Category Archives: Market Reports

The Confidential Report – July 2018


Political

Over the Zuma years there were any number of plans to develop the economy, the latest iteration of which was the National Development Plan, produced in 2012 with a vision for 2030. None of these plans have been effectively implemented. In fact, the economy is probably in a worse position now than it was 10 years ago from a structural point of view. But now we have the Ramaphosa era and he has begun well by mostly saying the right things and doing the right things – like changing the boards of the worst of the state owned enterprises (SOE). He wants to bring in $100bn in foreign direct investment (FDI) over the next 5 years – and he travelled to the G7 conference as part of this effort. There, he was persuading skeptical investors that policy certainty is going to happen in South Africa – especially in the mining industry and with land reform. He was trying to convince them that he is putting South Africa back onto a rational economic path. Of course, he had to be balanced with the fact that he faces an election in 2019 where populist ideas are likely to be important. So there is a limit to what he can do before that election and he is orchestrating a delicate balancing act between necessary and rational economics and the expediency of South Africa’s version of populism. Read More

The Confidential Report – June 2018


Political

President Ramaphosa has been fortunate that his two main opposition parties for the 2019 election have been busy shooting themselves in the political foot. The DA’s extraordinary handling of Patricia De Lille now threatens to lose them their anchor support among the coloured people of the Cape Province. At the same time, Ramaphosa’s shrewd move to annex the EFF’s primary populist appeal in the area of land expropriation has forced that party to the extreme left where it has become blatantly and overtly racist in its message and at the same time made absurd suggestions about all land in South Africa reverting to the government on some basis. In the meantime, under Ramaphosa’s leadership, the ANC has been looking more and more like the balanced party of reason and common sense. An increased majority in 2019 will entrench Ramaphosa for the next ten years. Read More

The Confidential Report – May 2018


Political

One of the legacies of the Zuma era is a massive and inefficient civil service. Years of “jobs for pals” and rampant nepotism has seen the civil service grow to unmanageable proportions. The economist Dawie Roodt has estimated that, including the state owned enterprises (SOE), the civil service now employs about 3 million people. In the February budget, the government estimated that it would spend in total R1,68 trillion – out of which more than R585bn would be civil service salaries. That is just over 35%. This means that the enormous civil service is sucking up funds which could be better spent on development. The challenge is to reduce the size of the government, beginning with the number of ministers. It has been estimated that South Africa could probably manage with roughly two thirds of the number of ministries that it has. Over time, the effect of that on the economy would be enormous. Read More

The Confidential Report – April 2018


Political

Mr Ramaphosa has said that the land issue of expropriation without compensation will not be resolved by a process of “smash and grab” – but rather through a process which will ensure that the food security of South Africa is sustained. However, the events taking place in Gauteng, which have been aided and abetted by the EFF cannot be described as anything but “smash and grab”. The illegal occupation of land in the Kanana Park area is a case in point. Here a new squatter camp has been and is being erected while the authorities just look on. In Olievenhoutbosch, near Midrand, the owners of land have resorted to the courts to remove illegal settlements. In Pretoria, officials apparently dealt with 4400 complaints of illegal occupation in 2017. Clearly, this is not about land which was taken from various tribes prior to 1994. Rather it is about the influx of illegal immigrants into South Africa from neighboring countries because of our relative prosperity. Most squatter camps have a high proportion of illegal immigrants – and surely it must be obvious that, while we have land enough and can probably build houses for our own citizens, we certainly cannot accomodate Africa at large. Read More

The Confidential Report – March 2018


Political

The eventual resignation of Zuma and the installation of President Cyril Ramaphosa has created a powerful new optimism in the South African economy. As an economic stimulant, nothing is really as effective as optimism. When consumers and businesses are optimistic about the future, they spend more and invest more which creates new business activity and creates new jobs. This in turn creates more spending in an upward spiral. So South Africa has entered a new “honeymoon period” – quite similar to that which gripped the country after Nelson Mandela took control. One of the key elements of this will be its impact on overseas investment. We can already see that through the steady improvement in the rand/dollar exchange rate as overseas investors seek rands to finance their projects. Of course, the length and extent of the honeymoon period will depend on how effectively Ramaphosa implements reform. Any significant misstep on his part could cause a reversal back towards pessimism. We believe, however, that the future must be a vast improvement on the past no matter what transpires. Of course, Ramaphosa will also be able to ride the wave of the international recovery – so there are two forces working towards far stronger economic growth in this country. Read More