The JSE is now the worst-performing stock market among emerging markets this year, with the MSCI SA down 12.1%, followed by resource-rich Chile, down 9.5%. On the other end of the spectrum Turkey is leading the charge with a year-to-date gain of 13.1%.
While markets are dynamic and it is rather simplistic to foghorn that this is all down to the ANC’s mismanagement of the economy — as investment strategist Magnus Heystek did on X — there is some truth to it.
A large chunk of the JSE’s underperformance is down to the malaise in China, given its well-published difficulties extricating itself from Covid lockdowns, dealing with its floundering property market and facing longer-term structural headwinds with a declining fertility rate that is approaching replacement level.
Richemont, Naspers and British American Tobacco are all dragged down by China, along with the bulk of our miners. But that doesn’t explain all the underperformance, and there is little doubt that SA Inc stocks (companies the derive most of their revenues from SA) are suffering from a spluttering economy and incredibly restrictive interest rates.
Financing costs were highlighted as a constraint in results from Motus, Super Group and Cashbuild this past week. Higher interest rates have dented consumers across all income brackets, as illustrated by non-performing loans from FirstRand. While it is still benefiting from sky high rates on loans, group-wide credit impairment charges jumped 29% to R6.4bn, with FNB being the biggest contributor, signalling that the cycle is starting to turn on our banks.
Just look at what’s happening to Pick n Pay franchisees as rates bite harder into consumer spending against a backdrop of tepid economic growth. As Spur revealed in its results, state failure is undoubtedly the biggest risk and drain on capital for SA businesses. “The inability in certain regions to access a reliable, clean water supply is becoming more prevalent, requiring franchisees to seek alternatives. The need to invest in alternative water reserves at restaurants will be a key focus in future,” Spur said.
I feel like a stuck record here, but the only thing that will arrest our decline is urgent execution on reforming our network industries in power and logistics. That’s why news this past week out of Transnet offers some hope. First are the permanent appointments of Michelle Phillips as group CEO and Russell Baatjies as CEO of Transnet Freight Rail (TFR), which must be applauded. As I wrote in this column in February, nothing but a meritocracy will do at state-owned enterprise leadership level (“Co-development before cadre deployment”, February 12).
Just days after that, Sasol and TFR announced a first-of-its-kind public-private partnership to improve rail transport reliability. In terms of the five-year agreement Transnet will deliver ammonia from Sasol’s Secunda and Sasolburg facilities to the company’s customers through a dedicated fleet of 128 ammonia tankers. In turn, Sasol will fund Transnet’s maintenance and repair programme for the fleet.
TFR and Transnet Engineering, which will execute the Sasol ammonia fleet’s maintenance and repair work, expect additional revenue generation from anticipated increased haul volume and the Sasol-funded maintenance and repair work.
Transnet Port Terminals (TPT) also claims operations at the Durban port have steadied following the removal of more than 30,000 containers from vessels at its Durban Container Terminal (DCT) at Pier 2. According to freight associations, the backlog is now “manageable” for cargo owners. However, they have expressed concern regarding port congestion and productivity levels, which are still below “acceptable standards”.
Transnet has completed its financial due diligence on International Container Terminal Services (ICTSI), a Philippines-based port operator, in connection with the DCT Pier 2 transaction. This clears the way for contract signature, though other non-financial steps are necessary as part of the financial closure.
In July last year ICTSI was named preferred bidder to create a 25-year joint venture with TPT to construct, modernise and maintain DCT Pier 2, which handles 72% of Durban’s port business and 46% of SA import and export traffic.
Beyond that, I am told by Nedlac insiders that some of the master plans are showing results (forestry, global business services, digital, tourism) and others are nearing completion (renewable energy). However, the master plans that fall directly under the department of trade, industry & competition (steel and poultry) are, unsurprisingly, the least effective, as the minister has used them at his pleasure.
Last year the Standard By-Laws for the Deployment of Electronic Communications & Facilities (ECA bylaws) were published. These are intended to help with the rapid deployment of electronic communications infrastructure and ensure uniformity in planning. I was told at the recent Mining Indaba that we’ve made progress in digitising the water use licence system (with considerable reduction in turnaround times).
We’ve made excellent progress on remedying our deficiencies identified by the Financial Action Task Force to get off its greylist as early as next year. And this past week witnessed the hugely important passing of the Public Service Amendment Bill in one of the houses of parliament.
This is arguably the most important reform of them all as it seeks to depoliticise the appointment of civil servants, which had become endemic under the Public Service Act of 1994, one of the first pieces of legislation passed by the ANC, even before the new constitution was ratified.
Taken together, it would be churlish not to recognise that at long last reform momentum is gathering pace. There’s no time to waste.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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