It's Time To Be The Bull

By 1919, a world war and a global pandemic had ravaged many areas of the globe. Several major economies had all but collapsed. When all seemed lost, an economic rebound came at a pace that few had predicted or thought possible. This was led by the American market which grew 42% in the 1920’s. The reason for this staggering level of growth was that many of America’s traditional European competitors had been greatly affected by the First World War and the Spanish Flu. The disruptions to European production meant that America was responsible for almost half of the World’s manufacturing output in the 1920’s. Ultimately, structural flaws in the American stock market resulted in the 1929 crash. Nonetheless, the lesson that in the modern era, from great adversity, great success can be achieved had been proven.

America’s success in the 1920’s, which ultimately set the stage for it to become the world’s greatest economy, was due primarily to its bullish post-war and post-pandemic sentiment. Whilst other countries sat licking their wounds and shaking off the malaise which had stemmed from years of struggle, America shook off the uncertainty and malady and pressed ahead with rapid development. Construction spending soared and America led the way with developing new technologies. These times were known as the “roaring twenties”. This was the decade that laid the foundation for what America has become today.

As an emerging market, South Africa’s major direct competitors are other emerging markets of similar size and with similar GDP and production outputs. Brazil has traditionally been seen as one of our main competitors. Investors are shedding Brazilian investments at record levels, driven not only by the impacts of COVID-19 in the country, but also by the political turmoil which analysts predict will take years to resolve. Russia is in a similar position, with Vladimir Putin seeking to be elected leader for life, cementing the Russian political system as a dictatorship. This has spooked investors for obvious reasons. India’s economy had been in a steep upward trend, however due to its population size, the costs of the measures taken to address COVD-19 in the country are staggering. This, coupled with increasing tensions with its neighbours, has also increased the risk profile of India. China, is currently in the naughty corner. This, combined with the potential for global claims for compensation from China for the coronavirus pandemic, and its actions in Hong Kong, are keeping investors at bay. 

In South Africa the rand has rebounded from what many predicted would be a freefall to previously unseen lows. In fact, our risk profile has improved to better than pre-downgrade levels. The result has been a substantial, unforeseen and rapid return of foreign investment inflows. Capital flows into South Africa have far outweighed the capital flight seen immediately post the downgrade. It is important to remember that institutional investors have been prevented by our negative status from retuning their funds to South Africa. So the capital inflows have excluded that category of investment.

So what does all of this mean? South Africa is far from out of the woods. We are still in the grip of a pandemic. So we plan for the worst and but we also plan for the best outcome. There is little use sinking into a quagmire of despair. We must look to every advantage that we have, every edge must be capitalised on. We need to show the world a strong unified country. Yes, I can already hear the groans of “that will never happen”. If that is your outlook, then you are part of the problem and not the solution.

South Africa has touted radical economic transformation for years. To date that path has resulted in the mass looting of the country’s resources and more than R 2 trillion in loses due to corruption and incompetence. That does not mean that the concept was wrong, it means that is was abused. We can find new ways, more effective ways, to implement such policies for the good of all South Africans. We must be willing to do our part to uplift the poorest and neediest in our country. Not in the foolhardy manner proposed by agitators such as Julius Malema. To believe that South Africa can survive without foreign investment is imbecilic. We need to show investors that we can resolve our internal problems in a conducive manner.

South Africa, led by the South African government, followed by the South African business sectors must take a far more bullish approach to its COVID19 recovery plans. That does not translate into reckless optimism. It means that we must realise that we are in a better position than many other nations. Our government’s COVID19 response has enhanced our global reputation.

If the South African government resorts to a bearish approach, with an overly pessimistic focus on the country’s sovereign debt, looking to years of austerity as a means to right the ship; we will suffer the consequences. We cannot simply throw caution to the wind, but we can fill our sails by maximising our advantages. We need every citizen on deck; we need our population suffused with positivity. We need leadership that has faith in the abilities of the South African people; leadership that will bet the house on the country’s success; leadership that will lead by example. Now is not the time to look backward; now is the time to look to the future and to believe that we can make that future prosperous.

We need to trust in South Africa, invest in South Africa as foreign players have done. Our financial institutions need to step up and make a difference. We need to take measured and calculated risks. We cannot crawl into our shells and wait for others to improve our situation.  History will judge us by our response to this pandemic. It is time to stand up and be counted as a South African.