Treasury’s economic document is going to cause political fallout but its disruptive nature can foster robust, evidence-based policy debates, says Intellidex’s Peter Attard Montalto. Featured in Fin24

The language of Treasury’s economic paper is frank, hard hitting and exudes a can-do attitude by simply asking how SA can achieve faster growth, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Business Tech

Mboweni’s plan to fix the ailing economy is a very calm, thorough, evidence-based document from National Treasury, says Peter Attard Montalto, head of capital markets research at Intellidex. Listen to the full interview with Bruce Whitfield on Radio 702

Intellidex’s Peter Attard Montalto says Treasury could achieve a 2.1% reduction on government spending. Featured in Business Day

Partial success of proposed Treasury cuts will help to keep an IMF bailout a distant prospect 

This column was first published in Business Day 

I almost fell off my chair the other day when a client in SA told me: “You are sounding rather bullish aren’t you.”

Oh? The issue of being somewhat of a structural bear (at root because I don’t see unemployment dropping, debt stabilising or inequality reducing in any meaningful timeframe) is that at some point in the cycle people will end up being far more bearish than you.

Many locals are now too bearish, particularly on timing.

I laid out here two weeks ago why an IMF bailout is a distant prospect, with many countermeasures possible (both good and bad for growth in themselves). Some partial success of the proposed the Treasury cuts will now be part of that stalling of the path towards the IMF. The IMF is obviously a theoretical prospect for any country that doesn’t adjust. The same is true of SA, but the prospect of that is low in any reasonable medium-term timeframe.

We also need to differentiate clearly between “stuff happening”, and what is pro-growth. It is positive that the state is being cleaned up and SOE corruption is being cleared, but only in the sense that it provides a floor under the economy and sentiment but does not fundamentally turn it around.

Equally, the removal of negatives such as the previous administration and some of its more egregious personalities has led to a reduction in policy uncertainty, but certainly not its removal.

This led to the bounceback in foreign direct investment (FDI) of the past year, but we should consider not how much it bounced back but where it should be for an economy such as that of SA. SA recorded R70.6bn in FDI inflow, but a large part of the pickup from the previous year’s R26.8bn was thanks to a technical turnaround in banking sector flows. Nonbanking private-sector FDI  picked up from R48.7bn to R67.6bn.

Channelling investments

This turn in FDI is positive, but it must be seen in the context of negative per capita income growth for an economy that should be easily achieving a rate of 3x-4x more to be comparable with peers.

It is the same with the Investment Summit and Public-Private Growth Initiative (PPGI). These processes are channelling investments and can get growth growing from the 0.6% expected in 2019. Yet the numbers coming from both are still only consistent in our modelling with growth of 1.5% in 2020 as the Reserve Bank forecast. .

The point here is a “postbox” outlook, in which there is support from the lower side and reasons not to be excessively bearish, but equally with caps on the upside with a lack of reforms that move the needle enough, and some uncertainty inducing “negative reforms”.

This was the takeaway from last week’s Q&A by the president. A government needs to run fast even for growth to stand still until you get game-changer reforms such as to education, visas and the immigration regime. Hence growth forecasts are not lifted, and if anything we are wondering about the impact of such weak sentiment into downside risks to growth in 2020; it could just as easily come in at 1.0%.

Much rhetoric but lack of dial-moving action are  leading to frustration among business. The foremost example of this has been the reaction of the telecoms industry to spectrum after the Q&A last week. Business is now starting to shelve spectrum investment plans after the recent publication of the policy paper that advocated a wide-open area network. This was not the certainty that the sector or investors needed and showed the influence of vested interests and statist ideology.

Step to the Left

The frustration however (added to the despair I wrote about two weeks ago), can only be shifted with a mindset change, a change of tone. The reaction to the president’s words last week will reinforce the frustration.

It appeared that in response to increasing pressure to do something, the rhetoric took a large step to the Left — the “government would lead the private sector”, the uncertain language around prescribed assets, and the more frequent mentions of the developmental state.

There will be shock when it is realised that this rhetoric makes things worse. A nominal GDP shock is occurring (with such low inflation and low fiscal revenue) that is bigger than the Eskom bailout, and hence the need for cuts to come. There is also the load-shedding risk that makes us nervous, having a growth view much above 1.0% in 2020 with the system still only slowly turning operationally.

All these factors mean it is not a straight line from here. A recovery will occur if allowed to, but at low levels of growth. Growth is held here in a narrow band of possibilities. A mindset change is needed to promote the right reforms that leapfrog growth to positive per capita levels — to break out to somewhere new.

Through all this, a rigorous focus is needed on differentiating between “stuff happening” that in itself might be positive — from actual actions that shift the risk-adjusted returns of business and so achieve proper levels of local and foreign investment. Not turning inequality and unemployment around is enough to be bearish about, without seeing fiscal cliffs and the IMF tomorrow.

• Attard Montalto is head of Capital Markets Research at Intellidex.

By: Heidi Dietzsch

As data collection methods evolve rapidly in line with technological advances, some become obsolete while new methods emerge.

It wasn’t too long ago that researchers relied on paper questionnaires sent through the post. Now short intercept surveys (SIS) that are completed on respondents’ smartphones in real time are becoming increasingly popular.

The postal pen-and-paper questionnaire technique was laborious and time-consuming – all the hassle and red tape, combined with a massive potential for errors, was a nightmare to deal with. Not many researchers hark back to those “good old days”.

SIS, in contrast, are fast and respondents complete it while they are busy with a specific action (for example, while they are in a store, they can document their shopping experience) and their answers are immediately available for analysis. A distinct advantage of SIS is that respondents don’t need to solely rely on their memories.

Debates prevail among researchers and scholars on which data collection methods are the most effective and produce the most accurate data. There is also speculation that different methods that include the same questions might yield different results.

Personal interviews, telephonic interviews and online surveys are the most prevalent data collection methods in market research.

One of the benefits of personal interviews is that a skilled interviewer who is able to establish rapport with respondents, can ensure a really deep conversation. However, many people might be hesitant to share sensitive information due to the non-anonymity of the setting.

During a personal interview an interviewer can motivate a respondent when a questionnaire is very long and respondent fatigue is setting in. When this is happening in an online survey, respondents are likely to skip questions or abandon the survey entirely. Interviewers are also on hand to explain difficult questions and complex rating scales which could be interpreted incorrectly when other methods are used. However, it is also likely that interviewers themselves might fill in answers inaccurately. Another problem is that when an interviewer is completing a long questionnaire with complex routing, errors are possible, especially when it is necessary to page back and forth through a cumbersome paper questionnaire.

When telephonic interviews are conducted, computer-assisted telephone interviewing (CATI) software is usually used which diminishes human error to a large extent. However, CATI call centres can be highly pressurised environments and mistakes can thus still occur. For example, it is quite easy to complete a rating scale question the wrong way around. So, when an interviewer ticks “very poor” when a respondent means “excellent, or “agree” when a respondent says “disagree”, it can render data useless.

A telephonic interviewer’s skills and professionalism can also contribute towards the success of an interview and the quality of the data. Respondents are much more likely to agree to an interview if an interviewer requests one in a calm, friendly and polite tone. If this is the case, respondents are also more inclined to answer questions honestly and patiently, while sticking it out to the end. Of course, the opposite is true when interviewers are rude and incompetent.

Open-ended questions are not always ideal in telephonic interviews. Interviewers might not be able to type respondents’ full answers and therefore the gist, tone and context can get lost. However, as opposed to face-to-face interviews, telephonic interviews are more conducive for the sharing of information that might be regarded as personal, due to the less intimate setting.

Today many researchers are using online surveys to collect data. They are deemed faster and less expensive and can also reach a large audience and are also, some argue, more reliable.

A great advantage of online surveys is that they allow respondents to complete them at their own pace at a time that is convenient to them. Respondents can thus read all questions carefully and make sure they understand them – this will naturally lead to good quality data.

However, the opposite can also occur. When respondents receive an invitation to participate in a survey during a busy workday, they might complete it hastily without giving it the necessary consideration and attention. Data quality might suffer as a result. Also, without the guidance of an interviewer, the possibly exists that respondents might interpret rating scales and questions incorrectly. This will not usually be a problem for people who are fluent in using the internet though. In the same vein, when a question requires knowledge about a certain subject, the data resulting from online surveys are usually of a better quality than the data collected through other modes.

Online surveys are a great method for the gathering of qualitative data. Respondents can express themselves clearly and in their own words, without the possibility that an interviewer might interpret their thoughts incorrectly. Also, when researchers need to conduct a study with a sensitive topic that requires respondents to divulge very personal information, online surveys are ideal. Controversial topics that might cause respondents to think twice before taking part include personal income and finance, sexual behaviour, illegal behaviour, drug and alcohol use, religion and health – especially mental health. The total anonymity of online surveys, however, might make respondents much less hesitant to share such information.

It is important that researchers use the appropriate data collection method for the type of data they wish to collect. Equally important is that the chosen method suits the respondent base that will be used. It makes little sense to try to conduct an hour-long telephonic interview with busy business executives, while an online survey will be inappropriate for rural inhabitants who may be less tech-savvy and might not have proper internet access.

Resistance to NHI deductions could make e-tolls look tame

This column was first published in Business Day 

The debate over National Health Insurance (NHI) is fundamentally dishonest. On the one side there is a stubborn refusal to face economic reality. On the other, there is a refusal to recognise that the system of unequal access must change.

Universal healthcare systems are becoming more common. Rwanda introduced one in 2000, providing basic benefits that now cover 92% of its population. Thailand introduced a scheme in 2001 that by 2011 covered 98% of the population. While definitions shift, one group of academics counted 58 countries that now have universal health schemes.

But in SA’s case, the probability that NHI will be successfully implemented is close to zero.

Consider the factors prominent in countries where universal health care has been successful (in part borrowed from work by academic Martin McKee and colleagues):

  • Economic resources. Expansion of coverage is linked to economic growth. The direction of causation could be either way, but international studies show introduction of sustainable schemes usually happens when countries are running budget surpluses.
  • Social unity. Societies that are divided are much less likely to support redistributive policies such as universal health coverage. One global study found that greater religious and ethnic variation correlated with lower public investment in healthcare. Put simply, people don’t support social systems that seem to benefit people who are different to them.
  • Existing institutions. When a country has vested interests in existing private healthcare provision, including insurance and private hospitals, there is a powerful lobby to resist change.
  • Windows of opportunity. Universal healthcare tends to be introduced following major shocks. The National Health Service in Britain was introduced after World War 2 and Rwanda’s following the genocide. In other countries it is often accompanied by election of a new government with a large popular mandate (as in Thailand).
  • Power held by the left. Particularly in Europe, universal health coverage was closely associated with social democrat movements gaining power.

In this context, SA’s situation does not inspire confidence. The biggest challenge is economic resources. Throughout the debate over NHI the subject of how it will be paid for has been fudged. The bill says it will be funded by a payroll tax and surcharge on income taxes, as well as stripping medical schemes of their tax benefits, but there are no amounts attached.

Given that SA is already facing massive budget shortfalls out to 2025 when NHI is mean to be implemented, funding is going to require direct and dramatic increases in taxation. Given the structure of SA’s employment base, with only 10-million employed in the formal sector, the ratio of beneficiaries to payers is going to be very high. While high unionisation rates internationally have generally been associated with smoother introduction of universal health care, in SA I anticipate massive resistance from labour that will suddenly face new payroll deductions. While a progressive income tax element will also play a role, SA’s top marginal tax rate of 45% is already far higher than the world average. Workers will take to the streets while the rich take to the skies. Resistance to NHI deductions could make e-tolls look tame.

SA is also surely experiencing a low in social unity for the post-democratic era. Voting patterns make that clear. Only 27.9% of eligible voters supported the ANC in the election earlier in 2019, down from 46.7% in 1999 (the ANC still commanded a majority because of the low voter turnout). With the country still reeling from the Zuma state-capture era, trust in the government is weak. In the case of NHI, that is worsened by the poor outcomes of the trials conducted to date. We are very far from a united population with faith in the government to undertake a dramatic and fundamental overhaul of the healthcare system.

The threats to the existing private sector will also face strong resistance. Whether true or not, most of SA’s elite believe that private healthcare is significantly better than even a successful NHI would support. Only 15% of the population is currently covered, but that includes every business and political leader, the heads of most civil society organisations, diplomats, academics, and the entire public service. A genuine threat to the quality of their healthcare is, pragmatically, going to be an immense hill to climb.

In all, SA enjoys none of the conditions that have been important in the introduction of universal schemes elsewhere in the world. The NHI looks set to go the same way as e-tolls and abandoned legislation such as the Protection of State Information Bill.

On the other hand, much of the shrill resistance to NHI has been at least as dishonest as its protagonists. There is a habit among the chattering classes to simply tell the government to do a better job of the existing system. This habit conveniently shifts blame and often comes with a racist undertone. Healthcare is a fundamental right. Our constitutional jurisprudence supports the progressive realisation of this right within our means as a country. That is an obligation on all of us.

The debate over NHI has been characterised by a lack of positive alternatives that would meet constitutional muster. It is time we as a country are honest about both our means and our obligations.

  • Theobald is chairman of Intellidex.

The new debt relief bill could force losses on the banking sector of about R25bn, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Business Tech

Intellidex’s Peter Attard Montalto says that low confidence among investors is clearly because of government’s lack of decision making. Clarity is needed on the way forward. Featured in Daily Maverick

National Health Insurance is unworkable in the economic and fiscal context even though it is sorely needed – it can do more harm than good at a macro level, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Business Tech

Business should crank up heat on government for its lack of solutions for SOEs such as Eskom and its misguided NHI

This column was first published in Business Day 

A kind of mass hysteria is breaking out, some of it justified. Sentiment is getting weaker because nothing is being done.

The primary question from investors and companies right now is exactly that: “Why is nothing being done?”

Many easy fixes have been written about in these pages in the past 18 months. This introspection by investors and companies is leading to some overdue conclusions about the current administration and its personalities, at least in private.

Such an environment leads to despair — not an unhelpful emotion when properly and strategically directed, as occurred successfully last week with Sipho Pityana’s letter to members of Business Unity SA (Busa), calling out the government.

A sense of the government just not “getting it” is another key issue and has especially solidified around Eskom. The state utility’s recent results were broadly as expected, but the realisation has dawned that there are no new answers.  This was reinforced by Eskom’s road trip to London and the US last week. Eskom’s treasury team has done all it can with creditors, but the issues are further up the food chain.

All issues are known, as are all potential solutions, and have been communicated to the government by everyone — the task team but also by Eskom itself. The chief restructuring officer (CRO) will be unable to conjure up new solutions, and the steering group to which the CRO will report will comprise the same egos and ideological blockages to the same potential solutions.

As ever. the answer is leadership, which is lacking. It is the only component that will shift the dynamic.

Hysteria can cause assumptions and the status quo to shatter. We may well start seeing more of this, especially if promised monthly meetings between stakeholders and the president fail to deliver anything new. As economic actors realise they are being played and become fed up, “no” will be the answer, and change will be forced.

However, much of the hysteria is misplaced. For instance, regarding the viewpoint that SA is close to being bailed out by the IMF,  many good and bad mitigation options are open to the government to avoid that for at least about the next year, if not longer.

The IMF is a useful stick with which to beat the government, but more through forcing it to consider the consequences than pretending they are imminent.

Thinking through an IMF bailout programme, and especially the negotiations that would occur, is useful. It would expose the hard, unavoidable choices very starkly, laid out to the government in scenarios with numbers.   It would likely place a key burden of delineated responsibility on government officials to deliver, or else face public rebuke by the IMF. This accountability and responsibility is lacking.

The hysteria is also manifesting in a dangerous vein of unorthodoxy from normally sensible quarters with a view of avoiding the IMF and the hard choices, and protecting and backing the president.

This has included a view of the potential need for fiscal stimulus, and for unorthodox monetary policy. But the most bonkers idea is that prescribed assets could somehow be used as a way out for the president. It is irrational because it:

  • Further misallocates capital away from the private sector-led growth recovery that is needed;
  • Is not the sort of thing that can be negotiated with the left and labour for the short term to be removed after a few years;
  • Plays right into the state-capture play book through failing to secure the economy against future state capture by precisely increasing the incentives and payoff for seizing and abusing power;
  • Would increase the risks of inefficient and wasteful expenditure and would largely be directed at hiring and paying more to public sector workers as well as keeping the energy system away from a least-cost model in its existing monopoly rut.

Avoiding painful decisions can never be an answer, while even the slight application of prescribed assets would accelerate the economy’s downward spiral.

National Health Insurance (NHI) fails on all four of these counts as well. It is simply not a credible policy in the absence of a meaningful and trustworthy government costing and impact assessment of it. The move could instead hinder the admirable aim of universal, quality healthcare that is free at the point of use.

The Davis tax committee’s work on NHI arguably underestimated the amount tax rates would have to be hiked, given that buoyancy is now so much lower, and so trying to raise the about R150bn gap per year for NHI would harm wider tax collection and hamper growth even more.

There is no point in implementing universal healthcare and, at the end of the process, driving up unemployment — just as it is senseless to try getting a new answer from the same set of proposed solutions and same group of policymakers on Eskom.

If properly directed, hysteria can break the country out of this impasse.

• Attard Montalto is head of Capital Markets Research at Intellidex.

Intellidex’s chairman, Stuart Theobald, weighs in on the recent report into the Public Protector’s personal bank account. Listen to the full interview with Bruce Whitfield here:

SA’s economic woes haven’t reached a point where an IMF bailout is required, says Peter Attard Montalto, head of capital markets research at Intellidex. Listen to the full interview with Bruce Whitfield on Radio 702

Government recognises there is a crisis but prioritises other issues while sustainable solutions that address fundamental problems are absent, says Intellidex’s Peter Attard Montalto. Featured in Business Tech

Peter Attard Montalto, head of capital markets research at Intellidex, expects SA’s currency to weaken further given that there isn’t much government can do to respond to both global and domestic economic trends. Featured in Daily Maverick

As more top executives quit SOEs, Intellidex’s Peter Attard Montalto says private sector talent is being put off by the micro-management, political balancing and interference from government. Featured in Fin24

Public protector’s account is being investigated for exchange control violations and suspicious transaction from Hong Kong

This column was first published in Business Day

Leaks of personal bank account information seem to be becoming a political strategy. Last week we heard about an alleged $5,000 payment from a Gupta-linked account at HSBC in Hong Kong to public protector Busisiwe Mkhwebane’s account at FNB.

That report came from the Organised Crime and Corruption Reporting Project, a global investigative journalist network.

Later in the week a story emerged in the Mail & Guardian, corroborated by “four independent sources”, that the public protector’s account is being investigated by FNB for exchange control violations regarding amounts received from accounts in Brussels and Paris.

I have no idea whether any of these allegations are correct. But it certainly is true that the banks have been placed under worldwide pressure to search out and expose any corruption linked to their accounts — HSBC perhaps more than others after being fingered by Peter Hain in the British parliament for its “possible criminal complicity” in “theft and money laundering” related to the Guptas.

That will have triggered an extremely thorough investigation by the British bank to ensure its books are free from Gupta-related malfeasance. It shut many Gupta accounts in 2017, but digging through detail to identify fingers of the Guptas takes time.

FNB apparently had already been investigating. SA banks are all subject to much the same rules against money laundering as HSBC, but they have the additional burden of protecting against exchange control violations.

Twitter exploded with allegations that Mkhwebane is being targeted by “Stratcom”, “white monopoly capital” and various other epithets du jour.

The reality is far more mundane. The banks are under immense pressure to monitor and report misuse of their systems. Failure can lead to direct monetary penalties, such as the R500,000 fine dished out to small bank Sasfin last week by the Reserve Bank for “noncompliance with certain provisions of the Financial Intelligence Centre Act” because it didn’t have as robust a monitoring system as the Bank would like. But the bigger risk is reputational, as HSBC has amply demonstrated through its links to the Guptas.

More interesting is that this information is emerging at all. Client bank account details are usually sacrosanct. SA’s banks have been frustrated in not being able to respond to allegations against them linked to the state capture era. There is an imbalance: while disaffected clients can rail against the banks in public, the banks cannot fully respond without violating strict confidentiality provisions. So when the banks were being beaten up by the Guptas and assorted Zuma-aligned political figures for closing accounts at the height of state capture, they largely had to grin and bear it, unable to say what they really knew.

With some exceptions. SA’s constitution sets the ground for a balance of rights. If banks are aware of some great harm to the public interest, it would be illegal for them to hold that to their chests on the grounds of a client’s right to secrecy. This point was driven home when Bank of Baroda, near the end of the SA branch’s Gupta-related implosion in early 2018, agreed to share the bank account details of the Guptas with the Helen Suzman Foundation and Freedom Under Law.

Its lawyers acceded to the request saying, “Our client [Baroda] is of the view that the requested records would reveal evidence of a substantial contravention of, or failure to comply with, the law.” While that was never tested in court, it provided an interesting lesson for the banking industry: sometimes you should tell the public what your clients are up to if it is of sufficient import to the public interest.

I don’t know who has been leaking information about the public protector but if it is indeed coming from the banks (and it needn’t be — regulators, accountants, lawyers and others could also be sources), they may be doing it on the view that the public interest demands it.

Of course, it could also be all made up, and the public protector has rejected “with contempt” the claim that “she was flagged” by HSBC and has “absolutely no links with the Guptas”.

Of course, the banks should never be in a position of having to consider giving such sensitive information to journalists. They are compelled to report all suspicious transactions to the Financial Intelligence Centre. That entity can then flag suspicious transactions to the investigating authorities. Those should then investigate and pursue criminal convictions if appropriate. But the links along that chain are broken. They are also broken on exchange control violations — the Reserve Bank said it referred 110 cases to law enforcement authorities in six months of 2017, with not a single conviction resulting.

All this also serves to highlight why the state capture faction have it in for the Reserve Bank. The formal banking system, and the rules that govern it, are an insurmountable obstacle. They need a bank of their own (as the Guptas tried to achieve by buying Habib Overseas Bank) and the reporting and investigating aspect of banking shut down. Reserve Bank nationalisation is the thin end of the wedge.

• Theobald is chairman of Intellidex.

Peter Attard Montalto, head of capital markets research at Intellidex, joins CNBC Africa for a discussion on whether the land reform report is a realistic draft for change. Watch the full interview here:

Is the land reform report a realistic draft for change? – CNBC Africa

The cabinet approval of the publication of the land reform report has sparked debate across South Africa. There are those who are keen and those who are cautious for the constitutional process that will need to take place to implement land reform.

Moody’s remains reluctant to downgrade SA – which is out of kilter with other ratings agencies – and is unlikely to do so in the next year despite Eskom’s challenges, says Intellidex’s Peter Attard Montalto. Featured in Business Day