18 months ago, interest rates globally started climbing their “wall of worry”. Do not underestimate what that does to economies, stock markets and consumers worldwide. However, what goes up, must come down. Interest rates aren’t going to stay at 22-year highs forever, and while nobody can predict exactly when they will start to decline, the consensus view is that it will happen in the next 6-12 months.

Fortunately, the rate-hike “medicine” is working. US inflation is comfortably on the decline and talk of recession is dissipating. Unfortunately, European inflation is more than double where the European Central Bank wants it, and British inflation more than triple, so a future hike for both is still a possibility.

The Chinese recovery has been disappointing. The anticipation that growth would rebound after their dramatic covid exit has dissipated. The property market is still struggling, as are over-indebted municipalities, all of which has seen China’s growth expectations buckle under the pressure. It would really benefit commodity-exporting economies like our own, if the Chinese economy would start kicking. The authorities have tried several stimulatory measures thus far, but without much success.

Tough economic times are never pleasant, and SA, much like the global economy, has been struggling with slow-to-decline inflation, sky-high interest rates and flatlining growth. Tough economic times are cyclical; you just have to sit it out. However, towards the end of May and early June (on top of our economic difficulties), a series of self-created problems hit us simultaneously.

• We found ourselves heading into winter with extreme loadshedding seemingly the norm, with levels 6, 7, 8 and beyond likely to stay through winter.
• There was also a fear that a grid collapse, with catastrophic ramifications, was on the cards.
• There was political confusion, as it appeared President Ramaphosa had lost interest in his job (Who could blame him?) and that Paul Mashatile, a relative unknown, was next, possibly straight after Ramaphosa steered the ANC through next year’s election.
• And then our relationship with Russia was worrying and certainly not neutral. The Lady R story exploded onto the headlines and investors finally said, “Enough is enough.” The rand collapsed, which in turn spiked inflation, which further raised interest rates. Even the Reserve Bank warned the government to behave.

The national mood fell to levels I haven’t seen in my working career.

Fortunately, now, things feel slightly better.

Looking back at what wat got us so worked up at the end of May, much has turned out better than expected.

• From a loadshedding perspective, winter was easier than expected. In fact, June was apparently one of the lighter loadshedding months – largely as a result of less maintenance work and excessive diesel spend. Going forward, we’re told we can apparently expect ongoing, but less loadshedding, particularly from the second half of 2024 and into 2025.
• The much-feared grid collapse didn’t happen, and this past winter was the riskiest time. Next winter will be easier and the following winter easier still.
• In terms of the Russian relationship, we seem in a better space. Up until the end of May, there was no message control. Officially we were neutral, but whoever felt like bashing “the west” seemed free to do so. Lessons have hopefully been learnt, and government facing the reality of losing roughly 30% of our exports (20% US and 10% Europe) overnight, and the job losses that this would precipitate, have seemingly seen stricter message control introduced.
• It looks like we have survived the Lady R debacle. The committee says weapons were offloaded, not loaded onto the ship. Apparently, they came from the UAE. Still, the Americans are apparently happy with the committee’s findings, so let’s go with that.
• Even the BRICS Summit – which was by all accounts a success – passed without too much noise. Our President had wind in his sails and delivered a stellar performance. Thank heavens Putin didn’t come – his presence would have introduced numerous diplomatic hurdles over which we would have tripped.

In addition to the short-term improvements mentioned above, the next 2 to 5 years should see government negligence that got us into this situation slowly being removed, as the current disastrous economic times have forced failed state-owned enterprises into partial privatisation. Durban has already been outsourced to one of the world’s leading port operators; the other ports will follow. The railways are looking for private partners, and electricity is being privatised as we speak.

In addition, the CEO Pledge, whereby corporates have offered their assistance in the form of expertise and funding to improve electricity, logistics and crime, is gaining traction. The combination of partial privatisation and government involvement should help undo some of the mess created by cadre deployment and corruption.

The next 12-18 months should see the economic mood improve as well. Globally, as soon as markets get line of sight of when US interest rates look set to start declining (March – June next year), you’ll see a softer dollar plus risk appetite starting to return as investors look to re-risk excessively conservative portfolios. This should see emerging markets (EMs) back in favour once again, and a more positive global economic backdrop. This improvement in EM should benefit investment flows, the rand and sentiment back home.

Of course, the fact that there’s likely an EM party coming should excite us. Generally, we go up and down with EM sentiment. In fact, historically we have often been seen as a “preferred” EM just because the company in the basket is easy to outperform. Consider Russia, Argentina, Turkiye etc. However, the past few months saw us left out of the EM recovery due to self-induced own goals and bad behaviour. Quite an achievement given the company we keep. It’s entirely up to us whether we get a “ticket to the ball” going forward.

And then finally, I’m a firm believer that the national mood in SA lifts in summer versus winter, our world-class climate being one of the many things we South Africans take for granted. DM

Author: Jeremy Gardiner, Ninety One