“You can’t eat sentiment,” said one boutique fund manager at an investment conference in Cape Town this week.
Fund managers are a hard lot to please. Because their clients are. Very few South Africans have the wherewithal to maximise their offshore allowances every year. They need the little they can put aside for the future to work hard, at home. But when local companies are struggling to deliver the returns needed to drive up valuations of share prices, then the market will underwhelm even the most positive investor.
While much of the rest of the world has enjoyed a boom in investment markets over the past decade, South African investors have been drastically short-changed. Until the ANC conference in December, the JSE had been giving a below-inflation return to investors even since before Nhlanhla Nene got fired in 2015.
The JSE had been underperforming its global rivals for much longer than that. Post the 2008 global financial crisis, exacerbated domestically by our running out of electricity and the start of the Zuma administration’s consumption-led spending spree, American, European and UK stock markets have rebounded off the back of robust policy-led growth.
Now, just as South Africa looks like it is emerging from the chaos of the Zuma years, the rest of the world looks like it’s readying for a slowdown. Few global recoveries can sustain a ten-year rally without factors like inflation creeping in and forcing central banks to cool things down.
Our timing sucks.
At least the ANC has finally woken up to the reality that economic stability and decent governance are needed to restore confidence in South Africa’s long-term future.
“How do you eat an elephant?” goes the old question. The answer? “One bite at a time.”
That is precisely where president Cyril Ramaphosa finds himself at present. He has nailed down key appointments in mission-critical economic portfolios. He’s being proactive in dealing with the tinderbox of Northwest to restore a semblance of governance and basic services to the province. He has to tread the fine line between political expediency on issues like mining and land. And the brutal reality that if he is going to attract $100bn in five years, make that 4 years and 11 months, then he is going to have to be systematic in his approach.
So far so good, it would seem.
Substantial changes to boards and management at critical state-Owned Enterprises like Eskom, SAA, Transnet and now Denel are showing a political willingness to confront some of the issues that have plagued the public sector. Looting linked to state capture, estimates the Public Enterprises Minister Pravin Gordhan, may have cost the country as much as R100bn. It’s as good a thumbsuck as you are going to get at least until the official enquiry by judge Raymond Zondo finishes its work.
While governance failures have led to high-profile, large-scale corporate collapses in recent years, they are dwarfed in terms of their impact by public sector failings.
Gordhan is seeking to redress those, but even with the best will in the world, it is going to take years to untangle the mess in government’s mission-critical state companies and it may be left with no choice but to partially privatise or sell off some assets to the private sector.
For now, boards are being tasked with conducting a thorough review of their structures, fully understanding how they make money and investigating all major contracts entered into in recent years. Gordhan wants boards to butt out of tender processes and simply oversee governance of procurement and supply chains. It’s precisely what they should have been doing all along. If boards are doling out contracts, there are no checks and balances.
Already though, much of the important evidence needed to piece together the state-capture puzzle may have gone missing. Gordhan describes the disappearance of documents as being “a bit of an industry”. As concerning as that might be, it’s a clear signal that the looters are worried and know the game is up. While it might not help redress, it certainly can help to stem the rot.
Turning around the state-owned companies without outside help and capital, though, is going to be an uphill battle and many local investors fear policy will continue to be a drag on market performance.
South Africa has a dubious distinction of being a place where things are seldom as good as they should be, but never as bad as they could be.
Depending on whether you see your glass as half empty or half full, it’s either the most depressing signal of the country being a serial underachiever, or a place of extraordinary miracles that - while constantly on the brink of self-immolation - finds ways to muddle through its complex multiplicity of issues.
It’s probably a combination of both.
Bruce Whitfield is an award-winning multi-platform financial journalist and broadcaster.
Now read: Whitfield on why KPMG is running out of time