Business Maverick


After the Bell: First-half review — SA’s retreat in an advancing world

After the Bell: First-half review — SA’s retreat in an advancing world

Sorry to be miserable, but the simple truth is that South Africa needs more than an improved outlook.

Sitting here in South Africa, we have an unusually vivid sense of the odd disparity between capital markets around the world. There are many examples, but allow me to posit just three.

First, a year ago, the global economic consensus was bleak; it was widely assumed that there would be recessions in a whole range of developed markets. At the start of 2023, the IMF predicted that US GDP would grow by just 1.4%, Germany would register barely in the positive, and the UK would contract by 0.6%. Global growth, it predicted, would be held up by China and developing Asia, with GDP growth expected there at 5.2% and 5.3%, respectively. Overall, on average, global growth would be okay, but kinda sub-par, at 2.9%.

These numbers look just silly now. The US isn’t close to a recession, with the labour market absurdly tight, as it is in Europe too, and despite GDP figures being a little on the disappointing side. US economic growth for the second quarter came in at 2%, almost 60% higher than the consensus number. It’s almost unheard of that the most-analysed market in the world could be so badly misconstrued.

Things in the US are looking so good economically that President Joe Biden has been touring the country to tout “Bidenomics”. Germany is indeed in recession but the UK is not. China may not be powering ahead, but neither is lagging that much, while India continues to strengthen.

I think these predictions were completely logical at the time, since the world is used to the idea that higher inflation kills economic growth. So economists looked at the inflation expectations and drew the obvious conclusions – except they weren’t that obvious.

Forecasters also assumed that the Russian invasion of Ukraine would foul up supply lines and reduce European energy capacity much more than it has. Geopolitical uncertainty is certainly a factor in 2023 – just perhaps not as much as it seemed natural to predict, say, midway through last year.


Second, my guess is that stock market pundits would have surmised that developing markets would be the place to be in 2023, to the extent that we can still describe them as such. But the Chinese stock markets have almost all been knocked pretty hard this year, and big companies in particular are typically going sideways. If the Hong Kong stock market declines by 1% more (it’s down by 6% so far this year), it will be trading at levels last seen in 2009. That’s very odd for a country and region growing at 4.5%. European markets do not look too bad, and that is odd for exactly the opposite reason.

But the big surprise is the US markets, growing by leaps and bounds, which is wild considering there must be at least some residual investment in yield given the high interest rates. The S&P 500 is up 15.6% year to date. The great symbol of the US market, Apple, is now a $3-trillion stock (or just under), which is almost unimaginable, with Microsoft not that far behind. People who were confidently assuming that China would naturally overtake the US as the world’s largest economy, are now saying it may not ever happen. (I think it will.)

Economics and innovation

Third – and this ties into the two above – the core nature of economics is shifting from a world dominated by manufacturing to a world dominated by innovation. The most obvious example is the sudden explosion of generative AI, but that’s just the tip of the iceberg. In some senses, the reason for Apple’s and Microsoft’s amazing surges in the first half of the year is not actually what they are putting out, as impressive as that may be. Both companies are trading at levels most would consider very expensive.

Their value is backed, I suspect, by the expectation of what innovative companies with heft will be able to do in the future in any and all spheres of the economy. From manufacturing techniques, to global entertainment, to agricultural enhancements, companies that have innovation baked into their systems will succeed; those that don’t, won’t.

This is becoming so much clearer now. Data is not the new oil; data is assumed. The ability to use the data effectively is the new oil. Or, not to belabour the point, Reid Hoffman, who helped build PayPal and Linkedin, among other ventures, recently said that while Steve Jobs once stated computers would be bicycles for the mind, AI will be its new steam engine.

South Africa seems to be at the opposite extreme of all these trends. The economic expectations for  SA in 2023 are turning out to be not overly pessimistic but overly optimistic. One commentator described the JSE as a “chocolate box” – almost every company looks absurdly cheap. And the absorption of new technology is extremely laggy; it happens in places, but if you can’t get your power supply right, it seems unlikely that you are going to make any meaningful contribution to generative AI anytime soon.

More and more, SA’s lost economic decade is beginning to look like a lost decade and a half. Sorry to be miserable, but the simple truth is that SA needs more than an improved outlook: it needs a policy breach. It needs a wholesale rethink of its entire economic system.

It’s as simple as that. DM


Comments - Please in order to comment.

  • Dee Bee says:

    SA needs policy overhaul at pretty much every level – from opening up the mining industry to proper exploration and development, to industrial policy that encourages real investment, to SOE structuring and running that creates the enablers of mining, industry, trade and commerce, ditto to local and provincial governments, to a security cluster that tracks, arrests, prosecutes and imprisons criminal cartels in the construction, land reform and logistics sectors (rather than beating up motorists), to a politically neutral civil service: without this, we’re doomed to keep flogging the four dead horses of the apocalypse: apartheid and colonialism as the reasons for our dim outlook on the one hand, and statist economic policy and cadre deployment as the solutions on the other hand.

    In a nutshell, what we need is boring competence at every level of government and the civil service, following boring and sensible economic policy that creates an enabling environment for the private sector to thrive. We don’t need tub-thumping pseudo-revolutionaries with soundbite policy from 1950s sloganeering.

    • Pet Bug says:

      but almost believe we need a wholesale withdrawal of all economic legislation; everything, yonke into, alles, konke.
      Assess after 5 years where the snarl ups are are design frameworks to regulate the excesses.
      And take it from there.

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