<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
SIMON BROWN: I\u2019m chatting with Johann Els, chief economist at PSG Financial Services. Johann, a number of years ago \u2013 I can\u2019t remember how many, I\u2019m pretty sure it was pre-pandemic \u2013 you wrote an article at the time around radical economic transformation.<\/p>\n
It was not political sloganeering, but more around real shifts that we were seeing \u2013 private sector participation with government, structural reforms, things like Transnet, like Eskom. Frankly, some of it has really happened, a lot of it is on track. We really are seeing some big shifts happening slowly, but happening in our broader economy.<\/p>\n
JOHANN ELS: Absolutely. And it is radical in the sense that 10 years ago we didn\u2019t think this was going to happen. We were struggling and we had severe depression around politics and policy and the lack of economic growth.<\/p>\n
Now we\u2019re seeing that transformation in terms of government actually allowing this far bigger role of the private sector in the economy. And I think, again, it\u2019s radical because nobody expected this, nobody thought that government would allow this.<\/p>\n
So where government was running state-owned enterprises, government departments, et cetera, which we knew were failing and couldn\u2019t cope in terms of getting the stuff we needed \u2013 electricity and logistics, et cetera \u2013 now we are allowing the private sector to do that. And I think that\u2019s the saviour of the SA economy.<\/p>\n
Read:
Private sector key despite Transnet\u2019s fresh R95bn guarantee
South Africa\u2019s logistics reforms can\u2019t afford to slow down
Transnet opens bidding for Durban multi-purpose terminal concession
Eskom must move grid allocation to NTCSA, says Saippa<\/p>\n
SIMON BROWN: it\u2019s been a long road, it\u2019s been a slow grind. But in the recent article you wrote, you talk around economies changing at the margin. And that\u2019s so fundamentally true. You have kind of fixed Eskom and that\u2019s a big thing, but its ripple effect is so much bigger. It ripples into Transnet. It\u2019s the little changes at the edges, I suppose, that magnify over time and really have the implication. And we\u2019re seeing it. Eskom is one, but others are coming.<\/p>\n
JOHANN ELS: Absolutely. Remember in the first quarter of 2024 we still had Stage\u00a06 load shedding every single day. And now we are happily moving on, and we forget those depressing days.<\/p>\n
As you say, on the margin everything starts to happen and it takes a while before we actually see it in GDP growth numbers. We haven\u2019t yet.<\/p>\n
But gradually, if we can run the economy better, more productively and cheaper because better infrastructure and better services and those things make it cheaper to run the economy, all of that is beneficial going forward. But it happens slowly initially. And then eventually we wake up one day and see hang on, stuff is happening around us.<\/p>\n
Read:
Government-business partnership moves from fixing SA to growing GDP
SA\u2019s reforms held under global pressure, but the work isn\u2019t done<\/p>\n
SIMON BROWN: Like the fact that two years on load shedding is, touch wood, a distant reality.<\/p>\n
The other big part of this perhaps has been a fundamental change within government, because it\u2019s the growing role of the private sector. We\u2019re going to have private rail locomotives on Transnet track, which was probably unheard of just three or four years ago, never mind a decade ago.<\/p>\n
JOHANN ELS: Absolutely. I think when the licences were awarded, we still were sceptical. And then suddenly we saw the reports that, hang on, this stuff is being imported through Durban harbour. The locomotives and the wagons, et cetera, are coming in. And so it\u2019s happening.<\/p>\n
I suspect a big part of this scepticism is that after 16 years of virtually no economic growth we\u2019ve become disillusioned, totally. We thought these policy changes \u2013 we hear them, but they\u2019re not really going to make a difference, it\u2019s happening too slowly. All those kinds of issues. And suddenly it\u2019s happening.<\/p>\n
Suddenly we open our eyes and things are busy happening around us. That\u2019s where Operation Vulindlela and Treasury have done a lot in terms of easing those processes, the regulations allowing the private sector this bigger role, the potential to participate.<\/p>\n
Read:
SA CEOs join government to drive 3%+ growth and 1m jobs
Ramaphosa backs Eskom restructuring plan for competitive power market
Operation Vulindlela: SA \u2018will hit 3%\u2019 growth by 2029 if reforms continue
Private investment helps shape SA\u2019s path to economic renewal<\/p>\n
SIMON BROWN: And then it ripples through all over the place. We sit in a primary budget surplus, we\u2019re expecting debt close to peaking, we\u2019re seeing foreigners buying our bonds. Those are again maybe indirect, but they\u2019re part of the process, part of the outcome of this process of improving infrastructure.<\/p>\n
JOHANN ELS: Absolutely. For years we\u2019ve struggled on the fiscal side. Suddenly now, as you say, we\u2019re running a primary surplus. And suddenly investors locally and internationally and ratings agencies are believing that we now can see that debt ratio peaking. And suddenly we saw some rating upgrades \u2013 and we can expect more, I expect.<\/p>\n
SIMON BROWN: The key point is you\u2019re right; we\u2019ve had the ratings upgrades; we\u2019re off the grey list. And if we go back to February this year, we were expecting some GDP growth to start happening.<\/p>\n
We\u2019ve been stuck at 1% forever and a day. We of course now have, what, \u20132% for Q2. My sense though, that\u2019s not us shooting ourselves in the foot as much as it is the broader global picture and perhaps most notably the fuel price, which is hurting and going to continue to hurt and is something about which we as a country cannot do much.<\/p>\n
JOHANN ELS: Absolutely. We have to admit we are a small, very open economy. So all those happenings in the rest of the world do impact on us, quite severely sometimes. But if we just take the rand exchange rate as a barometer, it has behaved far better this time around with this global crisis \u2013 the war in the Middle East \u2013 than at previous times of crises like this.<\/p>\n
For example, the Ukrainian war, which started in early 2022 \u2013 then the rand and inflation reacted far more negatively than they do now. That is part of the market saying, hang on, slowly but surely some of South Africa\u2019s fundamentals are actually busy improving and seeing that improvement. And that\u2019s the rand telling us that.<\/p>\n
Read:
Dollar weakness sets the stage for EM outperformance in 2026
SA Inc could be about to outshine US tech \u2026
When exactly will it be our time to shine?<\/p>\n
SIMON BROWN: I\u2019ve commented recently on the currency, and it\u2019s not the rattlesnake we\u2019re so used to.<\/p>\n
To be clear, there\u2019s still a lot that needs to happen, make no mistake \u2013 more reform, labour reforms, et cetera.<\/p>\n
But there\u2019s another angle that you mentioned, which is perhaps the much longer-term view \u2013 developed markets, ageing populations, emerging markets and South Africa being one of them.<\/p>\n
We really do become attractive because of our bond market, our currency, our foreign equity flows. But of course there is our population, a young population, which is crucial for us because unemployment remains one of our key challenges.<\/p>\n
JOHANN ELS: Absolutely. Younger populations in emerging markets, populations that are still moving into cities. That creates a much more productive effect in terms of making it cheaper to run an economy. Not only South Africa, but most of the other emerging markets are running better policies, fiscal and monetary policies.<\/p>\n
So risks have reduced quite substantially compared to 20, 25 years ago. Suddenly emerging markets are high growth, but lower risk than developed economies. Developed economies \u2013 the USA for example \u2013 sit with a government debt-to-GDP ratio of more than 120%. South Africa\u2019s is only at 79%.<\/p>\n
So suddenly investors are worried about the US or other developed economies, and looking towards emerging markets which are still providing better growth, better earnings potential, but lower risk than we\u2019ve been used to over the last 20 years.<\/p>\n
Read:
Slowly but surely, South Africa does seem to be turning the corner
The budget, the economy, and the winds of change<\/p>\n
SIMON BROWN: Yes. As you said there, it has certainly occurred to me. The US\u00a010-year [bond] is about 5%. Our 10-year is call it at 8.5%. I don\u2019t know that the gap\u2019s ever been that narrow \u2013 certainly not that I\u2019ve noticed before.<\/p>\n
We\u2019ll leave it there. Johann Els, chief economist at PSG Financial Services, appreciate the time.<\/p>\n
#SAs #rising #private #sector #participation #improving #economic #fundamentals<\/p>\n","protected":false},"excerpt":{"rendered":"
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