The financial markets have welcomed the government of national unity (GNU). The reaction in the bond market has been particularly favourable: the JSE all bond index rose 11.4% between the May election and August 26. The share market has risen 7.1%, while the rand has gained 4% against the dollar and other emerging-market currencies.
Given the importance of equities and bonds held by SA households in unit trusts and pension plans (about R15.2-trillion worth at the end of 2023), which represents 85% of all the assets held by SA households, such market moves have already had a significant effect on the wealth of South Africans.
The promise of faster growth has added to the SA household balance sheet. Extra real money indeed, and helpful for stimulating additional household spending, of which SA has had too little for many years.
It is not only supply-side constraints that have held back the economy. Demand from households and the firms that serve them has been insufficient to drive growth above an immiserating 1% a year.
The importance of the judgments of the global capital market on SA economic policy for the average South African, their hopes for employment and a comfortable retirement — for which they sacrifice heavily — cannot be underestimated.
The strength of the rand is particularly welcome. It brings with it lower inflation and the lower short-term interest rates that are essential for economic recovery. The positive link between the outlook for growth and the behaviour of the rand has again been emphasised (more growth equals stronger rand, and vice versa), as has the link between a stronger rand and inflation.
There is no room for complacency. The status of SA’s debt has improved but interest rates and the cost of capital remain elevated. Our credit rating remains significantly weaker than it was between 2002 and 2008, when the economy grew at close to 5% a year.
There is much room to further impress investors. Taking economic policy decisions now that promise faster growth over the longer term could immediately further strengthen the bond and currency market.
The National Health Insurance system that is now being actively promoted does the opposite. It promises more of the same fundamental weaknesses that have infected all state-directed enterprises to date. The direction of healthcare reforms should be one of seeking partnerships with the private sector, including private hospitals and practitioners. It calls for experimenting with private control and management of hospitals that are currently funded by the state and perform so poorly on all metrics, including the costs of supplying inferior service.
A helpful positive note was offered by Transnet CEO Michelle Phillips, who said earlier in the week that the entity’s plan to maintain, run and invest at Ngqura and the 670km container corridor would be reworked after potential bidders complained that the conditions attached to the tender were too stringent and costly for the private sector to fully participate (“Transnet to rework private sector participation,” August 28).
The public sector in SA, in all its guises, needs to come to realistic terms with the potential providers of private capital and skills that are essential to our economic purpose. Their managers need to fully understand how to deal with potential private sector partners that operate globally. Such knowledge applies to plans for ports and railways and refineries, for the supply of water and the transmission of electricity — and for bringing minerals, oil and gas to the surface.
They must recognise the terms and conditions — no more or less than internationally competitive terms — that would bring onshore potentially abundant and truly economic game-changing offshore gas. Offering credible deals of this kind would be enough to move the markets.
With lower interest rates, a stronger rand and less inflation, this would help realise the growth in incomes and employment that are necessary to re-elect a GNU in 2029.
• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.
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