Investors are struggling to define the SA narrative and vision that the government is trying to sell.

This column was first published in Business Day. 

Having listened to more budget vote speeches than is probably healthy in the past two weeks, we seem to have run into the classic government problem.

It was like being in a pick-and-mix sweet shop, though one wonders if there was any central control of the messaging. You could take what you wanted. The bullish bond investor — the line from the Treasury on a sacrosanct fiscal framework; the bullish infrastructure funders — the big numbers flying around (and work on water especially); the bearish equity investor — the referenced blockages to spectrum auctions; the perplexed offshore international financial institution — the madness of minister Gwede Mantashe’s call to be an oil and gas superpower.

As ever, minister Ebrahim Patel was frenetically on the case with a beautifully timed simultaneous launch of an electric-vehicle white paper as his speech. It might have been better if there was a sense of how you might charge the things, with perhaps the announcement of a battery beneficiation plan from the department of mineral resources & energy and a new Integrated Resource Plan (IRP) that would take into account the new demand.

The broad takeaway, however, was how “samey” it all was. Arguably, three months later with a third wave of Covid upon us and a slow pace of vaccinations, some rejigging would not go amiss.

Investors are struggling to define the SA narrative here, though this is not a new problem. Many a perplexed foreign direct investor has asked me at investment conferences: “What is the government actually selling us as a vision?” The phrase “if you are explaining, you are losing” comes to mind.

This frustration may be tested shortly as the infrastructure & investment office in the presidency looks at “co-ordinating” private sector investment rather than enabling it. Hydrogen, cannabis and electric vehicles will all be part of the strategy. Each could naturally emerge with the right enabling environment for mining production, mining beneficiation, electricity generation and trade competitiveness being found — rather than being shoehorned with localisation targets, for instance. Equally, it would be competing if there was an announcement, for example, of better capacitating the department of trade, industry & competition to actually understand what the capacity of local industry is. The lack of such capacity has now led to a farce of post-fact exemptions for the risk mitigation procurement around photovoltaic units.

The president and many of his supporters in business appear to be hoping that cleaning up the ANC is a kick-starter narrative to investment. The machinations in the party are certainly positive and important in their own right, but such a view forgets that there is a nest of limiting factors. While pure politics can pique some interest,  there is also eye rolling when a report comes out about how bad our ports are or that the energy minister uses non-existent evidence to play stuck in the mud on an issue while a public consultation is still open.

Investors know what shifts the risk-reward balance of investment plans, and it is not Ace Magashule.

Bond investors are having the same problem of defining a narrative. SA comes out well at the moment, but more through what it is not than what it is. SA is not Turkey with its central bank plundering and politics, SA is not Brazil with its Covid denialism, SA is not Colombia with its protests in recent weeks, and SA does not have an inflation problem, unlike others. Investors have seen that the Reserve Bank nationalisation debate has been put on ice, for now at least.

They are seeing that even though vaccinations are late and throttled, there is at least no denialism, and while there are long-term concerns over the fact that inequality in SA must surely at some point spill over into a shock, it is not on the horizon for now. Most investors accept we are seeing reflation, not second-round effects.

One adds on top a positive terms of trade narrative as the basket of mining goods we produce has risen in price by over 30% on the year, driven by much larger price increases for platinum group metals. But investors are questioning if this will lead to higher growth — and deciding probably not. Mining companies are mostly paying dividends more than investing in expanding volumes.

The Treasury will not be using the extra R57bn of revenue I am projecting for this year to fund a splurge on ministerial cars, social grants or infrastructure spending. Instead, the Treasury will be paying down debt faster, so no growth impulse there. Banks are hunting for bankable infrastructure projects to fund and, with the exception of the limited energy procurement rounds, are finding slim pickings elsewhere. What’s more, low sentiment in the economy means weak credit demand overall.

This is not 2004 to the start of 2008. Back then productivity gains and rising wages with low impairments for banks meant commodity gains could be recycled through the economy as a fiscal surplus, and an inverted yield curve prompted banks to open the credit taps. Reforms and decent sentiment were the added kicker. Having a debate on allocating “surpluses” in 2007 to National Health Insurance or a basic income grant would have had a very different feel to now.

Now reforms are patchy, there are no productivity gains, the yield curve is steep and a large deficit is being run while banks are coming out of the Covid crisis with large impairments but doing better than many expected.

Combining this with the positive terms of trade shock, we get a stronger currency, buoyant equity markets (but few initial public offerings) and bonds on the front foot but the yield curve not flattening significantly, while growth recovers moderately quickly but to low potential.

Some oomph is required to break out of this torpor. Signs of different thinking. A reshuffle to cut out the energy blockages and communications mess. But I know I am like a stuck record on a reshuffle and one won’t happen until after next year’s ANC elective conference.

What then in the interim? More plans and speeches that co-ordinate little private sector battalions on a big map of the country in which the department of trade, industry & competition reinforces weak sentiment and leads to exceptions that prove the rule only?

A shock from the president overriding his minister of mineral resources & energy on the issue of embedded generation? Now that would get some eyebrows raised and some fat cheque-books opening; that would be enabling rather than co-ordinating. It would also show the success of the Operation Vulindlela programme not just on technocratic issues but as an institutional mechanism to shift the politics of reform. That would be oomph.

Peter Attard Montalto is head capital markets at Intellidex. 



The FM Ranking the Analyst survey remains the most comprehensive assessment of SA’s top investment researchers. The FM has been publishing the rankings since 1977 and Intellidex has been conducting the research since 2014.

Read the full feature on Business Day. 

Business Day TV’s Michael Avery talks to a panel about balancing SA’s commitments of net carbon zero by 2050 with the economic potential of recent oil and gas finds off the coast. Intellidex’s Peter Attard Montalto says we are seeing traditional shareholder activism for a just transition become more mainstream. The problem is lodging the need for gas into that context – one cannot diverge from what people are willing to fund.  

Watch the full interview on Business Day TV. 

A new research report into localisation by consulting firm Intellidex, which was commissioned jointly by Business Unity SA (Busa) and Business Leadership SA (BLSA), finds that the 20% import substitution target is not realistic because the right conditions do not exist in most sectors. These conditions depend on the enactment of structural economic reforms to achieve a more competitive business environment, without which locally produced goods will struggle to match imported ones on price and quality.

Intellidex is featured in Financial Mail.

A one-size-fits-all localisation policy that requires firms to substitute 20% of imports with locally made goods within five years is unrealistic because the right conditions do not exist in most sectors, Intellidex finds in a report produced for Business Unity South Africa and Business Leadership South Africa. The report is adding to the debate on localisation policy, with trade, industry & competition minister Ebrahim Patel on a mission to spur SA’s re-industrialisation armed with a new localisation policy requiring that firms substitute 20% of imports with locally manufactured goods within five years.

Featured in Business Day. 

Download the report below.

Standard SBG Securities extends its market dominance in the Ranking the Analyst survey, which celebrates its 45th anniversary this year.

In an awards ceremony today, Standard SBG took the overall award for top-ranked research firm for the sixth consecutive year. RMB Morgan Stanley takes second place and Renaissance Capital is third – unchanged from last year.

Noah Capital wins the small black broker award, which was introduced to recognise excellence in this space as well as to help overcome structural hurdles that small brokers face. Prescient Securities ranks second followed by Primaresearch.

The Young Analyst awards go to Keamogetse Konopi of Standard SBG for the equities category and Nedgroup’s Reezwana Sumad for the non-equities category.

These awards, which recognise excellence in research, shine an important light onto the institutional stockbroking sector in South Africa. The buy side – largely asset managers and pension funds – rate individual research analysts in various sectors and categories and the results are presented in the tables that follow.

The Financial Mail has been publishing the rankings since 1977 and Intellidex has been conducting the research for them since 2014.

The FM Ranking the Analysts survey has been the leading assessment of investment banks’ stockbroking businesses for more than 40 years. It remains the most comprehensive assessment of the country’s top investment researchers. Sell-side firms nominate their analysts in the various JSE categories, then the firms that buy their research – asset managers, pension funds and the like – rank the analysts.

Loose monetary policy eases credit access for the rich, but squeezes the poor. Also, volumes among unsecured lenders are falling.

This column was first published in Business Day.

The record low interest rates, which were confirmed by the Reserve Bank’s monetary policy committee (MPC) last week, are highlighting odd features of the financial system. One is that loose monetary conditions mean access to credit becomes cheaper and easier if you are rich, but harder if you are poor.

To see that, consider how unsecured lenders are reacting to low rates. Rather than boosting volumes as consumers are attracted by lower pricing, volumes are falling.

Interest rates are a lever through which the MPC controls the economy. Lowering the cost of debt should spur economic activity by making it cheaper to borrow to invest or consume. Overall, this appears to be working. In 2020’s fourth quarter, 6.2% more credit was granted than in the same period the year before, after a sharp recovery from previous quarters, according to National Credit Regulator statistics.

Because of an odd quirk of SA’s regulatory approach, unsecured lenders’ maximum interest rate is capped at repo plus 21%. The current cap is thus 24.5%. Before the pandemic, when the repo was 7%, the total cap was 28%. Lenders are also allowed to charge between R165 and R1,050 in origination fees per loan.

When the repo falls, banks dutifully reduce the interest they charge clients. This doesn’t directly affect their profitability because there is a partial reduction in their costs — they pay depositors less — and because bad debts reduce, all else being equal. In the mix of costs they face, the fixed costs of loans are also proportionately low.

For unsecured lenders the economics are quite different. Most do not benefit on the funding side from lower rates. Non-bank lenders rely much more on shareholder funds than repo-linked deposits. They also have a high proportion of fixed costs compared with funding costs in their businesses. Unsecured loans have a high marginal cost to originate.

Because costs don’t fall proportionately, the reduction in repo directly affects lenders’ margins. For such lenders, the only way to respond is to reduce lending volumes to only those clients who remain profitable enough to service. When repo rates are cut, the result may well be a reduction in unsecured lending overall, particularly of smaller amounts to riskier customers, which could have the opposite effect to that intended by more liberal monetary policy.

SA would be better off if unsecured lending were subject to a single fixed cap that did not depend on the repo. A reduction in the repo would improve lenders’ profitability to the extent that there is some small benefit to them from that portion of the funding mix that is a variable cost. That would enable greater lending into the market when the repo declines.

Eating into profit

Lending into the market has decreased as rates have dropped. In the fourth quarter of last year 24.5% less unsecured credit was granted than a year before. More telling, just 15% of all lending was unsecured lending. Throughout 2018 and 2019, the proportion was more than 20%.

There could be various drivers of this decline from the demand side. Borrowers will be cautious given economic uncertainty, which could be more acute in unsecured lending target markets than other credit categories. Supply could also be constrained not because margins are lower, but because the credit outlook is darker. But the data also shows that lending declined disproportionately to low-income consumers relative to high-income consumers, suggesting lenders are shifting volumes where the cap is not eating into profitability.

Both the proportionate decline in unsecured lending in total credit granted and the shift towards higher-income consumers support the interpretation that the supply side has been constrained. A number of anecdotes from such lenders confirm that this is what is occurring.

This is a perverse outcome of lower regulated interest rates. It is not one the MPC would be too concerned about, as more than 80% of consumer credit is still undertaken by banks, so the monetary transmission mechanism largely works. But it does mean that the section of the economy that rely more on unsecured loans will have less access to credit in looser monetary conditions. This has public policy implications as it worsens inequality, given that the less well-off rely more on unsecured lending.

Credit regulations are the purview of the department of trade, industry & competition, rather than National Treasury, which regulates banks and other aspects of the financial system. This has long been an odd quirk — it would surely be more logical for the NCR to be rolled into the Twin Peaks architecture that governs the rest of the financial system, which could allow for better co-ordination with wider financial and monetary policymaking.

For now we must live with the fact that monetary efforts to lean against the economic consequences of the pandemic can work only in the better-off parts of the economy.

Theobald is chair of consulting firm Intellidex.


Picture by Jennifer Coffin-Grey.

The next frontier in social impact bonds is attracting larger volumes of commercial investment. For this to happen, bigger transactions serving more beneficiaries are needed, writes Zoheb Khan, social economy research manager at Intellidex. In addition, a blended capital stack, as employed in Bonds4Jobs – where philanthropists take losses first, and commercial investors are the first to be paid out – is a promising feature that lowers the risk profile for investors.

Read the full article on The Conversation.

Social return is seen as an objective of investors that can be traded off against financial return, Intellidex said in its social impact bonds report. Featured on

Business Unity South Africa (BUSA) in conjunction with Business Leadership South Africa (BLSA) have launched an important research report into localisation policy. The report was compiled by Intellidex and seeks to contribute to policy on promoting local manufacturing in South Africa. 

The problem 

The research is important as government has placed localisation as a central cog in the machinery of policy to best assist SA’s economic recovery. Organised business in Nedlac has been asked to substitute 20% of non-petroleum goods imports for domestically produced goods within five years. This study assesses whether or not such a target is realistic. 

Why you should care 

The solution 

The general sentiment among the 125 companies surveyed for the research is that they support attempts to improve localisation “under the right conditions”. 

The survey found that goods-producing companies can undertake substitution of 12.6% of imports “right away” under the right conditions. This rose to 32.3% of imports substituted after five years.  

Service-producing companies see possible substitution of 5.5% of imported inputs right away under the right conditions, rising slowly to 11.6% after five years. 

Download the report below.

South Africa’s recovery needs to be fast and vast enough to support Big safety nets.

This column was first published in Business Day. 

As public vaccination (supposedly) finally starts on May 17, the economy takes a tentative further step towards recovery.

Yet some sobering facts don’t seem to fully have sunk in. The first is that of a likely permanent loss of output in the economy. The economy will take another two years to return to 2019 real output levels but it will never recover to the level of trend output one would have expected it to be at in the future.

The situation is more sobering when one thinks about output in per capital terms. The population is continually growing at just below 1.5% a year. Yet the size of the whole economy is likely to grow only marginally above this level in the long run beyond 2023. And until then we are not going to get back to 2019 levels of per capita economic output (which let us not forget was lower than in preceding years — per capita growth had been negative for some time).

This is why the question of “recovery to where?” is important. Not recovering to the same level of per capita output implies, other things being equal, a higher likelihood that there will be few jobs as a share of the population. Indeed, this is the key risk that seems forgotten in the debate — that while the economy now grows and new jobs are created, there becomes a cohort of maybe about 1.5-million people, by my estimates, who do not recover back to the same place in the labour force. They either become unemployed, or work fewer hours or have to accept lower pay. This cohort will last forever if the economy does not start growing and recover lost ground in per capita terms.

This number — lest it needs driving home — is politically, socially and morally huge and creates associated risks with it.

This is also why we need to discuss social safety nets, as Isaah Mhlanga did recently in these pages. While various sides of the ideological spectrum might disagree on labels and modalities, I don’t particularly like the idea of a universal basic income and think a lack of means testing fails to pass policy design and efficacy muster. There is now broad consensus across the spectrum that a social safety net is needed in the form of a basic income grant (Big). However, it is unaffordable in this fiscal climate and with the current delineations of expenditure priorities.

So the yardstick of the recovery — in part — becomes how can we grow the economy fast enough to afford a Big? This means achieving fiscal sustainability through higher long-term potential growth.

We have a short-term hump to get over. The Treasury this year is likely to get about R57bn more revenue than they said at the budget in February, according to my forecasts, thanks to the ongoing commodities price boom. The clamouring for this cash is likely to come in the months ahead. But it is likely a one-off or very short-term (two to three years) boon that you can’t construct a permanent social safety net around.

The “excess” cash has some use though — to reduce debt levels now and to lower the risks of redemption of bonds at the start of 2023. The need to flatten the yield curve through better debt management strategy is a public good in and of itself to reduce the “crowding out” effect of banks’ lending to the private sector.

But all this is marginal when trying to shoehorn a Big into the fiscal framework. Once again, there is a need for zero-based budgeting with proper prioritisation parameters. Choices are needed.

A Big is more important than preserving positive real increases in public sector wages. It is also more important than preserving the number of public sector employees.

The public knows this instinctively no doubt, but the unions cannot engage on the point. The frothing of many when one raises this issue is always amusing. The appeal to the hardworking nurse or the grinding desk officer in ad hominem attacks shows up the complete lack of understanding of the motivations, family backgrounds or policy positions of those on the other side.

The need to slash the unproductive in the state through productivity reviews and the call for wage restraint is exactly meant to create space within the fiscus to hire more nurses and teachers and to reduce the need for a Big.

The real divide is becoming increasingly apparent. A whole system view that considers the outputs and the scale of problems and scale of solutions vs those concerned with the inputs (as Stuart Theobald laid out in these pages a week ago). The divide is between those who want to co-ordinate and those who want to enable.

How is SA going to reach higher levels of potential growth by focusing on the inputs and managing the vested interests around them? Is it by listing products that must be procured from small, medium and micro enterprises; or controlling a complex and rapidly evolving energy supply system? Yet the plan now is for more central co-ordination of private sector investment from the presidency. Apparently, the private sector must be lined up like little battalions on a big map in the Union Buildings.

In this world, the economy is a fixed system where one imported item can be substituted for a domestically produced one through someone pulling a lever in Pretoria despite the capacity not yet being present locally. This is a world where the creation of individual projects or black industrialists is satisfactory progress.

These kinds of solutions will not create the productivity and the scale of recovery to drive a large enough recovery to afford a Big. Sure, there is always the exception example — there is a local firm that produces things instead of importing them. Yet the issue remains the scale of the whole economy, of the fiscus, of the jobs crisis — the surface of which is barely scratched.

The debate here seems to have barely started. Funders whisper that the co-ordination rather than enabling of infrastructure isn’t shifting the number of projects that are bankable. Companies continue to do their thing and hunker down, eyes are rolled at suggestions for workers on boards or similar plans.

But a real debate is needed on creating scale and the outputs required. The prize is a sustainable social safety net and jobs, as much as it is investment or profit.

Attard Montalto is head of Capital Markets Research at Intellidex, an SA research-led consulting company.

Input myopia clouds BEE and other policies. By shunning outcomes, normal market mechanisms are turned on their head.

This column was first published in Business Day.

It is hard to identify and analyse a feature of our national psyche and how it affects our ability to conceive of and implement effective policy. But I want to make the case for a feature of the public discourse that is doing SA no favours — the obsession with inputs rather than outcomes.

It is seen in many areas. BEE requires companies to spend money (inputs) on specific areas such as enterprise development and staff skills development. What is measured is the amounts spent against targets to get points on scorecards to receive various levels of BEE recognition.

This process ignores outputs, such as the number of jobs created for black people, or particular skills that black people are able to acquire. In fact, as almost no monitoring and evaluation of BEE spending is done, the value for money delivered in terms of real transformation of the economy is simply not considered.

By focusing on inputs instead of outcomes, normal market mechanisms are turned on their head. Instead of maximising the quantity and quality received for our money, we seek only to maximise the amount spent to reach a target. Given the spending itself has transaction costs, companies will meet the target in the cheapest way possible. For example, it is costly for a company to monitor a diverse and complex enterprise development programme, when it could instead spend all its target on a simple programme requiring only one cheque to be written in which the outcomes frankly don’t matter.

Imagine what BEE would look like if targets are instead set for the numbers of jobs companies should create, or skill levels that should be reached. Market forces could then find ways to deliver these efficiently. The economy could transform faster at lower cost.

The inputs myopia clouds many other areas of public policy. Consider the push to drive infrastructure investment. This is often cast in terms of the investment amounts themselves with the government celebrating numbers in the billions as an achievement (inputs) rather than the economic impact of the infrastructure (outputs).

Global competitiveness

There is talk about the amounts spent on local suppliers and jobs created during construction, instead of the jobs facilitated by the economic activity that new infrastructure supports. The input view is invariant to whether you are digging holes and filling them up again, or whether you are building a bridge that will catalyse significant new economic activity. By not focusing on outputs, poor decisions are made on which infrastructure to invest in.

Another area dominated by input thinking is the debate about localisation. There is a focus on the inclusion of more locally produced goods and services into supply chains (inputs) instead of the global competitiveness of the end products of those supply chains (outputs). So, there is a risk of damaging competitiveness, forcing companies to source higher-priced lower-quality goods locally, leading to increased costs for their outputs, reducing overall competitiveness and leaving SA worse off overall.

SA Airways and the Post Office provide two more of many examples. There is a focus on inputs instead of the desired outputs of a competitive airline industry that delivers low-cost services to consumers, or a logistics system that facilitates trade by efficiently getting packages countrywide. The focus instead is the microstructure of that industry and who in particular delivers it, with the government as a key input.

Competitive markets

The input view is not baked into policy directly. In fact, most policy documents emphasise the importance of competitive markets and maximising consumer choice, such as white papers on the transport industry or energy supply. Of course, it is not always the case that markets deliver the best outputs. Sometimes it is important that the government is a robust input, in areas such as health care. But the way to determine whether it is is to focus on the outcomes. Yet in practice, regarding how policy is implemented, there is a reversion to focusing on inputs.

Why? Part of the reason is that inputs are easier and cheaper to control. You can easily check if a company has spent X on enterprise development. Monitoring and evaluating outputs is hard. But the desire for control goes deeper than this — by controlling inputs who benefits is controlled too.

There are some good reasons to want to control things. Given the racial legacy of the economy, an output focus might mean those with the capital to rapidly respond to opportunity can do so (such as if the energy market is opened to whoever can produce the cheapest).

An output focus therefore can be regressive for transformation. But this is a two-edged sword — the inefficiencies that arise from input affect black people too. Indeed, if BEE had more focus on evaluating outputs rather than inputs, transformation could be advanced more effectively. Control can also have a more nefarious purpose of dispensing patronage.

Ultimately the input culture is to SA’s detriment. Refocusing the way we think about policy on outcomes would make the country far better off, even if it would need to consciously ensure that those outcomes meet its transformation objectives. Let us become obsessed about maximising outcomes, not inputs.

Theobald is chair of consulting firm Intellidex.


The Communities in Transition report, produced by Intellidex and funded by FirstRand, estimates the projected dividend flows from projects procured, to date, under the REIPPPP will be about R27bn over the 20-year life of the projects. Featured in Engineering News. 

The Sanlam Gauge report, in partnership with Sunday Times Business Times, provides a national and sectoral score on transformation in the SA economy. The research and report were conducted by Intellidex in partnership with Business Times. 

President Ramaphosa can certainly take charge of logistical operations within Luthuli House and even put in place some branch orders but this is not going to suddenly lead to economic growth and the reforms that we need, argues Intellidex’s Peter Attard Montalto on CNBC Africa. 


A groundbreaking research report conducted by Intellidex in partnership with Business Times and sponsored by Sanlam, in which we measure transformation across all sectors, was launched. It also provides a B-BBEE scorecard for SA Inc.

The problem

There is a strong element of frustration among people closely involved with broad-based black economic empowerment (B-BBEE). Many people interviewed for this report believe that while companies may perform well on the scorecard, that does not reflect the underlying reality.

Why you should care

This report serves as a basis for discourse on the strategy to address future transformation in South Africa. It is the first attempt to measure the level of transformation across all industries to derive a B-BBEE scorecard for each sector and one national one, for “SA Inc”. 

The solution

Transformation is happening, industry players believe, but too slowly. What is important, though, is that in many instances they know why and where it’s going wrong, and often have ideas on how to fix things. Therein lies the true value of this report. It covers the five main scorecard elements, then focuses on the sector codes and issues specific to each sector are highlighted. The defence industry was excluded because we had too few companies from this sector in our database and could make no headway in getting any input from that sector.

Download the report below.

Intellidex has conducted a research project into community trusts set up under South Africa’s renewable energy independent power producer procurement programme (REIPPPP). The research was funded by FirstRand.

The problem

The problem statement for this research is: Is community ownership through trusts an effective tool for energy projects to deliver community development?

Why you should care

Our research investigated the extent to which the potential of community ownership through trusts is being realised. Our research questions were:

The solution

Our case studies of successful trusts – alongside the promising work that others are doing – show that community trusts can promote the participation of communities in the renewable energy transition. When they work well, trustees – often in collaboration with their IPPs – can effectively wield resources for the benefit of their constituencies and contribute to improving wellbeing.

Download the report below.

Access the launch recording below.


The precautionary motive to save is common whenever people feel uncertain about the future, as is the case during the Covid pandemic with higher levels of household savings recorded, says Intellidex’s Stuart Theobald. But forced savings was also a feature. Featured in Mail & Guardian.

The Transformation in Banking report, commissioned by the Banking Association South Africa (Basa), shows that Black women voting rights increased to 12.6% from 11.4% — the highest level since 2016. Featured in Mail & Guardian.

The Transformation in Banking report released last week was produced by financial markets research and consulting firm Intellidex. It evaluates progress across a wide range of measures from 2016 to 2019. Featured on Business Day.