Why confidence in South Africa runs deep despite economic gloom: Sanlam

Anton Gildenhuys Sanlam
Anton Gildenhuys. Image credit: Sanlam

With sluggish economic performance worsened by the COVID-19 pandemic, a record 34.4 percent unemployment rate and the July unrest, many South Africans might despair and give up on their country.

However, there are plenty of reasons to still be optimistic that South Africa is slowly emerging from economic gloom, according to Sanlam Retail Affluent Chief Executive Officer, Anton Gildenhuys.

Speaking during a Sanlam Financial Confidence Webinar last week, Gildenhuys said there are “strong signs that growth prospects in South Africa and Africa are imminent and real.”

“We all know the scars of the wasted years. We are still near those today. We know the impact of COVID-19 has been devastating. We have record unemployment and political fractures. So why is it Sanlam has such strong belief in South Africa? Why are we investing in this country? Why aren’t we following the trend of moving everything offshore?” he asked.

A positive economic overview of South Africa

In his presentation, Gildenhuys gave reasons why Sanlam is still confident about South Africa’s economic prospects:

  • Retail sales have recovered to pre-COVID-19 levels, despite the continued lockdown.
  • Manufacturing production has also recovered – some sectors took a massive knock, but overall, we’re close to where we were in 2019.
  • GDP – including government activity has recovered.
  • Looking forward, the outlook is resilient, with the manufacturers’ purchasing manager index (PMI) improving, indicating business confidence.
  • Counterintuitively, we now have a positive net household savings rate, which is a seismic shift. People’s net wealth (percentage of disposable income) has actually improved, on average, with an increase in household net wealth and savings. There’s been an increase in people’s deposits in commercial banks. If you look at the deposits with banks from just a year ago, they’ve jumped from R1.3 trillion to R1.4 trillion. That’s clearly a massive buildup of savings. A lot of net wealth is also being driven by non-financial assets like house prices and from holdings in pension funds and other financial assets.
  • If you compare us to other emerging markets, we have a huge competitive advantage due to our large liquid capital market, which will help accelerate economic growth.
  • Once the vaccination drive opens the economy up, there is likely to be an incredible unleashing of pent-up demand in terms of spending, which will drive massive economic recovery.
  • We have structurally low inflation, which is contributing to the lowest prime overdraft in 50 years. This is likely to last some time, which lowers the cost of capital and helps fuel economic growth.
  • We have a trade surplus of more than 6% of GDP, which has never been seen before. One of the drivers of this is the global fixed investment outlook. Biden just approved his $550 billion infrastructure investment plan. They’re going to invest billions in revitalising their infrastructure, which requires steel, copper, cement… the sorts of things South Africa produces. Because of the low resources prices for more than a decade, there’s been a low level of investment in new mines and manufacturing. Sourcing more iron, ore and copper will take time. Demand far outweighs supply, supporting higher commodity prices, which could lead to strong support towards a trade surplus and supporting our economy.
  • There’s been a massive jump in corporate and personal income tax – while the record corporate taxes have been well recognised (partly fueled by the commodity boom), the record personal income tax receipts to April 2021 have been overlooked by some commentators.
  • There could be a further re-rating in equity markets. It is our view that the forward-looking Price Earnings ratio is only at 11 at the moment, which is particularly low in a low interest rate environment.

Gildenhuys acknowledged that recovery has been unequal across various economic sectors, but emphasised that pent-up demand and the commodity boom offer reasons to remain optimistic.

“Because of this supply-demand imbalance, we’re likely to see continued currency support and trade surpluses, which will keep the rand, inflation, and prime interest rate in check,” he added.

“We can look forward to continued growth in tax receipts. It’s almost like South Africa got a ‘get out of jail free card’ from the worldwide economic recovery, and particularly the rise in commodity prices, when we most needed it.”

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