Osagyefo Mazwai is an investment strategist at Investec Wealth & Investment SA. Photo: Supplied
By Osagyefo Mazwai
I was fortunate enough to attend the South Africa Investment Conference 2023 (SAIC), organised by The Presidency, Invest SA and the Industrial Development Corporation. It is safe to say that the overwhelming message was that South Africa is a “diamond in the rough”.
Multiple themes came up relating to infrastructure, energy security, logistics networks, cooperation between the state and the private sector, among others. The list of the most urgent reforms needed in the public sector to unlock investment opportunities, confidence and investor interest in South Africa is well understood. The themes aren’t new, but it is important to re-emphasize them as they are critical enablers of the economy.
I suspect most attendees were surprised when Human Settlements Minister Mmamoloko Kubayi, who also happens to chair the ANC NEC Economic Transformation sub-committee, summarised the achievements of the government in relation to the Economic Reconstruction and Recovery Plan.
While we must give credit where credit is due, it is important to acknowledge that, to a certain extent, many of these reforms were imposed on government. We must not haste to celebrate these achievements when there is still much to be done.
At SAIC, Duncan Wanblad, the CEO of Anglo American, was eloquent in summarising these themes. He stressed that while partnerships are important, it does not absolve the government of its responsibilities.
The government needs to tackle structural challenges, notably Eskom (energy security) and Transnet (movement of goods), which are paralysing the South African economy, to unlock its real potential. This is absolutely vital.
And South Africa could reap significant economic benefits if these parastatals were fixed.
A few weeks ago, I did some work on the relative impact that an improvement in exports would have on South Africa’s economic performance, which has a significant and inextricable link with the performance of Eskom and Transnet.
It is worth unpacking some of the findings:
South Africa has underperformed emerging market peers in terms of export volumes since the year 2000. The sad part is that in terms of our export unit values, which is the pricing of our export baskets, we have outperformed emerging market peers. That means that our export basket of goods is the favourable basket in the sample.
And while South African battles structural challenges, local commodity players are unable to produce and export as much as they are capable of.
Various mining companies, and more specifically, coal producers, continue to flag challenges with freight rail and their subsequent inability to export production output. They also continually cut production guidance as a result of load shedding.
During a SAIC panel discussion on mining, it was stated that coal exports had increased by around 570%. One need only look at miners such as Thungela Resources and its block-buster performance in the immediate aftermath of Russia’s invasion of Ukraine, which was followed by a rise in the demand for coal in the face of an impending energy crisis. But alas, as SA-specific structural issues have taken hold, so has the share price unwound.
The significance of rising commodity demand globally is how they have translated into record-breaking revenues generated by mining companies, which have unlocked corporate tax revenues for the SA Revenue Service.
But weaker exports have led to poorer than expected mining volumes, and so the performance of miners has been predominantly price-driven, further supported by the weakness of the rand against the dollar.
So, in the context of these higher revenues driven by price dynamics, just imagine if Eskom and Transnet had been performing optimally.
Imagine the sheer unlocking of potential for the South African economy.
Improved exports, driven by price and volume, would translate into higher economic growth leading to better employment outcomes and, ultimately, higher consumption expenditure. It then becomes a virtuous cycle.
Household final consumption expenditure is the important facet for increased economic activity; it is a proxy for demand for goods and services, which is a net positive for businesses in South Africa as demand stimulates corporate revenues, and so the virtuous cycle begins again.
Solving the problems at Transnet and Eskom would also be the catalyst for nominal gross domestic product (GDP) growth and the fiscal outlook, driven by increased tax revenues and an improved debt-to-GDP trajectory.
South Africa, as a diamond in the rough, could see exports rise with growth in exports akin to a rising tide that lifts all boats.
This would help South Africa to take back its place as the leading economic powerhouse of Africa, but only if we urgently reform these critical enablers of our economy.
Osagyefo Mazwai is an investment strategist at Investec Wealth & Investment SA and holds a Master of Commerce in Economics degree from Stellenbosch University.
BUSINESS REPORT