Money and Markets

SA is moving closer to a death spiral, says Allan Gray’s new investment head

Business Insider SA
Allan Gray CIO Duncan Artus
  • Allan Gray's incoming head of investments has issued a stark warning about the state of SA's government finances.
  • In the absence of "brave economic decisions", South Africa is getting closer to a debt death spiral, Duncan Artus says.
  • "Over the longer term you can't have successful companies in a country that fails," he told Business Times.
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In an interview with Business Times, Duncan Artus, the new chief investment officer at Allan Gray, warned that finding great investments among South African consumer and domestic-facing businesses will become harder as the country moves closer to a debt "death spiral".

Artus is the newly appointed head of investments at Allan Gray, which has more than R510 billion in assets. He is taking over from Andrew Lapping, who was in the position for 12 years. Artus has been with Allan Gray since 2001.

"Over the longer term you can't have successful companies in a country that fails," Artus is quoting as saying.

"The cost of our 10-year government debt is higher than our economy is growing. Just do the maths; it can't carry on like that. Unless we make some brave economic decisions, it won't be long. We're running out of time."

He told Business Times that an appeal to the International Monetary Fund (IMF) for a bailout is starting to look inevitable. "We're getting closer to that death spiral all the time."

Artus join a chorus of critics who want government to cut spending – particularly the public sector wage bill. Civil servant salaries consume more than half of SA’s tax revenue, which will take a massive hit from the coronavirus crisis.

Recently, Old Mutual-owned asset manager Futuregrowth warned that South Africa is in a "debt-trap twilight zone".

"The inability to arrest the speed at which public-sector debt is accumulated will force the country deeper into this debt trap."

Government is expecting to this year earn R300 billion less in tax than it had expected, while it has promised to spend R500 billion to help the economy and citizens amid the pandemic.

Between the loss of revenue and big-ticket items related to the coronavirus, such as payouts by the Unemployment Insurance Fund (UIF), a previously projected R370.5 billion budget deficit (or 6.8% of GDP) has now ballooned to R761.7 billion, or 15.7% of GDP.

"Debt is our weakness," finance minister Tito Mboweni said when he presented SA's revised national budget in June. "We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts."  

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