have bad news, will have a structurally weak currency, will have policy uncertainty, will have a lot of negative comparisons if you measure against a developed economy. To quote a friend of mine who I respect greatly, “This is not Switzerland”. While it is not Switzerland, equally this is not Argentina, where the currency has fallen 75% in the last year. Or as an extreme example, Venezuela, where the currency has fallen 2 489 709% in the last year. In the last year, the rand has fallen 8%.

What are we like as South Africans?

There is an index called the misperception index. This index measures the average citizen’s perception of their country against the actual statistical reality. South Africa comes out first (or last depending on your view) in this index. When measured against statistical reality we as citizens have the biggest gap (negatively) against the reality of South Africa and our perception of that reality. Remember this index does not say that South Africa is good or bad, it just measures perception against reality.

In other words, the average South African is a grumpy person that must cheer up a little. Things are not as bad as we perceive them to be! Maybe put it in another way: South Africans like a bad news story about South Africa as this seems to fuel our negative perception gap about South Africa.

What has the past shown us?

Sometimes we need to look at the reality of South Africa. We all know the bad news. So here I am going to take a “glass half full” approach by stating some of the good news deliberately and just by mentioning a few:

  • Inflation averaged 14% from 1970 to 1993. Since then it has averaged around 6%
  • Overdraft interest rates averaged 17% from 1983 to 1999 and have averaged 13% since then, with the current level at 10%
  • The rand is a structurally weak and very volatile currency and will remain so for the foreseeable future. However, the average depreciation (against the USD) was far worse in the past:

            rand fell 220% in the 1980’s

            rand fell 130% in the 1990’s

            rand fell 22% in the 2000’s

            rand has fallen 95% since 2010

While the present picture is not pretty, the rand is not worse than the past. It is in fact a little less bad.

  • Housing prices (ABSA housing price index before inflation):

            Rise in the 1970’s         125%

            Rise in the 1980’s         232%

            Rise in the 1990’s         127%

            Rise in the 2000’s         325%

            Rise since 2010            43%

While the rate has decreased dramatically since 2010, the rise was dramatic in the prior ten years.

  • Household net wealth to disposable income (Sarb numbers)

This ratio deteriorated from +-370 in the 1980’s to 290 in 1990 and stayed there until 2002. Since then it has increased back to 374. So according to this (wealth) index, we are in the same position as we were in 1980 – not a good statistic at all (Glass half empty view). A glass half full view would retort and say that it has risen from 290 to 374 in the last two decades!

  • Investment returns are very difficult to estimate, but using the average balanced fund unit trust return (including global assets but before fees and tax), the return since 2000 has been 343%. This has been a good double-digit return, even if the return has almost gone sideways since 2015.

Remember that here I am deliberately looking at good news in a positive light. Statistics are wonderful – you can find always find figures to support your view if you look hard enough and manipulate the start and end dates.

Global investing

Any portfolio must include a very healthy exposure to global assets over time. You gain from exposure to many different asset classes, industry segments, structural growth and themes that are not available in South Africa. You also benefit from a structurally weak rand over time. 

The rand is not always weak and we must remember this. We seem to forget it was R12 against the USD in 2002. The next stop was R6 against the USD. But many people took as much money overseas as they could at R12. They had to wait until 2015 just to break even on the exchange rate.

Global assets are also not a one-way bet. Investment markets are volatile and will always be. South Africans were desperate to get global equity in 2001. After all global equity had risen 300% over the last 10 years, while the JSE did nothing in USD. Then from 2001 to 2007, global markets did nothing while the JSE went up 400% in USD. Markets are impossible to predict. The only potential remedy to this is a well-diversified balanced portfolio and even this may only work over long time periods.

What is South Africa?

Our economic conditions are affected by many variables, which change over time and have different influences and consequences. One thing seems to be reasonably stable: we are a commodity producing emerging market and as such the direction of our economy is greatly influenced by the global commodity cycle. The “good times” from 2002 to 2008 related to the dramatic bull market in commodity prices, driven by China. During this time, the rand price of commodities rose some 300%, despite rand strength.

Post this, rand commodity prices halved between 2010 and 2015 and have now recovered 40% since then. In other words, they are still 60% lower in rand terms compared to 2008. We cannot expect a thriving economy without a thriving commodity cycle. Obviously, there are plenty of problems (challenges if you are a glass half full person or a politician) that should be addressed in South Africa to improve the economy (“self-help”). A fair amount of the economic problems from 2008 to 2015 can be attributed to the collapse in the commodity cycle. Politics clearly did not help at all, but did not drive the downgrades in my opinion. A collapsing commodity cycle was the main driver. Simplistically, we cannot heap all the blame on ex-President Zuma for the credit downgrades. We would have got downgraded irrespective of who was president in a collapsing commodity cycle, but most likely would not have skated with junk status.

Why are we feeling so glum at the moment? 

After the ANC elective conference last year, the “glass half full” people ruled! Excessive optimism abounded. “Glass half empty” people and views were banished. I suppose it was unrealistic to think that everything could change in an instant. Now however the opposite seems true now: we are somehow worse off that what we were before the ANC elective conference.

In my view, the glum feeling permeating South Africa can be attributed to:

  •             The elephant in the room
  •             President Trump and trade wars and tariffs
  •             Excessive optimism as a base
  •             A small downturn in commodity prices
  •             A (again relatively small) depreciation in the rand
  •             The terrible first quarter GDP number (Which is after all only one quarter)

The elephant in the room

The moment something gets its own acronym it is important; LEWC – Land Expropriation Without Compensation. This is probably the biggest driver of the negative feeling now and will (unfortunately) remain so until there are definitive rules set for what LEWC is. Again, unfortunately I think we are going to wait until next year’s election before this is finalised. It is a very important, popular and powerful electioneering slogan.

A few factors must be considered when discussing LEWC. The most important by far is that, other than the term LEWC, we as South Africans know very little about what exactly this is. Nothing has been finalised. Parliament has passed nothing. The Constitution has not been amended. The proposed amendment has not even been drafted. The parliamentary investigation has not recommended anything.  No rules have been set. LEWC has not passed the general provisions of the Constitution. LEWC has not been challenged in the Constitutional Court. So, whatever you see, hear, read on this subject is speculative (including my commentary). Do not jump to any conclusions: nothing has been finalised at all on this.

In such an uncertain environment speculation thrives. You will hear a lot of noise around this. There will be a lot of smoke screens. You are going to hear “school car park” stories and get social media postings about banks not giving loans to farmers because of LEWC etc.

There are basically two groupings that are thriving in the vacuum of uncertainty around LEWC:

  • One group will say “The Land is ours and we will take it without compensation in any form irrespective of the consequences”
  • The other group will say “Zimbabwe”

We do not at this stage know what the outcome will be. I read a very good article by a respected political analyst that clearly said that the ANC’s policy on this is (direct quote) “As clear as mud”. So, it seems as if the ANC also does not know what the policy rules are and it also appears as if there are conflicting opinions within the ANC. Again, nothing has been finalised on this. Do not believe emphatically anything yet.

What do we definitively know about LEWC:

That we know nothing about the details. Watch out for extreme views from both sides in this vacuum.

This is an ANC (government) policy and some Constitutional change will most likely happen (definitely happen). After adopting this policy, it would be very unlikely that the Constitution is not altered. Given how drawn out the legal system seems to operate, this could take a long time to occur.

The ANC (under “new management”) as the governing party, is driving this policy and not any other party.

We know that uncontrolled LEWC did not work in Zimbabwe and is a clear example of the cost to the economy if this is not done properly.

Maybe the best guide that we have on this is what the President said: LEWC will be done in a controlled, sustainable fashion that will not threaten food security and not damage any other sector of the economy.

While I think that everyone (half full and half empty) would like the President to say more on this, according to the report that I read, other that the broad objectives set out above, even he is not sure of the policy.

Therefore simply:

If you believe the President – don’t worry excessively – middle road type scenario. Bumble along type scenario. But ask for more clarity. Ask for the rules.

If you do not believe the President – worry.

I do not know the outcome. I cannot predict the future. I believe the President, but this is just my view. This article is just my personal view.

Wayne McCurrie specialises in wealth and investments and works for First National Bank. 

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The good news is that the bad news is not as bad as it could be.

It is not true that “the rand has fallen 95% since 2010”. The near doubling of the USD/ZAR exchange rate over that time does not equate to the rand falling 95%.

Agreed. Oh dear. The authors have forgotten their standard six maths. They claim the rand fell more than 100% in both the 80s (-220%) and 90s (-130%) which is mathematically impossible.

For those who believe in the Bible and agonise over staying or leaving, it may be worth it to read Jeremiah 42:10-17.

You are reading that verse way out of context haha. But on the matter of “running away”, I would say that with every problem comes 10 opportunities…and South African has a ton of problems, so I think I’ll stay 🙂

@Jnrb. Great…what a nice find in the Bible! (..where the Lord indicated to Jeremiah to remain in the country…)

…and WHAT do we all do? Instead of remaining in ISRAEL, we leave Israel to eventually end up to the southernmost corner of Africa (where are a bit “cornered”) 😉

See! God tells us the STAY in Israel! Don’t come to Africa (“Egypt” is mentioned in those verses)

Amen! 😉

The funny thing is that those who stuck it out in Zimbabwe are now seeing the benefits, after a period of almost total destruction. It certainly is looking like a better prospect than most right now! The bottom line is running from problems is never the answer. Pursuing opportunities with faith and hope is always better than running out of fear! I have no doubt the verses will Speak to the hearts of those who are open.

There are a few elephants crowding the room: “LEWC”, the possible nationalising of the reserve bank and the promise of an NHI by 2025. And I may be missing some of them that are hiding at the back somewhere.
We don’t need all of this madness with the economy in this state.

This commentator represents one of the big banks and hence should be treated with skepticism. MH would use a different phrase.

“LEWC will be done in a controlled, sustainable fashion that will not threaten food security and not damage any other sector of the economy.”

It already has.

Good for you if you believe a politician when he says “trust me”. Life Esidimeni, Marakana, Eskom, the collapse of health care and education, are some of the reasons you should not.

The ANC wants to implement a policy but does not know exactly what they want or how they will do it. What could go wrong?

ZA inc. = uninvestable.

A glass half empty kind of guy hahaha.

….your reply reflects immaturity

If SA were a listed company it would be short-sold by every sensible investor. Its not but we can see that it is being short-sold by the fact that IDI – Internal Direct Investment is very, very low. FDI is mostly bond and equities, in and out – IDI, if there isn’t such a thing there is now, is the real benchmark and its a sorry one. SA is not just a sell, its a short.

I’m sorry, but even the “good” outlook is terribly bad. If the government comes to “expropriate” my land my life is effectively over. I have no money to buy another place and my meagre income (such as it is) depends wholly on my property. Moreover, the bond that the bank has on the land is not extinguished with expropriation. I will be left with almost zero assets and over a million in debt. If the government thinks that it can effectively throw people into the gutter and not expect a backlash it better think again. I will derive no solace whatsoever that it was done “legally”.

Would you still pay your bond if your land is expropriated? I would not. What can the bank do? Repossess it?

I would certainly not. I would not be able to even if I wanted to.

However, the debt would stain your credit record forever.

Furthermore, if you have money with that same bank I can almost guarantee that it would be taken against that debt.

Finally, let’s say you did get a job and began rebuilding your life. What’s to stop the bank from garnashing salaries and getting court orders against that debt?

Some people would do drastic things in that position.

How shrewd to coin the term LEWC. Since it’s about PROPERTY, I’m taking credit for PEWC. Close enough to puke.

This cloud has lost its silver lining long ago and attempting to find something positive is tantamount to fooling yourself.

The comments so far to this article, reinforced the principles of the above article.

The “fall” in the Rand does not equate to a fall in purchasing power. It is the purchasing power that is important.

Where’s the article on the looting of the country by the ex-president and his cronies?? That bankrupted (and more to come) a lot of government business and towns. Pay back the money. Go Get the GUPTA’s !!!!!!!!!

Lots of countries have failed in the past, and not necessarily for reasons that could be predicted upfront. World wars, Government-induced famine, expropriation, poor policies, bank failures, speculative bubbles and those are in the developed nations over the past century, multiple times! This tells me that a developing nation is likely to have an even higher chance of failure.

The lesson, diversify! That will improve your odds against being ruined.

Secondly, I think we all need to start practicing a bit more of an information diet. To quote Denzel Washington about his view of media peddling a lot of nonsense: “If you don’t read the newspaper, you’re uninformed. If you do read it, you’re misinformed,”
So per the author, no-one can predict the future. Hence, don’t put all your eggs in one basket(case).

Problem with all the current uncertainty:

* Property prices are still historically high
* ALSI PE’s are still historically high
* Bond’s are maybe fairly priced.
* Currency is still strong
* Inflation likely to break out
* Business environment more challenging

Nothing is trading at a discount.. SA Inc. Not really worth investing in now.

According to the Big Mac index the Rand is undervalued.

According to burgernomics we should be at R6 to the dollar.

Go long burger ingredients and short the rand.

The fact that stealing peoples hard earned farms, livelihoods and futures (euphemistically called LEWC) is now stated policy and is widely discussed as if acceptable in principle, should make you extremely pessimistic.

You believe Ramaphosa? Do hand me that joint sir, I wish to have a toke.

One thing I know is we are heading for a severe recession and terrible unrest!!!!!


Perhaps a better way to compare all this decade info is to provide real returns (adjusted for SA inflation) in US$ and compare a variety of SA assets (stocks, real estate, bonds) vs Global assets. Cheers.

Wayne McCurrie’s middle of the road position is to trust the person who was deputy president when Zuma stole the country.

The rational McCurrie tells us about the bell curve type of probability outcomes but I’m not sure that he checked himself for Optimism bias, the Halo effect, Fading affect bias and Socioemotional selectivity theory.

Given how regularly Wayne changes employers (Momentum to Ashburton to FNB) it is difficult to determine a long term track record for his predictions.

Optimism is the madness of insisting that all is well when we are miserable (Voltaire)….be very careful, my friends!

I regard Wayne McCurrie as an outstanding investment professional. My point on the issue this article addresses is this: It is very difficult to be positive when one of the greatest opportunities in the history of the world is being destroyed in front of you and when the people doing the destroying have absolutely no sense of the destruction they reap.

Colson on one point Wayne erred. US QE was the resulting factor in the mid 2000 for R6.00/$ and not performance of the SA economy

Sure? QE only started post the GFC. Also, don’t be too hard on market commentators like Wayne, they are forced to make many forecasts and take many investment positions and making mistakes is part of the business.

A country goes where the voting majority takes it. If you want to know the destiny of any country, look at the majority of citizens in that country. The state of the economy, the power of civil society, the employment rate and the efficiency of service delivery are the mirror images of the average voter. The right to vote gives people the power to build a country “in their own image”.

So this is where we are going – South Africa will resemble the image of the average voter. Whether that is good or bad is a function of the image you hold of yourself, relative to the rest of society. For the economic elite the country is heading for the dump-yard, for the average citizen the country has a bright future.

*lol* Don’t be so sceptical. At least the pioneer Piet Retief placed his trust in Ramaphosa’s ancestor.

@Sensei. Dit is my bekommernis: “the mentality of the voting majority”. 100% spot-on & worrying.

Absolutely correct. And that average voter is changing slowly over time. not for the better. The EFF as the 3rd largest and fastest growing party, is nothing but a racial hate group. Main difference between the 70’s/80’s and post 2000’s was sanctions and interest rates. NO Sanctions and low rates are the only two positive things after 1994. I believe if not for EWC which will quickly destroy the economy ala Zimababwe style, BEE will definitely strangle the economy slowly to death.

Sensei, always great comments, and I agree with this comment. There is a saying – that a country gets a government it deserves – which is just another way of saying what Sensei has said. On that basis we don’t have a snowballs ……We fool ourselves to think that ignorance, incompetence and corruption can lead to anything positive. Socrates was not in favour of democracy because, in his opinion, the populace are not in a position to make such important decisions. At that time the Greeks were amongst the best educated and worldly wise people on the planet. What we have is voodoo democracy. As someone recently commented in Moneyweb, “live in SA but keep your pantry overseas”. Sage advice IMHO.

“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.” – Alexander Fraser Tytler

Foshan I made the comment a while ago that South Africa will remain to be the land on milk an honey, as long as your pantry is offshore.

Thanks for your comments and great contributions.

The solution for every ill in South Africa is to jail corrupt (anc) politicians. This will boost optimism in the general public, which will increase manufacturing output. It will also increase security (it will lower crime). Trust me, I know.

The biggest problem is water. There is no clean water. Nearly all the sewerage plants are dysfunctional. Population growth is far too high.

Wayne your comments “So, while we should always strive to improve, we must realise that as an emerging market our country will have bad news, will have a structurally weak currency, will have policy uncertainty, will have a lot of negative comparisons if you measure against a developed economy” Predisposes that South Africa will always be an emerging market economy why? Look at the advancement of Singapore, South Korea, Eastern Europe many of which were less developed than SA going back to the 70’s & 80’s and instead of SA catching up in the last decade it is actually falling further behind.

Yes exactly, and why? Because our education quality has WORSENED, rather than improved. And relying on commodities is a fool’s game. We needed to start diversifying the economy 20 years ago. The ANC has no vision. None whatsoever.

The real worry are the percentages since 2010….if these continue without respite or get worse we really are in trouble no matter what the historical facts up to 2010 prove! Interestingly enough, our best economic performance was in the early 2000…. before the ANC powersbase discovered how easy it was to rob taxpayers. A practice that continues unabated.

Here’s what I know. Leaders in Africa seem to have no clue how to create wealth. They are, however, experts at stealing it for themselves, their families and their close associates. That’s a reality. They are also not great at observing the mores of democracy, preferring to cling to power at all costs. People think South Africa is somehow different, and perhaps it is. But the real test for our democracy hasn’t even arrived yet. If the ANC ever loses the majority, what will they do? I think the answer is very obvious — they will jump into bed with the first party who can restore their majority and that is the EFF. But what will the EFF want in return? You can bet it won’t help you and me. I don’t see much hope for this country. If I could, I would have left already. There are simply no African success stories you can point to (other than Botswana perhaps) and South Africa appears to be following a typical downward trajectory. I would be very careful about putting too much hope in the Ramaphosa presidency. Yes, he may be better than Zuma, but that is a VERY low bar indeed. Unless this country can engineer a radical shift in its politics, we are no doubt in for the same old same old — growing poorer by the day.

Good balanced article.

Me? I invest most that i get outside SA. Plan B.

But i still live will i ever be able to leave our nature behind. Impossible. course..there are so many areas to help out. Countless. I guess thats what life is all about actually

This has been a very interesting debate judging from the comments. So far Pessimists 46 vs Optimists 2. And the winners are…the pessimists…by a land slide!

PS: This will be my third attempt to have my comment posted:

{USD/ZAR 2000/01/02 (High $1= ZAR 6.0) 2018/08/27 (Low $1= ZAR 14.30)}
[USD/ZAR fell approximately 140 % and not 22 %]
{USD/ZAR 2010/01/02 (High $1= ZAR 7.75) 2018/08/27 (Low $1= ZAR 14.30)}
[USD/ZAR fell approximately 85 % and not 95 %]
Source SARB – Weighted average of the banks’ daily rates at approximately 10:30 am. Weights are based on the banks’ foreign exchange transactions.

I’m impressed with Wayne’s finding glass half full “facts”, mainly from the past. I’m surprised he didn’t comment as to predictions that SA will have a shortfall (loss?) of around R280bn (maybe R100bn more than predicted), expenses over revenue. Debt service costs alone will be more than R200bn. Most expenditure seems to go on salaries, less on infrastructure and maintenance. Nothing, it seems, is being done to pull this back and further downgrades could result?

Now add falling per capita GDP, rising unemployment, particularly youth unemployment and stagnant growth, eblow population increase. How’s the glass looking?

Then forget “LEWC” (lol) and consider NHI. Where is this money going to come from?

Lastly let SA’s at war crime levels, dysfunctional education, healthcare and water etc and the possibility that most SOE’s and municiplaities may be technically insolvent cross your mind.

I put the situation as parlous; maybe one or two drops in that glass left? Please tell me I’m wrong.

SA is literally drowning in cr@p (Vaal water crisis and other less reported places) for exactly the reasons you mention, almost zero maintenance.

It’s weird, of all the things in SA that are going horribly wrong, it’s this reason that has finally made my mind up to leave.

SA has a politics-inspired crash roughly every decade and a half since WWII
1961: Sharpeville
1976: Soweto
1991: Unbanning
2017: Zuptas
which means we should be at the bottom of a cycle and the economy about to take off — the “glass half full” view

Our structural problems are getting worse — “glass half empty”:
The global economy uses minerals less and less, our existing mines are depleting and new ones not being dug.
Education, except for a minuscule minority is dysfunctional.
The state is failing, apart from education, in health, crime, water supply, electricity, revenue collection
Our SOEs are bankrupt
Wealth, social, skills and income gaps are increasing and remain racialised

Then there is the “glass is stolen” view:
The ANC, ahead of next year’s elections, is introducing a raft of populist, unaffordable and unsustainable measures: NHI, EWC, NCR & RAF amendments, FreeFees and goodness know what else, all the while increasing SA’s sovereign debt.
The jury is still out on whether the “New Dawn” ANC will introduce respect for the Rule of Law. While the ANC have taken on a few of the most egregious looters, it is possible just intra faction fighting.
CR2017’s economic leadership is not “lets roll up our sleeves and earn our way out of the mess” but more dependency: borrowing more from overseas
The EFF/ANC/union cluster remains hostile to business and wealth creation (as opposed to redistribution)
The ANC/EFF is playing the RaceCard all it can, still putting Party ahead of State

I think the reason this is the case is mainly that previously advataged aren’t as advataged anymore. Come to Soweto and see the houses that are popping up. Some, actually most are funded by the state through high public sector salaries. As those people building those houses in this economic climate and I’m sure you’ll realise that things are good for some.

Interesting attempt at a “glass half full”, although I believe an objective assessment of the facts would suggest otherwise.

Most baffling of all is the incredibly low bar we set ourselves. There is no reason why we couldn’t have become a thriving, dynamic economic powerhouse. The ANC has had 24 years to make this happen, but alas, it was far more important to enrich themselves at the masses’ expense. Perhaps this explains the deep-seated resentment many South Africans feel for those in other countries whose electorate held their leadership accountable.

So sure, we could be Syria or Nigeria or Zimbabwe, but honestly…it’s like having a team that could play Premier League football but languishes in the third division due to corruption, nepotism and greed.

The long-term currency depreciation and macroeconomics are dismal. Education will set South Africa free, but there is no political will. These are obvious facts, so I say, stay in South Africa, enjoy the lifestyle but get your money offshore, as much as possible as soon as possible, because soon enough currency controls will kick in when they run out of someone else’s money.

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