Registered users can save articles to their personal articles list. Login here or sign up here

CEOs: SA’s years from meaningful economic recovery

It may take over five years – FirstRand CEO.

The heads of two major South African financial firms said on Thursday that a meaningful recovery was years away for an economy that has been in the doldrums for a decade.

Africa’s most developed economy shrank 3.2%, its worst contraction in a decade, in the first quarter, while unemployment has hit an 11-year high, and hefty government debts, difficulties at state-run firms and power cuts have all knocked confidence.

“It’s beyond urgent now,” Alan Pullinger, CEO of FirstRand , South Africa’s biggest retail bank by market share, told Reuters after the bank reported a 5% rise in full-year profits.

Read: FirstRand reports 5% rise in FY profit

He said that, while FirstRand had weathered the storm, it saw little improvement within the next three years, and reforms were desperately needed.

“For us to expect meaningful improvement, I think we’re talking five years,” he said.

Since being knocked off course by the global financial crisis, South Africa has never made it back to pre-2008 levels of growth of over 5% – the amount its 2030 National Development Plan says is needed for sustainable expansion and job creation.

Firms in sectors from finance to retail have struggled after a decade of corruption and mismanagement of state enterprises during the presidency of Jacob Zuma.

Since succeeding Zuma in February 2018, Cyril Ramaphosa has staked his reputation on fixing those problems.

However, early optimism has faded as the scale of the task has become clearer and ongoing problems, for instance at the state power firm Eskom, have intensified.

Deep damage

South Africa’s biggest insurer Sanlam also reported interim results, with profits falling 35%, mostly due to one-off costs.

Like Pullinger, its CEO Ian Kirk said a surprise rebound in GDP growth to 3.1% in the second quarter was likely to be short-lived.

Read: GDP growth is great but doesn’t signal a recovery

Public enterprises minister Pravin Gordhan recently spoke of a recovery period of 18-24 months, but Kirk said: “I think it’s more serious. The damage is quite deep, the recovery period will be longer.”

FirstRand called for numerous reforms to avoid South Africa losing its last investment grade credit rating, from Moody’s. Fitch and S&P have already downgraded its sovereign rating to ‘junk’ status.

Despite the economic climate, FirstRand’s retail division increased earnings by 10%, while many peers barely grew at all.

However, a weaker performance at its corporate and investment bank (CIB), car finance unit and in the group treasury weighed on overall headline earnings per share (Heps) – the main profit measure in South Africa.

Its diluted Heps stood at 497.2 cents in the year to June 30, compared to 472.7 cents a year earlier.

The bank’s shares were up 2.75% at 0842 GMT. 

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   15

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

It is impossible to have a meaningful economic recovery in SA without the reinstatement of the sanctity of property rights. Property rights form the basis of the rule of law, which, in turn, is the foundation of any economy. Our economic decline started under ANC rule, not because the demographics in parliament have changed, but because the new ruling class used the legislature to infringe on property rights.

These infringements include redistributive rates and taxes, BEE policies, Cadre Deployment, the security of tenure laws, the rights to free education, water, electricity and housing, A high income-tax rate, The Mining Charter, the nationalization of mineral rights and last but not least, the labour laws that enable militant labour unions to confiscate the equity of shareholders with wage demands.

We need law and order and property rights before this economy will lift its head from under the heap of manure it finds itself in.

The rate of economic growth depends on the rate of entrepreneurial activity. The rate of entrepreneurial activity depends on the spread between expected benefits and total costs. The free market determines this spread.

When a socialist government distorts this process with taxes, red tape, BEE, EE, the nationalization of intellectual and physical property and the added taxes of crime and social beneficiation, then, the rational entrepreneur comes to the conclusion that the risk/reward ratio forces him not to develop his ideas but to apply for the social grant instead.

This is the South African problem. The ANC kills entrepreneurship and enables the victim mentality.

This is a polite or diplomatic way of saying recovery may never happen…so expectations are pushed forward. Few years down the line, same utterances are made about economy.

CEO’s are not the negative type of persona (and cannot project negativity, being in the PR space they are). Like Chris Hart who “shocked” STD Bank some years ago, when he said it like it is (“spoke his heart”?)

CEO’s are not stupid either. Their companies marketing depts (via advertising agencies) typically uphold an overtly positive image…like your typical DSTV-ads and that of financial institutions….the picture even brighter than the rose itself 😉

In reality, many CEO’s have personal wealth offshore, and/or their companies “expand abroad for organic growth”, is just another way of getting corporate profits out of SA, by over-paying for acquisitions. Wonder where the difference goes….

The CEO’s should get of their thrones and give recognition to people with ability and talent and leave sweet and agreeing teem-players to the sport , entertainment and the political sections.

Exactly,

These lofty high fliers are too scared to name the single most important factor that crippled SA,

BEE.

They are all weasels, spineless and part of the problem.

I don’t understand how he “staked his reputation” on fixing the problems.

Why would he be able to fix it? Where has he been while everything has gone wrong. Am I missing something? I thought he was the vise president before and close to two years now president of SA. He is partly to blame for the problems.

What reputation? As far as I know he is the first citizen when it comes to receiving free stuff? He has no other reputation. He is brilliant at asking and receiving things for free. THAT’S IT.

So staking his reputation cant possibly have something to do with fixing the economy. Therefor there is nothing to loose.

“pre-2008 levels of growth of over 5% ”

How many years in the 30 years before 2008 did SA have annual GDP growth of over 5%? Once? Twice?

Face it, SA’s numerous structural problems mean even with a perfect tail wind – good policies (by SA standards) and a once in a generation global commodities boom, we could just about do 5%. Take away the boom, local good policies, add really bad ones and SA will be lucky to get 1%. There is no hope of a significant recovery in 5 or 10 years without substantial (positive) change in a range of different areas, all of which are an anathema to the ruling party and its alliance partners.

Capitec came out today and provisionally stated they expect around 18% to 21% increase in earnings. There wasn’t more information in the SENS that than though. Makes me wonder … is it really the economy, or are the old guys getting kicked by the new kid on the block … ?

So maybe the message should be that growth in earnings doesn’t come for free anymore and we are losing ground against our competitors. It is fine to blame the economy, but then blame the economy for taking away growth that came basically for free/automatically for many years. Your a CEO, don’t blame it on the economy if you are being average compared to your peers.

Well the one market that is growing is clearly the poor!

I am sorry, Capitec is a loan shark business.

And slowly they are changing their model, like early cigarette barrons in narcotics that later morphed into more ethical businesses..

In addition we have:
NHI
EWC
Free education-its never free
BEE and AA
SOEs ill-Eskom, SAPS, SARS, SABC, SAA, DENEL
Crime and corruption-farm murders, xenophobia, 57 murders a day, wholesale rape
Messed up Justice system, crooked and incapable judges and a sick NPA
Ming Charter
The Militant Unions
6 m hungry people
30% unemployment
Mass emigration of the skilled and wealthy

Now what good news is there justifying the economy recovering?

How in touch or at risk are the hired help on R50m pay packages?

Why is the rand getting stronger when all.this xenophobia and attacks on trucks etc is happening?

Current easing of global trade fears = i.e. “risk on” trading.

Global currency movement / international flow of capital is like the vast power of the ocean. The Rand is the tiny cork bobbing on it 😉

How naive of Gordhan to think the economy can bounce back in 2 years’ time! This man is out of touch – he got the SOEs into the mess with his endless state guarantees over many years.

Load All 15 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
Insider GOLD
ONLY R63pm

Moneyweb's premium subscription is a membership service which will give you access to a number of tools to take charge of your investments.
Or choose a yearly subscription at R630pa - SAVE R126

Get instant access to all our tools and content. Monthly subscription can be suspended at any time.

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: