SA’s stock market has rallied 2% since May’s election, which produced a market-friendly outcome, with the JSE closing on Monday on the front foot after the announcement of a government of national unity (GNU) cabinet.
The rally in the stock market, up 4% in the year to date, is a boon for investors and pension funds, which have a large slice of retirement savings and retirees’ money invested in the market.
After the cabinet news SA’s 10-year benchmark bond firmed, with the yield falling seven basis points to 9.9%, a benefit to the fiscus as the government will pay less on its debt. Before the announcement of the final election results in late May, the bond was trading at a yield of 10.68%.
The rand reached its best level since June 21 in intraday trade, at R17.92/$, before weakening with other emerging market currencies as US treasury yields rose, drawing money back to the world’s largest economy.
The stability in the National Treasury through the reappointment of Enoch Godongwana as finance minister signalled to the market that the government will stick to its fiscal consolidation plans — a boost for the markets. This is particularly important as public debt stood at R5.2-trillion (75% of GDP) at the end of the first quarter, with debt service costs crowding out investments in key areas.
Hendrik du Toit, founder and CEO of SA’s biggest asset manager, Ninety One, called for President Cyril Ramaphosa to be “ruthless” and be prepared and willing to alienate associates — or even make enemies — in pursuit of national goals.
“President Ramaphosa has shown a combination of statesmanship and steel since the recent elections. He should be congratulated for the leadership he has shown at a very difficult time. Now, I encourage him to look to the most successful national leadership story in recent decades, which is Singapore’s,” he said.
“If you characterise [former prime minister] Lee Kuan Yew’s approach in one sentence, he was ruthless in his resolve. He was ruthless in prioritising the economy; ruthless in driving efficiency in education; ruthless in upgrading Singapore’s infrastructure to support a modern economy; and ruthless in his commitment to achieving a clean and high-quality administration.
“Our president must now be ruthless. The GNU must articulate a clear vision for the country. It must act without constraints from special interest groups. It must commit to a society that nurtures strong institutions and is free of corruption.”
The ANC kept most of the economic cluster ministries, including energy, mineral resources, trade & industry, health, transport and the Treasury.
The DA took six cabinet posts, including agriculture, communications and basic education. The IFP will preside over the country’s failing municipalities and the Freedom Front Plus will oversee the prison system.
Business Leadership SA said skilled management and clearly defined roles and responsibilities would be key in the new administration.
“The appointment of Parks Tau to head the department of trade, industry & competition (DTIC) is an important one and organised business looks forward to seeing an acceleration of pro-growth policies and reforms to address SA’s economic challenges and provide stability and investor certainty in this key economic portfolio,” it said.
“There has been good progress made in resolving the country’s energy crisis and organised business has collaborated well with Kgosientsho Ramokgopa as electricity minister. The addition of energy to the portfolio will help support the just energy transition and pave the way for further reform of the energy sector.”
SA’s power woes have improved significantly over the past three months. The country is well on course of having 100 load-shedding-free days, a boost to the economy, and a saving for businesses that have had to spend millions of rand in fuel to keep operations going.
In other good news for the energy outlook, Eskom on Sunday announced the successful transfer of Kusile power station’s unit 5 to commercial operation, adding 800MW to the national grid.
Investec SA CEO Cumesh Moodliar said there had been an encouraging market reaction to the formation of the GNU and the president’s commitment to structural reforms and inclusive economic growth.
“A bump in equity markets has an immediate positive impact on the value of pensions invested in stocks. A stronger currency improves hopes of interest rate cuts, which bring relief to anyone servicing debt.
“And improvements in the bond market lower our costs of servicing national debt, so government has more money to spend on social upliftment, public infrastructure and service delivery,” he said.
“Positive market moves are an indication of improved business confidence. It’s only when people are confident enough to put capital at risk and invest in growing their businesses that we can create jobs and lift people out of poverty.
“So creating the right conditions for economic growth must be an absolutely critical priority for this new government.”
Investec said in its estimates a bump in GDP growth from 1% to 2.5% would create an additional 2.1-million jobs within a decade and add R335bn a year to the fiscus.
“Should the rate of annual economic growth advance to 5%, we’d see about 6.3-million jobs added in the next decade, and more than 17-million new jobs across the formal and informal sector within 20 years,” Moodliar said.
“Such a scenario would also add R2.75-trillion to the government coffers, effectively lifting SA to the status of a developed economy in two to three decades,” he said.
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