Category Archives: Market Reports

The Confidential Report – May 2018


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


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


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

The Confidential Report – February 2018


The election of Cyril Ramaphosa as head of the ANC in December signals a sea-change in South African politics. Ramaphosa is not yet in a strong position and he will have to manage the recall of Zuma extremely carefully, but it is apparent that some Zuma supporters (like speaker of the house, Baleka Mbete) have seen the writing on the wall and changed sides. The Zuma/Gupta camp will not give up easily, however, and we can expect them to fight back. They have everything to lose. Ramaphosa also has the sensitive matter of selecting Shaun Abraham’s replacement as head of the National Prosecuting Authority. This choice will be critical since ideally that person’s first function will be to finally pursue the charges against Zuma. Zuma still has some effective control of parliament and the NEC, but many of his paid supporters are now beginning to think that their salaries will be more secure by moving to the Ramaphosa camp. This shift in the direction of the political wind is best seen in the strength of the rand which ended to the year at its strongest level since July 2015 and looks set to continue strengthening. Extricating South Africa from the clutches of state capture will be a difficult and delicate process which will require all of Ramaphosa’s skill, especially considering that there is an election to be fought in 18 months’ time. Read More

The Confidential Report – December 2017


The ANC’s elective conference in December is very difficult for private investors to evaluate. The two main contenders represent either a continuation of the Zuma/Gupta administration which has proved so unsatisfactory, or a move to a new unknown in the form of Cyril Ramaphosa. It is hard to imagine any situation that could be worse than what we have now – so clearly the markets would favour Ramaphosa. But even if Ramaphosa wins, it is likely that it will take several years for the damage of the Zuma/Gupta era to be unwound. The most reliable indications are in the strength of the rand against hard currencies, like the US dollar. A sharp weakening of the rand against the dollar will be a clear indication that the situation is going to get worse and vice versa. Read More