Writing a regular feature about South Africa’s financial services sector means that I need to keep a weather eye on local developments. And it makes for some pretty grim reading.
A July 2019 headline for news website BizNews read: “SA jobless rate soars; Nedbank sheds jobs; Shoprite profit plummets; losses hammer Massmart; Brexit plagues pound.”
Anyone would be forgiven for crawling back under the duvet after reading all of that.
Away from rand weakness and global market volatility, South Africa’s political and economic backdrop is unlikely to soothe investors.
More recent headlines shout about a rise in xenophobic attacks, ongoing corruption and people taking to the street to protest the rising violence against women.
The chief executive of asset management firm Sygnia, Magda Wierzycka, was robbed in London last week. After sharing her story on social media, a backlash erupted against her.
The prevailing sentiment was that, had it happened in Johannesburg, she would have been physically attacked and/or murdered, so she shouldn’t be complaining.
But are things really as bad as all that?
Looking for an exit
For Hjalmar Bekker, chief executive and director of Moonstone, it is “a very negative picture”, he told International Adviser.
“There is a growing concern amongst businesspeople in South Africa about the longer-term future of the country.”
He highlighted nine key areas of concern:
- The expropriation of land without compensation;
- Debt burden of State Owned Entities (SOE) (Escom, SAA, Transnet, SABC etc);
- The future implementation of a National Health Insurance scheme (NHI);
- Lack of economic growth;
- Increase in violent crime, especially against women and children;
- Continued corruption and the lack of prosecution of exposed individuals;
- The increase of unemployment, especially for the age group <34 years;
- Xenophobia and general lawlessness; and,
- Hate speech.
Bekker added that those factors have resulted in the sharpest decline in the business confidence index in years.
“Businesses are no longer investing in themselves, resulting in fewer jobs being created and thus lower growth. More people than ever, irrespective of race, are considering emigration options.”
The fallout will badly hit property prices and it’s definitely not good news for the financial services industry.
“Due to higher than expected inflation and lower than expected economic growth, the portion of income available to buy financial products is busy declining.
“The obvious outcome is that it impacts directly on the earning ability of financial planning businesses. We are seeing more financial planning practices in the market as it is becoming increasingly difficult to remain financially viable.”
Financial services demand
Bekker believes that the near-term is looking pretty poor for the average consumer and, by extension, the financial planning industry.
“The possibility of increased taxation to fund the proposed NHI will impact severely on the future of the industry due to the reduced availability of money to spend on financial products.
“In my opinion, South Africa is facing really big challenges.”
Bekker believes that the only way to change the growing negativity in South Africa is to “actively demonstrate commitment to eradicating fraud, to implement policies that will ensure a higher economic growth rate and thus create more jobs to expand the tax base”.
“But none of the issues mentioned above are easy to implement and will certainly challenge the current government,” he added.
Ubuntu spirit
Not everyone agrees that the outlook is so bad.
“We are all too often made aware of the significant challenges facing our country,” Michael Summerton, head of proposition and marketing at Inn8, told IA.
The daily news stream “sometimes makes us feel that our problems are insurmountable”.
“However, if we take a step back, there is certainly reason to be hopeful.”
Summerton pointed to what he sees are inherent South African traits: resilience and resourcefulness.
“For example, the overwhelming public response by the people, corporates and leaders across the spectrum to the recent social issues is a sign that our spirit of ‘Ubuntu*’ still exists and helps us strive towards a better country for all.”
Parting of the clouds
“From an economic point of view, there are positive signs,” he added.
“For the first time in five quarters, South Africa has had a 6.1% growth in gross fixed capital formation (GFCF), reflecting the willingness to investment back into the economy, a very positive sentiment. Private consumption expenditure is up 2.8%.
“Our economy is more diversified than it was 20 years ago. New minerals are being discovered, bringing new opportunity. Another example is the recently discovered offshore gas fields, which have the potential to energise our economy for decades to come.”
Summerton highlighted the country’s latest GDP figures, which “indicate that there are still signs of life in the economy, even if the path to stability is difficult to discern at times”.
Proven resilience
People should not underestimate the strength of South Africa’s financial services sector, he added.
“The industry is robust and highly regulated, this is what enabled us to weather the 2007/08 global financial crisis with much less long-term impact than many other more developed countries.
“This attention to detail and commitment to rigour will help us weather the current storm too.”
Despite the tough economic climate, “the average South African is still managing to save their hard-earned rands for short-, medium- and long-term goals”.
“We have one of the strongest and most progressive constitutions in the word, a financial system built to withstand tough times, a diverse array of resources and people who are constantly working for change.
“While the pace of change and improvement may seem slow, we are still moving forward.
“A change of perspective can only be a good thing. There is no reason to throw the baby out with the bathwater – the challenges can be overcome if we keep going,” Summerton said.
*For non-South Africans – ubuntu is a quality that includes the essential human virtues; compassion and humanity.
