COULD THE TIDE BE TURNING?

by | Dec 1, 2023

It has been a tough year across the planet, but particularly for South Africans. However, things feel a little better now, and it’s not just because of the rugby.

Despite sticky inflation globally, sky-high interest rates, a prolonged economic downturn and two tragic wars, the economic picture is improving slowly. Here at home, notwithstanding the mismanagement of most of our state-owned enterprises, it looks like the private sector is coming to our rescue.

Could this be the beginning of our recovery?

Miraculously, (or skilfully), the Americans seem to have dodged the recession bullet. With inflation sustainably on the decline, and a supportive economy, the runway for the proverbial ‘soft landing’ is now open. It’s quite amazing how the world’s largest economy, finally signalling a peak in interest rates, and probably no recession, seems to have improved the mood globally.

Across the pond in both Europe and the UK, the growth picture, however, remains challenging. While rates have probably peaked, inflation remains too high and growth is stuttering, so the ‘hard landing’ possibility remains real.

Geopolitically, the world remains tricky.

Given the lack of media coverage one could be forgiven for thinking that the Russia-Ukraine war was over, but it is still grinding on. Markets no longer seem interested. Similarly, the devastating conflict in the Middle East seems not to be distressing markets yet; however, if Iran somehow gets involved, it could escalate very quickly.

Oil remains a risk to the global picture. Should the war escalate, pushing oil above $100 per barrel, inflation will start rising again, followed by interest rates, and any hopes of recovery will be shelved.

Expect political noise in South Africa to reach a crescendo.

Meanwhile, back home, things feel slightly better. With elections likely in the next 9 months, expect political noise in South Africa to reach a crescendo. Most analysts see the ANC coming in at just under or just over 50%, which could result in the ANC hooking up with one or two of the smaller parties.

Very few see the ANC coming in as low or below 40%, so a tie-up with the DA, which would be positive for the economy and markets, is unlikely.

Even more unlikely according to analysts is a potential ANC-EFF tie‑up – fortunately, as the economic carnage a populist government would wreak on SA would be devastating. One need only look at Argentina as a case in point.

In terms of electricity, whilst there could be a few more periods of extreme load-shedding, the first signs of an improved electricity landscape are becoming tangible. There is so much effort, expertise and money being put into fixing this problem, that the current improving trend looks set to continue and then accelerate towards the end of next year. By 2025, this should no longer be a problem. Thank heavens for the private sector, without whom, things would not be improving. There’s a certain irony in government claiming credit for the electricity improvements (and the Rugby World Cup victory!).

The mining companies would apparently have exported R150 billion more had our railways and ports been working.

Similarly, and hopefully, the private sector is coming to the rescue of our railways and ports, which also, having been left in state hands, have more or less collapsed. This, together with tough economic times, has seen government forced to make some hard decisions, in other words, allow business/private sector involvement. Durban has selected a partner to develop and upgrade the container terminal, and the others are headed the same way. And not a moment too soon. The mining companies would apparently have exported R150 billion more had our railways and ports been working, and now our fruit exports are declining (and decaying) due to inefficiencies and blockages at Cape Town harbour.

Partial privatisation is not ideal. There will still be difficult and sometimes obstructive government officials involved. For instance, the Durban deal has apparently not been signed off yet, with bureaucratic officials holding the final signature back. But going forward, some level of private involvement should certainly be an improvement. The combination of better functioning electricity, rail and ports is our 3-5 year growth story.

Add to that an improved global picture as global interest rates start declining sometime next year (they’re not going to stay at current multi-year highs forever). This should see the US dollar softening, resulting in ‘happier’ emerging market economies and currencies, which should make us feel quite a bit better as well.

Just watch out for oil.