Economics was referred to by Scottish writer Thomas Carlyle as "the dismal science", so inspired by the view of Malthus, who gloomily predicted that population growth would always outstrip food supply.
At a Leaderex Money Summit discussion, I listened to four of SA’s foremost economists: Dawie Roodt of the Efficient Group, Mike Schussler of Economists.co.za, Annabel Bishop of Investec and Adrian Saville of Cannon Asset Managers.
They discussed the economic situation in SA and what private investors should be doing. It was truly a dismal outlook. With perfect timing, this discussion took place a few hours before the release of second-quarter GDP figures indicating the country is in the grip of recession.
Saville made the point that, according to the Economist Intelligence Unit, the world economy is growing at 3.7% a year. SA is well below this, and although President Cyril Ramaphosa predicted that 2018 growth would be close to 3%, it looks like it’s coming in at around 1%.
Saville also highlighted that over a five-year period, local equity performance is astonishingly behind that of inflation.
Bishop said the administration’s attempts to repair the economic impact of the awful Zuma years will take a long time, but we are probably reaching the low point of the cycle. She commends former president Thabo Mbeki for including and incorporating the private sector very successfully, with Ramaphosa trying to do the same thing.
She reckons SA will probably require five years of fiscal repair, coupled with sustained private sector investment, before the economy comes right.
State-owned enterprises are not companies, even though they think they are. They are civil servants and should be paid like civil servants.
— Dawie Roodt
Roodt applauded Ramaphosa for changing the Eskom board after taking office. However, he cautioned that much of this good work has evaporated as minister of public enterprises Pravin Gordhan has been allowed to intervene in the Eskom wage dispute and permitted the bankrupt power utility to grant above-inflation salary increases.
Roodt believes things will deteriorate further before the low point is reached and that fiscal repair won’t happen in the medium term. He sees little if anything on the horizon to change his view that government spending and public debt are still rising and the deficit is likely to keep on increasing.
"State-owned enterprises are not companies, even though they think they are. They are civil servants and should be paid like civil servants," Roodt says.
He notes that total government debt to GDP, including state-owned enterprise debt, is around 70% and still moving up. "We must cut expenditure on people, no matter how politically unacceptable it may be."
Schussler spotlighted the horrific unemployment rate. SA’s broadly defined number of unemployed people is 9.6-million. The US has an 8-million unemployed equivalent, but that jurisdiction is 49 times the size.
Combining Germany and the US, SA still has slightly more unemployed people than these two industrial giants, which are 60 times our size. He is underlining the clear observation that SA has the highest persistent rate of unemployment.
There is also consensus that the rand is fundamentally undervalued. Roodt is concerned that the rand could weaken suddenly if it becomes the focus of attention for whatever reasons, specifically if a government official happens to make a politically inept remark that could be seized upon by currency speculators.
Schussler notes that a strong US dollar is never good news for commodity-based currencies such as the rand. Bishop thinks it could strengthen slightly in the fourth quarter, as seasonal factors are usually supportive of emerging-market currencies in the last part of the year.
With this dismal outlook, they all agree that SA investors should push the absolute maximum into offshore investments.
Roodt favours Japan and India, Schussler likes offshore money market type instruments, and Bishop is keen on commodity currency assets such as those denominated in Canadian dollars.
• Gilmour is an investment analyst.
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