Captains of Industry and Fellow South Africans
“We as Africans need to get real and make sure we don’t mistake hype for reality and we don’t mistake hope for achievement”, a statement made by Ali Mufuruki in a recent sobering yet stirring conversation on the African growth narrative. Mufuruki attempts to look beneath our continent’s 6-7% growth trajectory in the current global context and in the process asks the question “is Africa really rising?”.
The world’s leading economic powerhouse ($17trill GDP & counting) seems to have found its rhythm once more. At a rate of 3%, the US is growing again and twice as fast as SA, halving unemployment in its wake (to 5% & probably less unemployed in number than in SA). What has made this nation so resilient, so influential and so affluent the past century?
On that question, as the scent of summer lingers across the Eastern seaboard, I bid you a warm and hearty greeting. It is my privilege to serve you our February market view and may it find you and your families in good health and preparation for what the future holds.
Our embattled “Madibaback” continues its downward trend, although some consolation was it lost only 11% to the greenback last year versus 15% in 2013. The Rand closed the month of January under pressure at R11.63, R14.02 and R17.79 to the dollar, euro and pound respectively. Domestic factors such as our swelling current account deficit, structural constraints and in particular power shortages, combined with a decrease in global appetite for commodities, to place a drag on our exchange rate.
Consumer inflation (CPI) surprised to the downside in January, slowing to its lowest level in about four years at 4.4% from 5.3% in December. Producer inflation (PPI) cooled even further to 3.5% in January with falling fuel prices the main redeemer. Inflation is expected to remain under SARB’s top-end, averaging 5.5% through 2015, although Rand weakness will continue to offset the benefit of low oil prices.
As could be expected, SARB’s MPC left interest rates unchanged in their January sitting (REPO 5.75% & PRIME 9.25%) by unanimous decision off the back of a plummeting international oil price and significantly improved inflation outlook. However, the MPC muted that further monetary policy accommodation (rate cuts) would require sustained low inflation.
Equity & Bonds
The JSE continues to be the darling of Africa with a cumulative 186% rise in the all share index (ALSI) since the bear market of 2009, translating into a total return of 239% with dividends. Last year saw another R18.1bill of speculative foreign capital flow into SA equity, contributing to the JSE’s current P:E average being driven well above the long-term mean to 18.2 times earnings (8.2 in March 2009). Bond yields were lower in January with the benchmark R207 2020 and R186 2025 tapering to 6.56% and 7.05% respectively. The money market eased in-line with a flatter rate curve with the 3,6,9 & 12 month JIBAR rates closing January at 6.10%, 6.66%, 6.68% & 6.90% respectively.
Credit, Money Supply & Governance
Minister Nene made an attempt to reign in fiscal expenditure, trimming the budget by R25bill in an effort to curb net government loan debt to GDP below the key 45% threshold in the coming three years. Thankfully, common sense has prevailed in that maintaining SA’s investment grade rating is now a strategic imperative to ensure adequate access to capital and avoid increased cost of borrowing moving forward. Growth in private sector credit moderated to 8.5% y-on-y last month with the consumer market still relatively stretched (Household Debt-to-Disposable Income Ratio at 78%).
GDP growth of 4.1% in Q4 was encouraging but not enough to prevent the local economy weighing in a lacklustre 1.5% for 2014 (down from 2.2% in 2013). Mining & Manufacturing made promising rebounds in Q4 gaining 15.2 and 9.5% respectively. Agriculture (7.5%), Finance (3.5%), Construction (3.5%) and Transport (2.9%) all made quarterly gains with Retail & Trade the big loser contracting by 0.3%. Vehicle sales were flat last month, registering 52,306 units, being the lowest January figure since 2012. In government’s budget framework tabled yesterday, a consolidated deficit of 3.9% of GDP was projected for 2015/16. An environment and policy framework conducive to growth is another strategic imperative. Enablers such as the proliferation of broadband is considered by many, including government as a key enabler to growth however high speed deployment (+-26%) continues to trail significantly behind the developed markets due to spectrum and device limitations.
Employment & Education
The unemployment rate fell to 24.3% in the final quarter of 2014 from 25.4% in the third quarter as 203,000 much needed jobs were added. A mild recovery in both the formal and informal sectors reduced the number of discouraged workers by 111,000 to 2.4mill. Wage increases have remained sticky with collective bargaining settlements averaging 8.1% in 2014 from 7.9% in 2013. With the widespread disruptions to key sectors mining & manufacturing last year, consensus seems to be that a more mature and stable labour market would go a long way to contributing to growth aspirations.
Consumer spending is tipped to find some form moving forward, thanks to lower fuel prices, stable interest rates and easing inflation boosting disposable income. The consumer recovery is expected to outweigh the negative impact of load shedding, subdued international commodity prices and global demand on exports, culminating in better economic prospects for our economy in 2015 (projecting 2.5% Growth).
Aptly put by finance minister Nene this week, our primary challenge is to deal with the structural and competitiveness issues holding back production, investment and inclusiveness in our economy. The most immediate of these is the security and reliability of energy supply. “Electricity constraints hold back growth in manufacturing and mining, and also inhibit investment in housing and raise costs for businesses and households alike,” he said. God knows amidst the politicking, power shedding and proverbial culture to complain, we could all do with some good news. But perhaps, the starting point is an honest look in the mirror. “It is possible for Africa to rise but it won’t do so until we get organised and work differently.” 21 years on from the miracle of 1994, with our abundance of natural resources and potential in this country to contribute, we South Africans need to act and need to inspire.
Wildly South African
The Team at GENUITY