Defend Truth


Confidence is like compound interest: In the short term it’s hard to notice, in the long term, it’s crucial.


Nazmeera Moola is Head of SA Investments at Ninety One.

Confidence is a funny thing. A quick google search defines it as ‘the feeling or belief that one can have faith or rely on someone or something’.

In South Africa, confidence is sorely lacking. Post the Global Financial Crisis, business confidence peaked in 2011 and gradually moved lower through 2012, 2013, 2014 and 2015 before collapsing to below neutral levels at the end of 2015 when then-president Jacob Zuma fired then finance minister Nhlanhla Nene. It has never recovered.

Weak confidence is also visible in the household sector. Household cash holdings as a percentage of GDP are back to 1994 levels. This is reflected in weak vehicle sales, which have been shrinking since 2017. After the brief Ramaphoria blip of mid-2018, confidence continues to languish around zero.

It took four years for business confidence to erode under Zuma. With that perspective, it is therefore not surprising that Cyril Ramaphosa hasn’t managed to rectify the problems in a mere 18 months.

The rot of the Zuma years runs deep. Institutions have been broken as their goals were perverted. Staff have left. For example, I’m told that the National Prosecuting Authority employed one forensic accountant in February this year when Shamila Batohi arrived to take up her new role. This was down from 30 forensic accountants five years earlier. State-owned companies like South African Airways saw a literal flight of executives in the years following Dudu Myeni’s appointment as chair in December 2012. Many of Eskom’s experienced power station managers have exited the company since 2012.

Even functioning institutions have been deeply eroded. Half the senior management of the National Treasury are not permanently appointed, but “acting” in their positions. The South African Revenue Service has seen a similar exodus of people since Tom Moyane was appointed in September 2014.

There is solid progress at many of these institutions – though far more is needed at the state-owned companies. This will only reflect in improved performance over the next 12 to 18 months.

What worries me is that while the ANC openly has its debates on key issues like Land Expropriation without Compensation or the Nationalisation of the Reserve Bank, the average business owner of a small, medium or large business is unable to gain any faith in the future outlook. As a result, many are choosing not to invest. Many are choosing to cut costs and export their capital. More worryingly, a growing number of people are choosing to leave. The numbers may not be surging, but they are ticking up. Using the official data, a net 85,000 people left the country in the 12 months to July 2019.

This compounds the problem. A recent RMB report pointed out that the employment rate (proportion of the population that is employed) is at multi-year lows, but not quite at the lows reached just before the commodity supercycle of 2003 to 2007. In fact, it seems that 2019 could turn out to be the first year since the GFC where South Africa experiences net job losses. Job losses, in turn, hurt income growth and consumer spending – which then shows up in lower personal income taxes and VAT collections. All a rather vicious circle.

We need to reverse this trend. Some coherence in economic policy would be very welcome. Last week’s NEC statement made positive statements around the involvement of the private sector in infrastructure provision. If this is followed by an Integrated Resource Plan and an Eskom White Paper that are in accord, it could lead to an upturn in investment in the energy sector and open the door for a resolution on Eskom. The latter would provide a massive boost to confidence.

One of my colleagues has a great way to sum up confidence. Confidence, he says, is like compound interest. You don’t notice it today, but in a year’s time you notice its impact. South Africa is currently experiencing the full impact of several years of deteriorating confidence. What we desperately need now is a few steps that boost confidence.

On the job story, employment is a lagging indicator so perhaps we’re closer to the bottom of the cycle than we realise! BM


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