Getting to grips with the next 20 years

South Africa, Johannesburg, Boksburg, Electrical component factory. 22 April 2010. An overview of the work done on the distribution boards for the emergency shafts related to the Gautrain. (Picture supplied)
South Africa, Johannesburg, Boksburg, Electrical component factory. 22 April 2010. An overview of the work done on the distribution boards for the emergency shafts related to the Gautrain. (Picture supplied)

All sectors of the economy need to have a proper understanding of the world we live in and how changes in that world will impact us.

At a recent investment intelligence conference, co-hosted by Glacier and Sanlam Investments in Johannesburg and Cape Town, a team of experts shared their views on how to shape up for the changes and challenges that lie ahead.

SA stuck in a rut

Frans Cronjé, CEO of the Institute of Race Relations, author and scenario planner, can’t see how South Africa will turn the ship around anytime soon. “Just like a household that is running out of money, the South African government has limited options,” he says. The government’s current economic policy doesn’t allow for the economy to grow any faster, while borrowing more money is also off the table due to our high debt-to-GDP ratio.

“Through the ANC’s shrewd economic management in the late 1990s, it managed to bring down debt levels into the 20 percentiles, but that picked up again in the global financial crisis. The crisis passed, but debt levels have continued to escalate,” Cronjé says.

“By the end of this year we’ll be back at the debt-to-GDP ratio we were at during apartheid. We’re experiencing disinvestment, violent protests and uncertainty – this in an era during which other emerging markets are leading global economic growth and have overtaken advanced economies in purchasing power terms.”

An about turn?

The only period during which the ANC-led government managed to make a dent in unemployment figures was during the so-called golden years between 2004 and 2007, when the economic growth rate broke through 4%.

“If we can get back there again, South Africa will in all likelihood experience a rapid turnaround in job creation and political and social stability,” says Cronjé.

It’s going to be an uphill battle, though, especially if one considers the depreciation of the rand. “In 1982 the rand traded at R1 against the US dollar for the very last time. Since then the rand has lost a half to two thirds of its value every decade and there’s nothing to suggest that this downward trend is going to be reversed,” explains Cronjé.

“In fact, if this natural progression continues the rand will break through at R20 against the US dollar by the end of this decade.”

Yellow brick road

The structure of South Africa’s GDP tells a compelling story, continues Cronjé, one our cabinet ministers would want to reverse. That story is the significant role the high-tech, high-skilled services sector plays in the South African economy. He calls it the country’s “yellow brick road”.

Cronjé explains: “From 1994 until 2015 agriculture has contributed 5% to our GDP, while mining has remained flat at 10% and manufacturing has gone down from about 25% in the 1950s to about 12% in the 1990s.”

Government’s intentions to reinvigorate the manufacturing sector are largely infeasible, though, because of our unreliable electricity supply.

“The contribution of the ‘yellow brick road’ to our GDP is now almost three times higher than that of mining and agriculture combined,” says Cronjé, “and therein lies the story of the natural long-term solution for the South African economy.” ?

In short: the yellow brick road means SA could become to Africa what Hong Kong is to China – the country’s tech hub. 

This is an excerpt from an article that appeared in the 13 August 2015 edition of finweek. Buy and download the magazine here.

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