Intellidex’s Peter Attard Montalto believes a hard Brexit might work in SA’s favour. Read more in today’s Financial Mail.
Eskom crisis seems to have triggered some rare momentum
This column was first published in Business Day
Positive signals come in the most surprising ways sometimes.
I have long held the view that there are several key issues where we need to see policy makers panicking, running around with arms flailing. Controlled panic is good in the political economy. It can move red lines and allow for deployment of political capital to overcome vested interests. It can create momentum and accountability.
This did not happen around the jobs summit in 2018. There was no necessary hysteria about the state of unemployment and resultant inequality. Vested interests kept their perspectives, their red lines were still in place and the result was the underwhelming status quo.
As such unemployment will slowly grind higher in the next two years even as the economy recovers. However, there has been focused panic on Eskom. And it is good. Surprisingly so.
The problems at Eskom are not new. It feels like we have been going around in circles before a slow car crash for 15 years.
Yet the ideas for resolution have always been there in countless ANC and government policy documents since 1994 and of course from energy-sector watchers and academics.
A lack of panic previously meant momentum could never be gained and those ideas couldn’t be deployed.
Something started to click before Christmas and full panic appears to have set in in the past two weeks, allowing for clarity of thought and momentum to take hold.
It would appear that a full realisation of the unsustainability of Eskom set in, but also the inability to simply bumble along or kick the can down the road.
We should remember that until the expert voices of the task team came along, there was a serious asymmetric information problem between shareholder and Eskom. No one in the government really had a full understanding of Eskom as a strategic whole — given under-capacity for the scale and complexity of the problem as well as a monopoly mindset in some quarters which believed Eskom always knew best.
Now (old) new thinking can be injected, challenging certainly (splitting a complex beast into three components) and vast in scope (moving more than R100bn of liability risk for instance) — but both necessary and doable.
The problem of course is not one of coming up with policies and plans but of implementation. This is where the panic fades and the harsh reality of vested interests and red lines remerge, momentum fades and reforms die.
The fact that further bouts of loadshedding seem probable in February, Eskom’s energy availability factor is not predicted to turn higher until the quarter, and the period into Eskom’s annual results may be challenging (as a large loss is recorded, towards R20bn) may be conducive to panic lasting a little longer and even tiding over the election period.
The likely specificity (and expertise) of any plan may well also enable momentum to continue — overwhelming opponents.
What is being undertaken here is a forced mindset change from a single Eskom-centric model to a multitude of state-owned companies each with their own models.
This will face strong resistance. Equally relying on taxpayers and tariff payers (the same people) to foot the bill will cause significant disquiet. More so if two stakeholders take no pain — the government by politically redlining necessary job cuts to rightsize the workforce and handsomely rewarded creditors (who continued to lend to Eskom though evidence of state capture mounted).
Is the mindset around the energy sector changing or are we now just getting three monopolies replacing the one before?
As such even if very good reasons exist for not haircutting creditors and very understandable political reasons exist for redlining job cuts, these two are likely to be wrapped into a noisy pushback by taxpayers and tariff payers.
Therefore some key tests are needed to see if momentum is being maintained or if the resulting counter-reaction bogs progress down.
Is the end product sustainable or has a long term kicking-the-can-down-the-road occurred? This is particularly applicable if there are not major job cuts.
Is the mindset around the energy sector changing or are we now just getting three monopolies replacing the one before?
Does Eskom split into three mean three times the opportunity for future state capture? Futureproofing against a repeat of recent history is crucial.
Is an independent system market operator actually independent and moving away from an Eskom-centric mindset, so allowing a much wider flourishing of the energy sector in SA?
This process is going to be long, given its complexity and so requires the sustained understanding of the threat and the positives of the end goal to be kept in mind. We should not forget we have (partially) been here before.
Transferring R100bn or more debt to the sovereign may well be the easy part. Balance sheet allocation and debt allocation will be a long-term project that is intricately complex. Indeed, debt held at the holdco level may need to remain there, meaning any future set of entities (and the fiscus) have a complex financial interrelation with an Eskom “bad bank” that winds down existing debt and attempts to manage the rapidly ballooning municipal arrears problem — until the new entities can properly be viewed as standalone.
We should not kid ourselves that positive announcements to come shortly, based on the recent leaks from the NEC, are the end of the road — they are just the very beginning of a long journey that will have loadshedding and resistance as potholes along the way.
The lesson here is panic is good for policymaking. Of course, it would be better if the same outcome could be achieved earlier and in a calmer way — but needs must in the South African political economy.
Let’s now also have some panic on the jobs and inequality crisis…
• Attard Montalto is head of Capital Markets Research at Intellidex.
The debt-write off plan could cost banks billions says Intellidex’s Attard Montalto in Business Tech.
“The ANC’s general policy mindset is not changing,” says Intellidex analyst Peter Attard Montalto in Financial Mail today.
By Analysts Orin Tambo and Phibion Makuwerere
With no tailwinds to support economic growth, the equities market appears a little bleak at the start of 2019. In that context, Intellidex analysts have sifted through the market to identify companies they believe offer value to investors.
Intellidex believes companies with rand hedge qualities (those with operations outside of SA and net exporters), low debt levels and minimal exposure to government business are likely to fare better. With no economic tailwinds for the local economy we do not expect robust growth from consumer-dependent industrials such consumer goods, consumer services and health care – particularly those heavily geared towards the domestic economy.
Macroecomic review and outlook
What happened in 2018?
SA started 2018 on a very strong footing, buoyed by the election of Cyril Ramaphosa as ANC president in late 2017 and later as president of the country. Confidence was high: the FNB/BER consumer confidence index skyrocketed to 26 points (2017Q4: -8) for the first quarter of 2018, its highest level since the BER started measuring consumer confidence comprehensively in 1982. The RMB/BER business confidence index jumped 11 points in that quarter, its highest increase since 1975.
However, a confluence of adverse economic and political developments deflated confidence as the year progressed. Inflationary pressures due to rising petrol prices, VAT increasing to 15% and the sugar tax quashed consumer sentiment and the economy slipped into a recession in the second half of the year. The rand was as volatile as usual, influenced by local and global events.
The main global influence on the currency were the trade wars involving the US, China, EU and Canada in particular.
Capital markets were tumultuous. Locally, the JSE all share index surrendered 9% on the back of a massive selloff of its biggest constituents: BAT (-44%), AB InBev
(-31%), Naspers (-19%), Glencore
(-18%) and Richemont (-16%).
All the JSE sectors (see graphs below) except for resources ended the year in the red. Health care was the biggest loser, shedding 30%, followed by property, which lost close to a quarter of its value.
While market uncertainty is elevated, the JSE has experienced a rally mainly due to external forces.
Economic data released so far show the economy remains under pressure, although there are a few positives. Mining production fell by 6% for the first 11 months of 2018. Contrarily, November retail sales increased by 3.1%, indicating that black Friday sales performed better than last year, with household furniture and appliances leading the way, jumping 13.5%. However, recent trading updates by retailers Woolies and Mr Price have disappointed, dragging the sector down on the local bourse.
Overall we believe the performance of local equities will be shaped by weak economic growth (Intellidex is forecasting 1.5% GDP growth this year and 1.9% next year); a weak currency; stable inflation; an interest rate hike; no significant policy reforms bar land reform; unsustainable state owned-enterprises debt; a credit ratings downgrade; and a simple majority ANC election victory.
On the international scene there is a lot of noise characterised by a confluence of conflicting but largely weak economic data. Some analysts are arguing that this might turn out to be a good omen as governments may be compelled to pursue loose economic policies.
This thinking may have birthed the equities rally in the first week of the year after the US Federal Reserve signalled a more accommodative monetary stance on the back of weaker-than-expected economic readings. China has weighed in by promising to implement a number of stimulus measures, including tax cuts, to prop up its economy, which experienced one of its worst years in recent memory last year.
If the trend of accommodative policies continues, it could be good news for equity investors both at home and globally. The US-China trade talks are so far going well and present a potential surprise to the upside. However, the Brexit scenario remains a risk.
We think companies with rand hedge qualities (those with operations outside of SA and net exporters), low debt levels and minimal exposure to government business are likely to fare better. With no economic tailwinds for the local economy we do not expect robust growth from consumer-dependent industrials such consumer goods, consumer services and health care – particularly those heavily geared towards the domestic economy.
Consumer staples are faced with the double problem of rising input costs and muted consumption growth. However, considering the low valuations and the defensive nature of most stocks in this sector, there could be some pockets of good buys.
Resources are well positioned to outperform other sectors again in 2019. Analysts expect commodity prices to remain stable in 2019. That, coupled with our outlook of a weaker rand, will see some mining houses continue reaping rewards from cost-cutting initiatives implemented during the commodity crisis. The sector’s valuations, with a price:earnings ratio of 12.2 and a dividend yield 4.07%, are still attractive.
Financials are dependent on national demand for savings and loans. Positive (albeit low) GDP growth will be good for the sector while a possible credit downgrade of SA ratings and the prospect of a repo rate hike pose the biggest risks to the sector.
Intellidex picks – small- and mid-caps
The discovery of accounting errors in Rolfes’ FY17 financial results heavily dented its reputation. It then produced poor FY18 results and those factors weighed on its share price performance in FY18. However, after a serious clean up the group is likely to rebound in 2019. The management team has been strengthened with a new group CEO and a CFO, while new people have also been brought in at top positions at subsidiary level. Most of the sticky issues have been addressed.
With everything now in place we expect management to focus on growing the business during FY19. It plans to ramp up exports for its food ingredients business, which contributes close to half of its top line, into southern African countries. That will complement the agriculture division, which commands a strong customer base with leading positions in niche markets that have high barriers to entry. Those factors give Rolfes some pricing power and the ability to defend its market positions. Both businesses can be scaled up through new product development, which will boost profit margins.
Rolfes’ weakness lies in its water and colour businesses. The colour division, which has been a drag on profitability, sells into a commoditised market where the group has very little pricing power. The water division operates in a good segment but Rolfes’ approach of relying heavily on short-term tenders seems opportunistic and unreliable. Nonetheless, the two divisions are too small to influence our view on the company.
While Rolfes’ price:earnings ratio (PE) of 22.13 is a bit intimidating, it is exaggerated by significant once-off items which were expensed during FY18. We expect the ratio to unwind to around 11.96 by the end of FY19 when the cost base normalises. We value Rolfes at 365c/share, 35% higher than its current price of 271c.
A new management team led by chief executive Mteto Nyathi is already delivering ahead of what many investors had anticipated. Since taking over in July 2017, management has added new lines of revenue (and exited unprofitable ones), reduced debt levels and reintroduced a dividend. The resumption of a dividend payout in particular attests to the confidence that management has in the new direction the business has taken.
The official confirmation of its repositioning efforts came when its JSE sector classification was switched to computer services from electronic equipment. Altron has pivoted towards the ICT sector, focusing on cyber security, cloud services, advanced analytics and mobile applications. This is a global trend and based on numerous research reports, the outlook for these subsectors is encouraging. Most forecasts show that the ICT subsectors will grow by double-digit rates in the short to medium term.
Furthermore, about 57% of group revenue is generated offshore, which cushions it from SA’s low-growth environment. The cross-selling of certain South African offerings in the UK market is gaining traction.
The group has repositioned and sold off non-core assets faster than initially expected, although it is still to receive cash from acquirers. This cash infusion will improve its net debt-to-equity position to 30.4% from 43.9%. In order to properly entrench itself in the ICT sector, Altron is pursuing some strategic acquisitions. It recently acquired iS Partners, which adds to its existing Microsoft business offerings, enhancing its cloud and data analytics offerings.
The new management is driving top-line growth, improving profitability and cash generation and revamping the balance sheet. The focus now is on organic growth and bedding down acquisitions. It has also entered new partnerships with global household names such as Microsoft and Huawei.
On a PE of 12.5, we expect Altron to experience average annual revenue and earnings growth of 14% and 26% respectively in the short to medium term. Its potentially high earnings growth and the resumption of dividend payments is likely to propel the stock to new highs in 2019. We have a price target of R24/share, which translates to upside potential of 35%.
At first glance, the construction sector appears to be an outright sell. That is because it has been depressed for a long time and short-term prospects remain gloomy. The reality is that there is just not enough work coming to the market and margins on the little work that is available are razor thin. However, we believe there are some exciting opportunities for patient, long-term value investors. WBHO is one of them.
WBHO has good volumes of work – mostly outside of South Africa – that will enable it to perform well in 2019. Fundamentally, the business is in a sound position with a healthy balance sheet and margins are set to remain stable. Serviced debt – finance leases, bank loans, etc – make up about just 4% of shareholders’ funds. Its operations are generating enough cash: operating activities netted R928m during FY18, which is 13% up on the previous year. Free cashflows – cash after capital expenditures – have been positive over the past five years, which tells us it can fund expansion projects internally and can pay dividends.
WBHO’s diversification is its most valuable asset. During FY18 only 30% of its earnings were generated locally, with the rest emanating from Australia and the rest of Africa. It recently added the UK to its list of markets, which will see about 20% of its order book coming from that region. Prospects in those markets are better than SA’s.
Given the group’s strong financial position we think it is well positioned to benefit from consolidation in the construction sector, which we expect to intensify in 2019. Despite using conservative assumptions our model arrived at a fair value of R177.17/share, 24% higher than the current market value
Similar to our investment case for Rolfes, EOH is a turnaround story. The company, which was an investors’ darling not too long ago, fell out of favour following allegations that one of its subsidiaries had corruptly secured some public sector contracts. The market hacked off a huge chunk of the group’s value, slicing its PE to a fraction of what it was prior to the scandal.
We think a turnaround is imminent. The board and management have taken the necessary steps to reduce the group’s exposure to the public sector and ensure that the remaining government contracts are clean. It disposed of its stake in GCT, which was implicated in corruption, and exited some public sector projects. The public sector division was also dissolved. The auditing committee reviewed all material contracts, with the help of law firm ENS and did not raise any concerns. Parallel to that, management implemented initiatives to optimise the cost structure and promised to prioritise working capital and capital structures during FY19. These measures will help the group reverse the low levels of profitability.
Additionally, the board reconfigured the group into two distinct and independent businesses, each with its own chief executive, unique brand and identity, with separate go-to-market strategies. The ICT businesses now operate under the EOH brand and the specialised solutions for high-growth industries businesses fall under the Nextec brand.
Zunaid Mayet (who had succeeded the former group CEO, Asher Bohbot, who stepped down in 2017) relinquished his role to become chief executive of Nextec. He was replaced by Stephen van Coller, who previously held senior M&A positions at MTN group, Barclays Africa and Deutsche Bank SA.
We like the new business model. We think its much simpler and allows for greater oversight and strong governance. It gives executives of the new independent entities room to focus on growing their businesses and leave corporate finance and governance related aspects to Van Coller, who is reported to be strong in those areas. The structure also sets a good platform to list the units separately. The downside is that there is potential for diseconomies – it will mean two head offices with associated costs
Despite the challenges, EOH remains capable of delivering decent growth. The group operates in a segment whose relevance is unquestionable. Expenditure on information and communication technology (ICT) is expected to remain strong as companies maintain their legacy systems and invest in new-generation digital technologies. As the biggest player in the sector, EOH stands to benefit from that.
However, its going to be difficult for the group to grow at its historical levels. Investor sentiment on the company is still negative, hindering its acquisition strategy. Previously, EOH was able to use its high-flying share price as currency for acquisitions. However, with the share price rating now less than half of what it was about three years ago, any acquisitions are going to be costlier as EOH will have to issue more shares. That means any large acquisitions that would make meaningful contributions to growth will not be possible without massive earnings dilutions.
Overall, we think this counter deserves a second look from investors. Its market valuation is way below its intrinsic value. Its share price rerated significantly during the second half of last year but we think it is not yet at levels that reflect its growth promise. Our model values EOH at R62.27/share, which is almost double its current market value.
The positive retail sales data for November published by Stats SA, where household furniture and appliances sales impressed with growth of 13.5%, bring to mind a certain branded consumer durables wholesaler. We believe Nu-World will benefit from this in its next reporting period. The company exhibits attractive value attributes which increase its margin of safety. Nu-World remains a deep value small-cap counter that goes largely under the radar. It is trading on a giveaway multiple of five times earnings, which is lower than its historical two- and five-year average earnings multiples. This is complemented by a high dividend yield of more than 7%.
Nu-World’s second-tier household durable products appeal in times of low household income growth, as is the case in SA. Management’s drive to expand product offerings and rationalise costs and the supply chain is having a positive impact. Its operating margin has increased over the past few years, resulting in double-digit growth on its bottom line in the past two years. Similarly, return on equity has improved to almost 17% from just above 10% five years ago.
International business volumes have been less impressive, although profitability has improved. We think Nu-World’s recent market expansion in parts of Asia, specifically India, should see decent volume growth and offset low growth in SA.
Although management says it is focusing on improving working capital, there has been some deterioration in the debt position. Most of the debt emanates from a bank overdraft which is being used to fund working capital. However, the net debt-to-equity position is not a cause for alarm at less than 1%. Despite these inherent risks we think the undemanding earnings multiple and generous dividend yield provide a cushion. We think it might serve up a positive surprise when it reports its 1H19 results. We have a target price of R55/share, which translates to upside potential of 22%.
By Intellidex staff
Government continually reinvents old policy and Peter Attard Montalto, Intellidex head of capital markets, says in last week’s Business Day column that it is now time to choose from the menu of policy options already on the table.
“Stop trying to invent new policy. Stop the never-ending hunt for a magical policy tree of new low-hanging fruit that are easy to implement at zero political cost. They don’t exist.”
Expanding on this view, Intellidex Chairman Stuart Theobald argues in this week’s Business Day column that “one of the tragedies of the Zuma era is that policy was demoted to an irrelevancy, with the contest focused entirely on who had access to power by controlling key institutions such as the South African Reserve Bank”.
Attard Montalto points out that finance minister Tito Mboweni is also aggrieved at recycling old policies. “His excoriation of circular policy debates on several occasions in the months before Christmas sounded almost radical for its uniqueness in the public discourse. He highlighted that policy was continually trying to reinvent itself when the same issues had been discussed and not implemented 15 or more years before.”
Attard Montalto discusses the latest ANC manifesto which, he says, shows there is no change of mind on Eskom and calls for nationalisation of the Reserve Bank. The policy vision of the utility being at the heart of the future of renewables in SA is despite all the evidence from renewable energy independent power producer procurement that exactly the opposite is working, he says. “This is exceptionally dangerous given the nationalisation debate that will reignite shortly, pressures as growth rebounds exceptionally slowly and the importance of the Bank as a bedrock of macro-stability. It seems like a risky move for the Ramaphosa faction to put this in the manifesto, for little upside.
Theobald says: “One of the most headline-grabbing features of the ANC’s election manifesto is the sentence on amending the mandate of the Reserve Bank. This is classic institutional contestation, with a fig leaf of policy intention over it. This was not about policy — it was about control, and that was clear to anyone who had seen the state capture machine in its institutional attack mode. As has often been pointed out, the Bank is an instrument of policy with very clear legislated responsibilities. No one has even attempted to make the case that the Bank’s ownership has any effect on the Bank’s ability to deliver on policy.”
Attard Montalto agrees with Theobald’s sentiment that the reinvention of policy “highlights the fact that during a consultative process on policy formation, factional interests can win out in subtle but important ways.”
By Mayo Twala
Intellidex starts the new year with a refreshed brand and a website revamped from top to bottom. The new elements are largely to accommodate the company’s rapid expansion.
We have upgraded our website to accommodate the rapid expansion in our products and services. Intellidex chairman Dr Stuart Theobald says the site plays two key roles: a shopfront that informs the public about the business; and a repository where the company’s reports and other content can be accessed by the public.” I think the site does that in two unique ways – the menu system integrates with our business structure, so it is very simple to see the services we offer from the home page. Then, the i-Blog introduces a dynamic content element where Intellidex thinkers can share short and sharp opinion pieces to help drive the public debate.” The website page can be accessed here: https://www.intellidex.co.za/ .
Intellidex’s refreshed branding is designed to reflect the company’s deep insight and integrity, says Theobald. “When our clients engage with us they are engaging with genuine thought leaders – people who are able to not only understand the global context and debates concerning the world in which our clients operate, but to lead those debates. As a result, our clients can lead in their societies and marketplaces.
“We also operate with utmost integrity. That means more than just being straight with our stakeholders – it means being leaders in our societies, ensuring that we play a positive role in making everyone’s lives better.”
The brand has evolved as Intellidex has produced work that is widely noticed. “We are not afraid to make a real impact with the type of research we undertake,” he says. “We’ve shifted the policy discussions around financial services and black empowerment. The crucial feature is that our work is informed by research – we go out and undertake first-hand research.”
Dr Graunt Kruger, Intellidex head of strategy research and heads the group’s US business, says the brand was refreshed to reflect the reality of Intellidex now being a multinational research firm with offices in three countries. “Our branding is now in line with this international spread and for our clients this means they will now be much more aware of the global perspectives and standards that we bring to their projects.”
He says the Intellidex team has worked very hard to build a reputable brand in South Africa. “We now have country offices in the UK and the US. We have also worked in many countries in sub-Saharan Africa, most recently in Tanzania, Ghana, Kenya, Mauritius and Nigeria. We firmly believe that high quality research benefits the audiences both in the client country and the country in which the research is done. This means that we have to work hard to ensure that our research process closes the loop between the study and the dissemination of the research results. Increasingly, we will then need to build audiences in the rest of Africa so that we can share what we learn about the financial services industries in their countries.”
Intellidex’s focus has always been on financial services and capital markets in Africa, Kruger says. Even as it expands to new geographies and markets, the company’s core client base remains those firms and organisations that have an interest in Africa. “Now that we’ve expanded our capacity in capital markets and strategy research alongside our market research capability, we remain true to our mission. We help investors, financial services firms and regulators make informed decisions based on rigorous research.”
He says Intellidex’s intention has always been to deliver exceptional, quality research and insight to clients. “Becoming a leader in many of the areas we focus on has come as a result of this unwavering commitment to outstanding work. We are not focused on leading as such, but rather to constantly challenge ourselves to excel at delivering the best services to our clients. If as a result, we end up as a leader in the industry, it is because our clients have placed us in that position.
“We are ready for what follows the launch of the new website,” says Theobald, “and we look forward to an enhanced engagement with all our stakeholders.”
It is almost safe for us to return to a vibrant policy discussion and the treasury should be applauded for getting it going
This column was first published in Business Day
In the post-Zuma political era, is it safe to talk about policy again?
We stopped two years ago. One of the tragedies of the Zuma era is that policy was demoted to an irrelevancy, with the contest focused entirely on who had access to power by controlling key institutions from the National Prosecuting Authority to the Reserve Bank.
Replacing policy debate with institutional defence was logical — once captured, institutions stopped being instruments of policy anyway. Normally opposed policy blocs, from big business to the SA Communist Party, found themselves united in the defence effort.
We have not completely escaped this era. One of the most headline-grabbing features of the ANC’s election manifesto is a sentence on amending the mandate of the Reserve Bank. This is classic institutional contestation, with a fig leaf of policy intention over it.
The Bank was targeted by the Zuma faction because it was a key threat to the state capture machine. From the shutting of Gupta bank accounts to the forensic investigation of VBS Mutual Bank, the central bank was key in several remaining institutional blockages to state capture.
At that decisive December 2017 ANC electoral conference, the rearguard action against the Bank saw the ANC resolve to nationalise it. That resolution was hard fought. The constitutionalist faction lost the battle while winning the larger one for the presidency. The wording was blunt: the Bank should be 100% owned by the state, meaning there should be no private shareholders.
This was not about policy — it was about control, and that was clear to anyone who had seen the state capture machine in its institutional attack mode. As has often been pointed out, the Bank is an instrument of policy with very clear legislated responsibilities. No one has even attempted to make the case that the Bank’s ownership has any effect on the Bank’s ability to deliver on policy.
ANC secretary-general Ace Magashule, a man deeply compromised by his own links to the Guptas, has been the vanguard in pushing that resolution forward. He inflamed the manifesto’s impact by claiming in a television interview that the “flexible monetary policy regime” that the manifesto refers to means the Bank would be nationalised. Of course, he can defend himself by claiming he was merely referring to the conference resolution, but, as philosophers say, a proximate reason is not the ultimate reason.
President Cyril Ramaphosa has been unequivocal in response in insisting that the Reserve Bank’s independence is sacrosanct. The reference to nationalisation, he insists, is merely an indication that the party wants the Bank to “keep an eye on employment” in implementing its mandate. That shifts the focus back to policy and away from control of the institution. Plus, it amounts to the status quo.
The remnants of the Zuma faction are kicking viciously, but I suspect these are the dying kicks of a body that has lost its head. Indeed, the debates over the policies that will get SA on to a faster growth path to deal with the challenges of poverty and inequality have begun again.
The clearest instance has been the two policy colloquiums that the Treasury has organised, with the most recent held last weekend after an initial session a month ago. They have brought together some excellent policy minds, local and foreign, to figure out ways we can break through barriers to dealing with low economic growth and the challenges of poverty and inequality.
The challenges of policy implementation, fixing the education system, and much else has been discussed. The colloquiums’ discussion will inform a paper to be presented to the cabinet. This is the kind of careful thinking and debate, so needed, that was abandoned in the Zuma era.
The colloquiums have not been without critics. A group of economists and policy thinkers, led by ANC stalwart Ben Turok, wrote a letter last week to finance minister Tito Mboweni criticising the colloquiums for being “disappointingly skewed towards economic orthodoxy” and sitting squarely “within the box”. It is difficult to square this criticism with the facts though. The colloquiums appear to have heard a wide variety of fresh voices.
For instance one of the major contributors to the weekend’s debate was Nic Spaull, a young academic at Stellenbosch University working on how to improve the education system. Another was Wandile Sihlobo, an exciting young agricultural economist at the Agricultural Business Chamber, with vigorous ideas on our many land and rural development challenges.
The right way to engage would be through research and scholarship to take the debate forward. That kind of open policy engagement is what we need, one in which our institutions can be relied on to act as instruments of policy rather than personal enrichment.
It is almost safe for us to return to a vibrant policy discussion. The teasury should be applauded for getting it going. Now the challenge of all policy thinkers is to produce the research that will advance the debate.
Johannesburg – Intellidex has appointed Caroline Southey to its board as an independent non-executive director.
Caroline is an experienced media and banking professional, bringing more than 30 years of international experience in senior leadership positions to the board. She is editor of The Conversation Africa and has previously held positions as director of community banking at Standard Bank, speech writer for the CEO of Barclays Africa and editor of the Financial Mail.
“Caroline brings a strongly independent perspective to the board and considerable wisdom,” says Intellidex chairman Dr Stuart Theobald. “I am very excited to have her as part of the team as we build the business. I know she will add great value in ensuring Intellidex has a robust governance structure and in providing guidance to the executive team.”
“Intellidex has built a strong presence in the South African market and increasingly in the rest of the world,” says Caroline. “It’s an exciting time to join the board to support its development into a world class research and consulting firm.”
She joins executive directors Dr Stuart Theobald, Peter Attard Montalto and Dr Graunt Kruger, as well as non-executive director Vuyo Jack on the board.
Last year Intellidex expanded its global operations by opening an office in Boston under the leadership of Dr Kruger, who heads Intellidex’s financial services strategy consulting. It also expanded capacity at its London office with the appointment of Attard Montalto as head of capital markets research.
Rate hike still to come this year says Intellidex’s Attard Montalto in Business Tech.
Intellidex’s Attard Montalto sceptical over ‘Ramaphoria round two’ in Business Day today.
Intellidex head of capital markets research Peter Attard Montalto discusses on The Money Show with Bruce Whitfield, how the ANC manifesto is driven by different factional groupings in the party and how it throws up some potholes. Radio702.
The statement on ‘prescribed assets’ in the governing party’s election manifesto spooked foreign investors
Peter Attard Montalto head of capital markets research at Intellidex is quoted in “Rand reacts badly to ANC manifesto” in Business Day.
Peter Attard Montalto head of capital markets research at Intellidex in Reuters’ “ANC says central bank should broaden economic focus”.
Intellidex head of capital markets research Peter Attard Montalto quoted in “ANC still eyeing pension assets” by Moneyweb.
Working papers on policy reforms have been saying the same thing for decades
This column was first published in Business Day
I hate new year’s resolutions. They invariably end up rapidly defunct (like doing “dry January” which ended for me this past Friday) or are improbable (I once tried to learn Arabic, I can now order falafel and that’s about it). Yet they still expose necessary truths by positing the start or end of something — so here goes for SA.
Stop trying to invent new policy. Stop the never-ending hunt for a magical policy tree of new low-hanging fruit that are easy to implement at zero political cost. They don’t exist.
The total menu of policy options in this reform restaurant is already on the table — from the radically collectivist to the libertarian laissez-faire. What SA needs to do is simply choose and implement with laser focus.
One of the only policymakers who seems to be pushing this view is finance minister Tito Mboweni. His excoriation of circular policy debates on several occasions in the months before Christmas sounded almost radical for its uniqueness in the public discourse. He highlighted that policy was continually trying to reinvent itself when the same issues had been discussed and not implemented 15 or more years before.
In this vein, his colloquium just before Christmas was notable for the seeming clarity of thought in reviewing existing known policy options — as well as for the lack of usual suspects from the left.
There are plenty of people floating around the National Treasury and the Reserve Bank who have been laying out in working papers and elsewhere a whole host of clear policy reforms needed for decades. Mboweni, rightly, is saying that he knows these options are there and now instead they just need to choose and discuss implementation.
The outcomes of such a process will be challenging. In terms of specifics — the consensus in such circles that a much looser immigration regime is needed to more rapidly kick-start productivity growth, which is political anathema to current policy. But also challenging in process terms is that the shutting out of the left has already caused rankled moans in these opinion pages before Christmas.
SA’s political economy is not set up for such decisiveness with its overreliance on collectivist consulting. A left-field additional new year’s resolution might be to scrap Nedlac.
The postelection period is going to be a real test of quite how consultative economic policymaking is led by President Cyril Ramaphosa, and if enough gumption can be stirred to undertake more politically costly reforms to deliver on manifesto job-creation commitments, or reach towards 5% growth — or if consultative paralysis remains and those targets fall flat.
In this period before the election we have seen paralysis in terms of the lack of speedy implementation and actual worse uncertainty around visa rules, the inability to accelerate the spectrum auction process and lack of any selection of interesting policy outcomes from the jobs summit.
This test of where the centre is between the Mboweni determinism and the traditional consultative, however, will be most acute and urgent at Eskom, which has the biggest risks.
The government had the right policy in its 1998 white paper and numerous studies and task teams since. It just needs to get on and implement a plan for a huge decentralisation and deregulation of the energy grid with an Independent System Market Operator balancing demand/supply and doing transparent tariff applications, and Eskom reduced to less than 50% of capacity. All this will mean lower tariffs through competition and the greater efficiency of a predominantly private sector model.
Instead we risk further kicking the can down the road. The manifesto this last weekend shows there is no change of mind on Eskom, with a vision of it as the heart of the future of renewables in SA — despite all the evidence from renewable energy independent power producer procurement that exactly the opposite is working.
The consultative process has further shown itself wanting in other parts of the manifesto, most especially on the Reserve Bank. Despite the Bank (deliberately) not featuring at all in the 2014 manifesto, it does in this one. An explicit link is made from the Bank — an independent institution — to a politically loaded project in the form of the “second phase of transition”, and goes on to reference the need to add in growth and employment after the primary aim of price stability.
This is exceptionally dangerous, given the nationalisation debate that will reignite shortly, pressures as growth rebounds exceptionally slowly and the importance of the Bank as a bedrock of macro-stability. It seems like a risky move for the Ramaphosa faction to put this in the manifesto, for little upside.
But more importantly, it highlights the fact that during a consultative process on policy formation, factional interests can win out in subtle but important ways. The characterisation of consultative processes as mild-mannered and academic discussions is false in this highly contested and factional ANC.
In this environment, more dubious factional forces know that policy shifts through consultative processes act like a ratchet and new ground gained will shift expectations in the future.
This is exactly why it is important for 2019 to be about “wham-bam choose a policy and implement it”, and draw red lines against fiddling with the Bank, its nationalisation, things like prescribed assets and still treating Eskom with the same monopoly mindset.
• Attard Montalto is head of Capital Markets Research at Intellidex.
Correction: January 14 2019
An earlier version of this article incorrectly identified Tito Mboweni as the governor of the Reserve Bank. This error was introduced in the editing process.