Goldman Sachs is bullish on South Africa

Says China could be this century’s economic powerhouse.

JOHANNESBURG – Investment banking firm Goldman Sachs is bullish on South Africa, with CEO and chairman Lloyd Blankfein saying the country has been a “spectacular success” on a longer-term view and is doing better than a lot of places. 

“There are aspects of the current situation in South Africa that are the same problems that people have all over,” Blankfein, who was last in the country 20 years ago, said in a forum discussion at the Gordon Institute of Business Science (GIBS) on Wednesday evening.

He pointed to job creation and wealth distribution in the US as examples of challenges shared by a developed economy.

“Any economic system must create wealth and then distribute it. In South Africa there was an injunction in 1994 to redistribute wealth but not in such a way that the wealth creators in the first place were made so anxious that they left a fairer distribution of nothing,” Blankfein commented, noting that the country was one of the most “extreme cases” of trying to create a fairer society without introducing a state of anxiety that drives those who have the means of production to disassemble it and take it elsewhere.

“This goes on everywhere on a less intense scale,” he said, pointing as an example to the intense resistance to highly progressive tax systems in the US.

“Where you come out on the spectrum is always a political and social decision.”

South Africa’s specific problems brought higher growth opportunities, Blankfein highlighted. “Where GDP is so low, it gives the opportunity for a higher growth rate, and the fact that not everyone has participated in the economy is a driver of growth as people are admitted into the productive economy,” he explained.

Responding to a question on Eskom and South Africa’s current power crisis, Blankfein acknowledged that the predicate to growth and development is infrastructure. “People are not going to launch manufacturing and build businesses if the power is going to go off predictably and unpredictably,” he said.

“You need good management in the biggest industries and companies.”

Blankfein suggested that China’s hybrid model, where entities are majority government-owned but private shareholders have a vested interest in their success, might work in South Africa.

China: this century’s economic powerhouse

Blankfein believes that China could be the economic power of the 21st century in the same way the US was the economic power of the 20th century.

“It [China] could dominate the century economically, but won’t dominate every year. The US had some terrible years during the 20th century,” he said.

While China’s growth could be disappointing in the short-term – as programmes to create a more sustainable economic growth rate and repair corruption are implemented – Blankfein believes it will likely do very well over the medium- and long-term as a function of the growth, dynamism and competence already “in the system”.

“Everyone has a tendency to extrapolate the present and most immediate past. The art of reflecting on business and the benefit of reading history is [realising] that there are cycles to things,” he said.

“China is going from a short-term greedy to a long-term greedy model,” Blankfein quipped, suggesting that in “building so quickly” it may have been reckless about where and how it invested money by, for instance, building power plants close to cities to extract high-value growth at the expense of the environment and the health of its population.

“They are accepting a lower growth that they think is more sustainable. Why? Because they want to live.”

A philosophy that Goldman Sachs coined, ‘long-term greedy’ was described by Blankfein as an “ironic expression”. “The implication is that we forego short-term opportunities because in the long-term you’ll have a more stable organisation to deliver profit for a longer period of time.

“We’re a public company and must do things [that are] supportive of shareholders’ return on investments.”

Blankfein said he was “generally bullish” on South Africa. “The importance is to scale the investment, because it’s risky. You’re taking enormous risk for enormous potential. We have invested [in South Africa] and we are open to invest,” he said.

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“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. – Matt Taibbi, in his 5 April 2010 article “The Great American Bubble Machine” published in Rolling Stone.

Goldman Sachs is bullish about South Africa for Goldman Sachs. Not for South Africa.

Not been here for 20 years. How long is this visit – a few days? Have a real look at South Africa, see the abhorrent and gratuitous violence that erupts over almost every issue. Check Sky’s Alex Crawford’s report on the xenophobic attacks in KZN and Alexandria. Look at the degree of corruption, and a “leader” who gets wheeled out a cupboard once a month to have a good giggle or to meet his bosom pal, mad Bob Mugabe. Bullish? Bullshit is more likely.

PS to my earlier post: Donald Trump says SA is a dangerous mess. Spot on.

End of comments.

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