Investors, both domestic and international, speak loudest through the investment decisions they make - in which country and over what period.
Over the past week I spoke with nearly 30 international investors based in London, who invest across the emerging market universe. While the primary goal is to inform them how we see the SA economy and investment landscape over the medium term, they usually provide us with their assessment of SA relative to peer countries they invest in.
For the most part investors make financial decisions based on return and risk. Even within the environmental, social & governance (ESG) framework, their decisions are driven by returns and risk considerations emanating from ESG issues.
Their views and concerns about a market thus need to be taken seriously by the government, regulators and policymakers, whose role is to create an enabling environment for the economy to thrive and produce better risk-adjusted investment returns.
Of course, individual businesses bear the responsibility to be profitable in the macro environment created by the government and policymakers.
International investors do not have an absolute view of SA but a relative view of the jurisdictions they invest in. Their capital is free and globally mobile. They can choose to invest anywhere, so the more they raise concerns about SA relative to peer countries, the more SA policymakers must pay attention and rectify things where the concerns are valid.
At times investors raise concerns that policy positions have not been clearly communicated, which led them to incorrect conclusions. In this instance the role of the government and policymakers is to clarify policy. Where corrective measures are required they must be implemented and communicated.
International investors’ questions are not surprising. The sentiment has been generally constructive into year end, but cautious into 2024 because of uncertainty about the election outcome. Macroeconomic questions on growth, inflation and monetary policy are in line with the consensus — no surprise there, as data for much of the year is now actual.
However, six issues stood out. First was the medium-term budget policy statement, which is still fresh in many minds. Investors generally agreed with its economic growth and revenue projections, but were sceptical of the government’s ability to control spending. They generally did not believe government debt is sustainable over the medium term under the current policy proposition and implementation track record.
Then there are the scenarios for a post-2024 election outcome and the type of government that will be formed, its policy choices and the consequences for the economy and investment. There was concern over the possibility of unstable coalitions, as has been the case in Nelson Mandela Bay, Tshwane, Ekurhuleni and Johannesburg.
The mechanics of the Reserve Bank’s gold & foreign exchange contingency reserve account came up at every investor meeting. The general view was that the nearly R500bn in unrealised profits technically belong to the government and it should therefore have rules to enable it to realise a portion of the profits. Questions revolved around how this can be done, how much can be transferred to the state’s coffers, what the funds are likely to be used for, and the effect on the economy.
Questions on the two-pot retirement system arose after parliament’s portfolio committee on finance voted to implement the scheme on March 1 2024, a year earlier than the Treasury and the industry had advised. These revolved around potential outflows from funds and the effect on asset prices and the economy. Chile’s experience of early access to pension funds was cited as an example, where the effect on growth was significant.
The question also arose of when load-shedding is likely to be reduced to a negligible effect on economic growth, as did whether Transnet will receive state support, how much and by when. Related to Transnet was the effect of rail and port dysfunction on the economy, and how far out this will remain a binding constraint on growth.
Mhlanga is Chief Economist and Head of Research at Rand Merchant Bank