FirstRand CEO Alan Pullinger has bemoaned the “glacial pace” of SA’s structural reforms, saying the nation’s sluggish economy could not be more different from the UK, where the banking group’s operations outperformed its more established local businesses.
Though the group expects SA’s GDP will recover to pre-pandemic levels in 2022 at least a year earlier than previously expected, Pullinger said he worries the country may be squandering the windfall from a commodity bull run that has seen tax revenues overshoot previous projections.
“We’re pedalling our bicycle as a country but to be honest we’re going hell of a slow here; we’ve got to pedal harder as a country,” Pullinger told Business Day after FirstRand published results that showed profit rose 41% to R16.65bn for the six months to end-December.
“We’re way, way too slow on many things ... the structural reforms, the infrastructure programme, project Vulindlela, the cutting of red tape, the creation of the superministry in the president’s office ... we’re moving at a glacial pace.”
Though Pullinger flagged the Ukraine crisis as a potential catalyst that could plunge the world into recession if the conflict escalates to other parts of Europe, he said it could also boost commodity prices, which would benefit SA in the long term. Russia’s unprovoked invasion has already pushed oil prices to the highest level in almost a decade, while coal prices have more than doubled in 2022 to more than $400 a tonne.
While SA benefits from higher prices for its commodities, which began rising towards the end of 2020 after the initial impact of Covid-19 caused worldwide supply disruptions, Pullinger said the positive effect on the country’s finances could have been far greater if domestic infrastructure constraints had not hobbled exports. He also warned that the resulting tax revenue, which has seen the government take in R62bn more than it expected in the 2021/ 2022 fiscal year, could cause complacency.
“The worst thing we could do is to sit back and enjoy the benefits of the commodity bull run by hiking our expenditure and not getting going with proper investment,” Pullinger said. “People will look back and say that was a moment in history that we should’ve grabbed with both hands and we wasted it.”
Yet despite the government’s lacklustre delivery on its promised infrastructure drive, Pullinger said FirstRand stands ready to deploy capital into such projects if they come to fruition.
While he said the group, which owns FNB, WesBank and RMB, has “huge runway and appetite” for renewable energy projects and the transition from coal to gas, he also said the “staggering numbers” that have been earmarked for rail, road, water, port and logistics infrastructure present an enormous opportunity for the group’s investment banking unit.
“These projects are desperately needed; they’re not fanciful,” he said.
“We’re not talking about building white elephants the country doesn’t need. The question is getting that activated.”
Another risk flagged by Pullinger is the chronic lack of maths, science, analytical and digital skills in the country, which he said has been exacerbated by the rapid move to digitisation in the postpandemic world. That is partly because highly skilled individuals are now able to work for companies anywhere in the world without having to emigrate.
“The limited pool of skills that we have in the country have opportunities to work elsewhere and that may not even mean physically emigrating,” he said. “They can work for an American company and base themselves in Cape Town.”
Meanwhile, FirstRand’s operations in the UK, where it is active in mortgage, vehicle and business lending via its Aldermore and MotoNovo assets, delivered a 44% rise in normalised earnings to just more than R1.5bn in the six months to end-December 2021. That profit growth far outstripped FirstRand’s local operations, even beating crown jewel FNB’s 32% normalised profit increase, though admittedly the local retail bank is far larger in scale.
But even so, Pullinger sees room for further growth in the UK and said FirstRand is intent on investing further in that market in pursuit of growth. While he said FirstRand’s market share in the UK mortgages, business and car finance markets is still comparatively low, the scale and depth of the opportunity present enormous prospects.
“Is there an opportunity [in the UK] for us to scale? Absolutely,” said Pullinger. “Is that going to take more capital? Yes. But it’s less a function of us needing to inject more capital ... it may well be that we don’t strip the [UK] business of dividends. We may well use the retained profit to fund the growth.”
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