‘SA not on the edge of the abyss’ – Ninety One

South Africa has made much progress since 2015/16 when the country was on the edge of the abyss, says Ninety One director Jeremy Gardiner.

“We must not underestimate how much progress we have made,” Gardiner told the SA Council of Shopping Centres conference last week.

“It’s always challenging living in South Africa … [but] we’re not on the edge of the abyss [now]. Yes, times are tough. Yes, we need to sort out electricity. Yes, we have got a number of other problems that we need to sort out too. But we can fix the electricity problem.

“If there is any silver lining, it’s the fact it’s not just us that are having a tough time at the moment. The whole world is complaining. They are all in a similar position,” he said.

Ninety One, previously Investec Asset Management, separated from Investec in 2018 and is separately listed in London and Johannesburg.

Gardiner added that South Africa is “okay” and has come through Covid-19 better than expected.

However, Investec UK equity analyst David Smith told the conference about his worry that there will be a consumer recession in the next 12 months.

Nenegate

Gardiner said South Africa was on the edge of the abyss in 2015/16 when former president Jacob Zuma removed people who were doing a good job and replaced them with people who did not have any experience in finance, because Zuma wanted access to National Treasury.

This is in reference to the removal of then-minister of finance Nhlanhla Nene on 9 December 2015 in order to replace him with Des van Rooyen, who only survived in the position for four days – earning him the nickname ‘Weekend Special’ – because of the extremely negative market reaction to his appointment, with the value of the rand dropping by up to 5.4% against the US dollar in a single day.

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Zuma reversed Van Rooyen’s appointment and replaced him with Pravin Gordhan, the then-Minister of Cooperative Governance and Traditional Affairs and currently Minister of Public Enterprises.

Gardiner said 2015/16 was also the period that, when Zuma went anywhere, the Guptas were not far behind. The Gupta brothers were found to be heavily involved in state capture.

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Where to now …

Gardiner said the rest of 2022 is going to be about “conferences and electricity”.

He said the ANC policy conference went better than expected and reaffirmed the party’s commitment to the clean-up process and the step-aside rule.

But there was also a lot of talk about nationalisation. “We need to stop that,” he said.

Gardiner referred to Ramaphosa’s recent policy changes announcement, adding that these can fix South Africa in two years but stressed that they need to be implemented.

In an address to Business Unity South Africa on 31 August, Ramaphosa listed six key issues facing South Africa that needed to be addressed to put the economy back on track:

• Stabilise the country’s energy supply;
• Ensure an effective and sustainable supply of water;
• Fix rail and port infrastructure to realise the full export potential of the economy;
• Unlock investment in infrastructure;
• Combat crime and corruption; and
• Improve the functioning of municipalities.

Gardiner said it is very exciting that the private sector will be able to build their own electricity generation plants with unlimited capacity and Eskom will buy electricity from the private sector.

He said Eskom’s debt will be dealt with in the mini budget, with half of it removed from the power utility’s balance sheet, while skilled workers who previously worked for Eskom and took early retirement will be re-recruited and red tape cut.

Gardiner said it is relevant to ask why these measures were not taken ages ago, highlighting that for too long ideology has been allowed to get involved in decision making – something that must stop now.

He said all the experts agree it will take two years to implement these policy measures and believes they will be implemented because a general election will take place in two years.

Gardiner said business is excited by the policy changes and referred to Minerals Council CEO Roger Baxter’s statement that the mining industry already has a pipeline of 73 projects valued at R65 billion from 24 mining companies to generate 5.1GW.

“This is what can happen if we get going. It will be good for the economy and it will get confidence back.

“People say how do you get confidence back? First thing, fix electricity. It’s a major problem and it’s massive in terms of depressing everybody and sapping confidence,” he said.

Recession risk

Smith pointed out that interest rates increased gradually by about 200 basis points over a period of three years during the last interest rate hiking cycle from 2013 to 2016 – but have now increased by 275 basis points in a year and are set to increase still further.

He cited the example of a young couple who now have about R2 million in new debt after taking out a R1.5 million home loan in 2020/21 – when interest rates were low and house prices relatively cheap – and also purchasing a relatively inexpensive car.

“The rate of change in interest rates basically means that these guys … can’t respond fast enough in terms of cutting other costs [to be able to afford their increased debt repayments],” he said.

Smith said Debt Busters is reporting a massive kickup in [consumer] distress and experienced a 100% increase in people asking for debt counselling after the 0.75-percentage point interest rate increase in July, but before the same interest rate hike in September.

“My worry is that you are definitely going to see a consumer recession in the next 12 months … [and] spend, particularly in discretionary income, is going to get thumped.

“I don’t have a particularly warm fuzzy feeling for the year ahead. I think it’s going to get a lot darker and tougher in the next 12 months,” he said.

Listen: Rhys Dyer, CEO of ooba, explores what surging interest rates mean for homeowners with bonds, first-time home buyers, and the residential property market (read transcript)