Half the world’s population has gone to the polls this year to elect new governments, which they hope will promote economic growth, attract investment and create jobs for citizens hit by the rising cost of living.
South Africans went to the polls at end-May in which the ANC lost its majority for the first time since the dawn of democracy in 1994, forcing it to form a government of national unity (GNU) with 10 other political parties.
Large emerging markets such as India and Mexico have also gone to the polls, in which voters reduced majorities for governing parties, while the UK and France both saw changes in their respective governments. The Americans will go to the polls on November 5 to pick their 47th president to replace incumbent Joe Biden.
After the elections, the new governments are set to get down to the business of attracting investment, particularly fixed investment, or gross fixed capital formation.
Gross fixed capital formation is a yardstick for real new investments, and countries compete fiercely to attract it.
The fierce competition was highlighted by Biden and former UK prime minister Rishi Sunak in trying to attract UK-based chip manufacturer ARM to list on their countries’ stock markets. In the end, Biden prevailed as ARM opted to list on the US’s technology-heavy Nasdaq.
SA has struggled to attract high levels of fixed investment, which our economy needs to break out of stagnation. If the country is to meet the 6% annual economic growth target set in the National Development Plan (NDP), fixed investment will have to rise to 30% of GDP by 2030 from about 15% now, where it has been for the past two decades.
It is for this reason that President Cyril Ramaphosa has been making it his mission to attract fixed investment since 2018.
Spill over
The GNU, which Ramaphosa leads, has largely been welcomed by the markets with the rand strengthening against the dollar while the JSE is rallying. The strong performance in the financial markets has raised hopes that it could spill over into the real economy and boost fixed investment as capital is deployed in greenfield and brownfield projects.
The case for an influx of investment into the global real economy has also been made by the world’s largest asset manager, BlackRock. In its midyear global outlook report, “Waves of Transformation”, it projected that the real economy was set to take over from the financial economy. BlackRock expects major capital spending to be driven by the mega forces of artificial intelligence (AI), low-carbon transition and rewiring of supply chains.
This new wave of investment in the real economy is expected to stimulate huge infrastructure build that will cause the construction of new data centres powering AI models, computer chips, solar farms, super batteries, factories, logistics centres, roads, bridges, schools and hospitals in countries with growing populations.
BlackRock estimates that investment in energy infrastructure will hit $3.5-trillion (R60-trillion) a year this decade, with low-carbon investment accounting for up to 80% of energy spending by the 2040s, up from 64% now. BlackRock’s projections, if they come to fruition, could determine how investors allocate capital as they seek to maximise returns on investment portfolios.
As a portfolio manager, I am looking forward to enhancing my knowledge and investment management expertise when I attend the BlackRock Educational Academy in New York, US, later this month, when these mega forces driving global investment trends will be explored.
Every year since 2015, BlackRock has been partnering with the Association of Black Securities and Investments Professionals (Abisp) and 27four Investment Managers to identify two black SA investment professionals to attend the BlackRock Global Skills Development Programme.
The programme is overseen by the BlackRock Educational Academy and offers global market insights on topics ranging from asset allocation, fixed income, indexing/ETFs, equities and risk management, to operational excellence and alternative investments.
Big implications
The projected investment flows by BlackRock into the real economy will have big implications for SA as it positions itself to capture some of this money.
There are positive post-election developments that bode well for SA. Chief among it is an improvement in the performance of Eskom’s fleet of power stations. This development has caused the suspension of load-shedding since April, helping to lower the cost of doing business and improving customer service as businesses enjoy operating without disruptions by power cuts.
Transnet still needs to improve port services and address congestion and delays. The improvement in power supply and overall sentiment could not have come at a better time as the economy is likely to be boosted by the introduction of the long-awaited retirement savings’ two-pot system this month.
The system is expected to put money in the pockets of cash-strapped consumers, who will be allowed to access a portion of their retirement savings to meet emergency expenses or pay off debt.
• Sobekwa is a director and portfolio manager at Mianzo Asset Management.
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