Companies have shown resilience at a time of low economic growth and policy uncertainty, and President Cyril Ramaphosa expects a lift in investment now that the reform agenda is getting momentum, says Luvuyo Masinda, CEO of Standard Bank corporate and investment banking (CIB), the dominant player in SA’s high finance circles.
The country’s nonfinancial corporates are sitting on a record R1.8-trillion as at the end of July, up R700bn from the R1.1-trillion reported in 2019, according to the latest quarterly bulletin of the Reserve Bank.
The enormous safety net piles pressure on President Cyril Ramaphosa to reverse a decade-long trend of weak growth and capital flight and convert latent liquidity into productive capital. Staking his political legacy on private sector-led economic recovery, he has launched structural reforms in energy, water and logistics.
The bank said companies were holding excess cash in response to economic conditions and balancing risk with readiness to invest when confidence returned.
Masinda said tailwinds were emerging in the economy.
“In an environment where the political economy is becoming more stable and the reforms are translating into real positive momentum, whether it’s in energy, with Operation Vulindlela as an example and the success there, we expect more investments to flow,” he told Business Day.
“The question now is, are we going to see that investment increase? Our thesis is that we absolutely believe we are going to see that. We anticipate SA to be one of the fastest-growing parts of our business in the next three to four years. In CIB, our SA business is growing as quickly as the rest of our other markets.”
The CIB business is the jewel in Standard Bank’s crown, accounting for nearly half of the group’s earnings.
Hendrik du Toit, founder and CEO of Ninety One, hailed the Reserve Bank and the Treasury’s stewardship of SA’s monetary and fiscal policies, saying the challenge now is to spend taxpayer rand wisely to encourage the private sector to invest in the economy.
Du Toit said it was important for authorities to rein in wasteful government expenditure and graft, and improve educational outcomes to build on the momentum around SA at the moment.
“I think the key is to move onto execution; otherwise, there is no point in winning the financial battle, at which I think the Treasury and the Bank have done exceptionally well. All kudos to the governor, who really pushed [the lowering of the inflation target to 3%] very hard, and to the minister for accepting a lower target, which lowers costs of debt servicing,” Du Toit said.
“Achieving primary surplus two times in a row is also very impressive. But we have to move to the execution phase and ensure public funds are well spent. We really have to drive the effectiveness of the government. Otherwise, the R2-trillion on private sector balance sheets will just stay there and be dividends and ultimately flow to foreign investments.”
We really have to drive the effectiveness of the government. Otherwise, the R2-trillion on private sector balance sheets will just stay there and be dividends and ultimately flow to foreign investments.
— Hendrik du Toit, founder and CEO of Ninety One
Since the release of the Bank’s quarterly bulletin, a lot of positive sentiment has come through, including a “credible” medium-term budget policy statement last week, which was well received by the markets.
The decision by S&P on Friday to lift SA’s foreign currency long-term rating to “BB” from “BB-” with a positive outlook has also sent a strong signal that the reform agenda is making headway. It was the first time in nearly two decades that SA got a credit upgrade.
Du Toit said there was still much ground to cover to unleash SA’s economic potential, and he called for renewed investment in education to increase the country’s skills capacity.
“We have done 60% of the work. It is very important that we do the 40% that still needs to be done to grow the economy to its full potential. But let’s give credit where it is due. What we are saying now, we could not have said a year ago, and the markets have recognised the progress being made.”
Business Day
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