In case it isn’t yet obvious — the pre-elections madness has already started.

Blame the Reserve Bank — tick. Blame the big banks — tick. The ANC has decided it’s a separate entity to the people in government and lashing out — tick. Blame the colonialist Western imperialist overlords for everything including load-shedding — tick. Facts are warped as necessary to fit whatever the narrative of the day is — tick.

This happens in every election cycle. We are still six months away from manifesto launches and probably seven months away from proclamation — but it’s all systems go. The ANC national executive committee is in full election mode discussing manifestos and strategy, the deputy president is convening coalition framework legislation workshops with all parties, and informal coalition talks have already started bilaterally between the main parties.

Presidential imbizos are taking place around the country and ministers are out and about “inspecting” things at quite a pace.

Yet if you stand outside Luthuli House and press your ears against the decals of struggle heroes at the front … you will hear the sound of screaming.

It’s a big mistake to think the ANC doesn’t know what’s going on, or what is coming down the road — that would be far too easy a get out of jail free card. There is, of course, the prioritisation of other issues, lack of capacity and (a favourite of this column) just a completely different sense of timescales in a crisis. But that is not the same thing as not knowing.

This is why an election is so interesting. It cannot be delayed, forgotten about, or just done when one gets around to it. It comes at you like an inevitable wall of certainty.

As an aside of course there is some small amount of wiggle room for the optimal date next year — a tension between the 30-year anniversary of universal suffrage, and the seasonality of load-shedding — there isn’t really a right answer.

The original plan was that the budget would have sufficient wiggle room in it to extend the social relief of distress grant to offer a smattering of small election baubles at the medium- term budget policy statement (MTPBS), and then if growth was looking better in the year ahead and load-shedding coming to an end (hmm indeed), then the budget in February could offer more significant baubles.

Deep shock

A deep shock has now crystallised into the fiscus and this pathway through the elections is no longer available. It’s important to note that no other election had this issue.

The year 1999 was just before the rand crunch, 2004 was a boom and 2009 saw room for countercyclicality in the global financial crisis given debt levels were so low, 2014 was an “OK” period for fiscal before the destruction on the economy of state capture was wrought (though countercyclicality was being pushed beyond its limits already), 2019 was about overoptimism on growth recovering into fiscal and so we are here now today.

SA, of course, has stood out among emerging market peers in not having an electoral-fiscal cycle of loosening. Instead, there is a small smattering of spending baubles and, yes, some hard decisions, often delayed, on expenditure and revenue.

Put simply, there has never been a major crunch into an election before. We also have not had elections before with this kind of dysfunction.

Reassurances by finance minister Enoch Godongwana about the expected fiscal strategy were given at the start of this year at the ANC’s lekgotla, and in a similar way electricity minister Kgosientsho Ramokgopa has reassured with a high degree of certainty that load-shedding could be ended by the elections at various ANC NEC meetings earlier in the year.

Hence the screaming now as reality dawns.

Both issues should have been obvious earlier in the year. At the time of the budget, we were already sounding alarm bells that despite a higher nominal GDP forecast than Treasury (a larger tax base) we were coming in about R32bn below them for revenues. The latest data for June suggests that revenues for this year are far worse — this being a key month for corporate tax take, and revenues for the full-year will come in about R99bn below the budget estimate or about 1.8% of GDP — this is huge.

The cost of corporates to mitigate load-shedding as well as the turn in the terms of trade cycle and general slower growth from power outages have all hugely weighed. There is no room for any real baubles now and the Treasury is trying to push departments and entities to make huge cuts into this MTBPS — most of which is likely not be politically possible.

We have always moaned about the cabinet’s inability in “weak” but “OK” times to make any serious fiscal choices — now will be impossible. It will mean that instead of the 0.9% GDP primary surplus this year we likely end up with a -0.3% GDP deficit and that in the medium run the primary deficit will not reach back to where it needs to be to stabilise debt.

The outcome will be a steeper yield curve and slower growth while the Treasury cuts around the edges and just holds the fiscus on the right side of the cliff edge.

The same is true on load-shedding which continues and will cycle higher into October and then February and then post-Easter next year (assuming demand doesn’t increase — which is a factor most people forget to mention).

Too slowly

The issue is broader though — it would have been easy enough for anyone in the ANC or the electricity minister to run a spreadsheet of new electricity capacity supply and demand and look at the gap and how it moves. There is simply no way any such effort would have told anyone that a call to end load-shedding before the elections had any credibility — unless of course you simply took various reassurances about the energy availability factor (EAF) at Eskom at face value and magically everything adds up.

Solid progress on reforms is being made, though too slowly to bear fruit before the elections, and too esoteric to be of much care yet to voters until real world impacts are felt. Equally the test of the ANC’s underlying (relative) fiscal conservatism likely survives another cycle.

Perhaps it is this underlying conflict of a deep inner conservatism on fiscal combined with expectations mismanagement which is leading to the angst. The screaming in private will lead to more lashing out and fact checkers will have to be at the ready.

It’s time to buckle up — the roller-coaster ride has already begun and the cycle calmness of the ANC in previous elections is not going to be quite the same this time.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Intellidex.

This article first appeared in Business Day.

Behavioural economists use the term “availability bias” to describe our tendency to be overly persuaded by near-term information. What has happened most recently dominates our thinking about what is likely to happen next.

A road exploding in central Johannesburg shifts our view about the quality of metro maintenance of infrastructure and governance. A coin landing on tails shifts our view about the likelihood of the next flip (a bias also called the “gambling fallacy”).

Availability bias is having a large-scale effect on the national conversation. Read our Sunday newspapers and you have to conclude everything is going to hell.

Construction mafias are openly extorting businesses and local authorities. Police stations are being robbed. Vigilantes are taking things into their own hands. Politicians are openly fanning the flames of xenophobia. A misguided national health service is driving medical professionals to emigrate. I could go on.

Stock market analysts are well familiar with availability bias and the effect it has on trading behaviour. “Momentum” is the notion that a share price trend will continue its trajectory, down or up, as investors are overly persuaded by recent performance. Contrarian investors see such trends as an opportunity.

They invariably lead prices to become overly inflated on the upside or overly discounted on the downside, creating opportunity.

SA’s national mood is driving a momentum to the downside across swathes of the country. Social media, which is itself plumbing new lows of utility and nonsense, seems to have formed two consensus groups — one that says everything has been on a downhill trajectory since 1994, and another that says nothing has changed since 1994.

Both are inaccurate, yet in our febrile atmosphere every new item in the news is grabbed to confirm biases.

Two clichés of market analysis are worth keeping in mind, however. “Everything returns to the mean” is one. “Everything is a buy at the right price” is another.

Many commentators are so overwhelmed by their availability bias that they forget history. They forget the bankrupt apartheid state, a global pariah, that could not even collect taxes due to it. They forget its lack of investment grade and inability to even get meetings with global investors.

The ANC in 1994 took on the task of rebuilding the public service into one that could implement its democratic mandate. It built new institutions — the National Treasury, the Constitutional Court, among others. They forget how the economy was repaired and recovered, that corporation tax was cut from 35% to 30% (and to 27% since), that the personal tax top rate fell from 45% to 40% (it had been 50% for most of the 1980s).

Despite tax cuts (and to some extent because of them) the national revenue service (built out of the ashes of the apartheid-era department of inland revenue) was so effective that by 2007 the government was able to run fiscal surpluses, raise debt at three notches above investment grade, and simultaneously create the world’s biggest welfare state to deal with the legacy of poverty left by apartheid. And that while the economy was growing at more than 5% a year.


We reached a climax in 2008, when the twin calamities of the global financial crisis and the Zuma presidency abruptly changed things. The global crisis inflicted a severe economic recession while the Zuma administration hugely degraded the apparatus of the state. The latter has constrained our recovery from the former, and despite the end of Zuma’s presidency, recovery has continued to elude us.

But today’s commentators, encouraged to pursue narratives that inflame particular political factions, get it all wrong by being overly persuaded by the near term. Our problems are not ones created by the democratic state. They have been created by particular people within it. The state itself has been capable of remarkable administrative success, and in diagnosing its ills, we must not conclude it is not capable of better. It is, and it has done it before.

For market analysts who aim to overcome availability bias, the question is when momentum might shift and the economy take a turn towards the mean. The obvious trigger, one that was not available before 1994, is elections, and those will happen in 2024.

The trigger for change need not be defeat of the party in power. We may come out with a very mixed bag — with different outcomes for provinces compared to national government. But even that can mean the way the economy works, and policy is formed, may change profoundly.

The probabilities for election outcomes are shifting every day. I expect some investors will be spending significantly on polling, given the profit opportunities that will flow from more detailed insight into probable outcomes.

For most of us, though, the election will be an exhibition of the state machinery working as expected in which the democratic system works for people to express their will. And that will may well be for change.

Stuart Theobald is chair of Intellidex. This article first appeared in Business Day

Intellidex, in partnership with Business Times and, has launched the 3rd edition of the groundbreaking Sanlam Transformation Report.

The survey, which measures transformation across all sectors of the economy and provides an overall B-BBEE scorecard for SA Inc, is sponsored by Sanlam.

This year the B-BBEE scores of 14,542 companies were included in the survey, up from 10,336 companies last year.

This project has the goal of developing an effective national measure of transformation which has been lacking. The report is intended to serve as a basis for discourse on strategies to accelerate future transformation in South Africa. The report includes the opinions of experienced B-BBBEE practitioners and other industry experts.

“Ultimately, we want to continually evolve the Sanlam Transformation Gauge into a really thorough measure of the extent of transformation of South Africa Inc,” says Intellidex chairman Dr Stuart Theobald.

Download the report below.

Intellidex’s head of capital markets, Peter Attard Montalto, joins 702‘s The Money Show to weigh in on whether the National Health Insurance or a state bank ever come to pass.

“The issue that investors are highlighting, and that there’s a lot of worry about, is that we need to concentrate on the things that are going to happen, that are crises, like teachers retiring.”

Listen to the full clip below.

It’s funny how there can be complete obsessions with things that will never happen.

One might argue that it’s better to keep politicians busy with things that aren’t going to happen than making worse the situation with things that could. But such an argument — given the state of the country at present — seems to miss the mark.

More and more stories seem to fit this mould of things that will never happen. Much time is then spent calming investors and others over things that won’t happen. I seem to spend much of my life doing such firefighting when really there should be better uses of time. It would be useful for policymakers to understand that things that aren’t going to happen sap goodwill and sentiment hugely for no apparent upside.

Reserve Bank nationalisation for direct control of policy by the ANC and extreme expropriation without compensation scaremongering were probably two of the most famous historic examples. But have both finally been put to bed.

The list is long, however.

Near the top in the short term might well be that it will never happen that SA will really persuade anyone that it is actually nonaligned when it comes to a balance of relations between the West and Russia. Or that the electricity minister’s predictions of load-shedding coming to an end would be worth anything. Similarly, quite mad examples at subnational level such as that Gauteng could somehow refund everyone for their e-toll payments over years despite no money and no agreement from the National Treasury to do this. But these are trite examples.

Two more meaningful to study are National Health Insurance (NHI) and a state bank.

The debate on NHI has thankfully moved on somewhat in recent months. It’s now quite clear that no-one is against a broad high-quality minimum standard for universal healthcare access. The problem is this NHI, not NHI in general — and in particular the implications for the existing world-class private healthcare sector, provincial powers and individual rights.

The arguments against this NHI have been rehearsed in this paper many times. The more interesting perspective is that the current plan has charged forward despite conflicting legal advice to parliament’s health committee, which opposition parties have highlighted, despite no funding plan or detailed implementation plan presented with the legislation. A recent fact sheet released by the government on the NHI bill relied heavily on eight-year-old costings and tax proposals from the Treasury, giving an air of certainty that is not really the reality for where the health department or other parts of the government are at.

NHI secret

The situation has become bizarre with the media calmly reporting that the health department had said that the WHO had advised to keep details of NHI secret at this stage. The reason, strategy or upside from this course of action seem absent and indeed it has bred this bizarre feeling that this is all a sleight of hand.

The obsession with this unworkable NHI in its present form — which the health department will take years to devise any real implementation of, and then the Treasury will stall for years after and then cabinet will be unable to agree on any kind of funding that it accepts in terms of tax hikes — means that nothing will happen in any reasonable time period, while the underlying issues in the public sector continue to worsen year by year and the need for a real NHI become ever greater.

The concern of course is the monumental amount of wasted time in the government on the issue rather than it devising an actual workable model that leverages the existing strengths in the system, including in the private sector, for the whole population’s advantage. The recent pilot studies showed no particular sense whatsoever of what a real NHI could be, despite much money and departmental time.

This isn’t to say the alternatives would happen quickly or easily or necessarily cheaply, but the point here is viability — what can actually happen within the funding and logistical constraints of the system to enable an end goal of a sustainable quality universal healthcare model.

The issue of state banks is similarly infuriating. The law was changed a few years ago to tighten the rules about state banks which must be national state-owned enterprises and must therefore have national reporting lines. The ANC has resolved it wants more state banks at national and provincial level — Gauteng champing at the bit the most.

Yet the Gauteng bank is impossible under existing law or in terms of how it could be financially capacitated to the satisfaction of Prudential Authority (PA) rules while Postbank is such a monumental mess that it will remain in purgatory of PA assessments for years to come unless a government is willing to pump unseemly amounts into it.

These new examples ignore the wealth of existing expertise and capacity in the state banking space that could be better honed working with private sector banks to de-risk, for instance. This is where efforts should be focused — to achieve scale for interventions such as the Development Bank of SA’s (DBSA) development labs or make access to Industrial Development Corporation financing easier and less cumbersome, which is often a complaint of many attempted borrowers.

According to the DBSA’s website, “the development labs precinct model is an unprecedented SA approach to addressing socioeconomic needs, in a manner that is inclusive, builds resilience, fosters social cohesion, drives community-based solutions and stimulates economic development”.

Energy issues are probably the most dramatic set of examples of things that will never happen.

A coal procurement round in the past Integrated Resource Plan failed spectacularly and banks have closed the taps continually. Money from Russia or China to mysteriously finance a coal power station will not be forthcoming, given carbon tax and insurance problems for any such projects — the underlying maths simply doesn’t add up even if the money was technically available.

Lack of accountability

I used to be of the view that attempting to do such impossible things was a useful way of showing the political economy it was barking up the wrong tree and that they were not being tricked into a conspiracy — yet the lack of accountability means that I am more sceptical of this view now.

The same can be said of Karpowerships, which will both be bogged down in endless legal cases and environmental impact assessment problems for the foreseeable future, and take up valuable policymaker bandwidth continually trying to find ways of keeping the undead alive.

Issues that will never happen are not the same as most issues which are delayed and bogged down. The latter need to be supported and reinforced with capacity, and so on. The former, however, need to be killed off swiftly and replaced by better alternatives. They have in common that they have political imperatives and supposed (normally wrongly conceived) optics or PR on their side. Add in bureaucratic inertia and ideology and one gets a toxic mix.

These issues distract from the very positive reforms that are happening and give the continual impression of two steps forwards being offset by two steps back, when really those backwards steps might be more illusory in some cases.

Business and investors need to get better at identifying and calling out the things that will never happen.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Intellidex.

This article first appeared in Business Day.

Intellidex CEO, Dr Roy Havemann, joins Fine Music Radio’s Classic Business podcast with Dawn Ridler to discuss how the change in interest rates has affected the banking sector in recent years.

Listen to the clip below.

Peter Attard Montalto, Managing Director at Intellidex, spoke with Guy Wilding, Monocle’s Research Lead, at the GIBS / Monocle Beyond Banking Conference.

Click here to watch the video.



Dr Roy Havemann, the CEO of Intellidex, recently discussed African sovereign distress with Michael Avery on Classic Business.

The government’s exit from important economic sectors is a runaway train crashing through taboos at an accelerating rate. The “developmental state” model propounded by the past two administrations, which envisages the government directly driving the economy, is collapsing around us.

By default, we are turning into an economy driven far more by the private sector than before.

SAA is still in business rescue. The Post Office is in provisional liquidation and likely to be put into business rescue shortly. The SABC, which is about to announce a R1bn loss for its last financial year, is on the verge of business rescue too. There are others in just as dire a position, such as Denel, the Nuclear Energy Corporation of SA, SA Express Airways, Alexkor and more.

It is hard to know just how many of the 700 state-owned enterprises (SOEs) are sustainable. Of the 20 reviewed by the auditor-general, just two received clean audits: the Development Bank of Southern Africa and Land Bank, though the latter defaulted on its debt obligations and is still reporting losses. Nine more were unqualified but with findings, including the SA Forestry Company (Safcol) which is a rare beacon of profitability in the state sector.

Among the universe of SOEs, only Telkom, which is listed with the state as a minority shareholder, has consistently contributed dividends to the national fiscus.

The two behemoths that are too big to fail, Eskom and Transnet, are also retreating gradually from their marketplaces. Eskom is now just one electricity producer among many.

In the past year, new projects adding up to 4,000MW have been registered with the National Electricity Regulator of SA, which when on stream will add to 10,700MW procured through the independent power producers’ programme, some of which is still to come on stream. As it stands, at midday on a typical day when solar is contributing, private providers are generating about 4,000MW for the grid while Eskom’s traditional coal and nuclear output adds up to 21,000MW. The trend has been in favour of independent producers and is very much set to remain so.

Transnet is trending towards increased private sector involvement as it faces up to it not having the capital or operating expertise to manage its ports and rail. Alarm bells have been ringing loudly about the sharp deterioration in the performance of rail, which has meant big losses in sales for mining companies, and the woefully uncompetitive state of our ports. In both, Transnet is making steps towards concessioning out operations.

Calamitous exit

This cannot be called privatisation, as no state asset has moved into private hands. Rather this is a calamitous exit of the state from various industries it previously operated in. Privatisation would, in retrospect, have generated far more value for the state while the assets it operated were still worth something. This exit might have happened much sooner, but the government has been content to continue pumping funding into the unprofitable businesses, despite the damage done to the national balance sheet in the process. The change has not been one of ideology, but of necessity. If the government did not close the taps, the whole state would have ended up in default, resulting in a crisis that would have handed sovereignty to our lenders.

The largely unmanaged and chaotic exit also means the cost to the economy is much higher than it could have been. Electricity, for example, was meant to have been restructured two decades ago, in a way that would have optimised transition to a mixed and competitive industry. Instead, it is happening with huge collateral damage to the economy in the form of load-shedding. The Post Office, too, should have years ago been stripped of its legislated monopoly to deliver all packages of under 1kg, and is now collapsing with, in theory, no competitor to step into the breach (though in reality, couriers are doing many deliveries that breach the legislation). At least the collapse of SAA could pass almost unnoticed by those trying to get a flight.

It is also, however, with a high cost to social services. Many SOEs (SAA most obviously) had no reason to exist from a public service perspective. But the Post Office and SABC play an important role in reaching all parts of the country, through postal distribution and the airwaves. The SABC continues to have by far the biggest audience in the country and carries great responsibility to educate and inform us all. The collapse of these two institutions in particular will harm our democracy and the ability of our people to participate in it.

However, while the change has been unmanaged and calamitous, the result is an economy with the potential to be far more competitive than ever before. The electricity system that is gradually taking shape, is going to have multiple generators competing to sell electricity into the grid, which will result in the end of spiralling tariffs and restore energy security. The same is happening more slowly in logistics. In the long run, we will be better off for it.

What we really need, though, is a government that has not ended up in this position by default and against its ideology. What we need is a government committed to making it work effectively and regulating it accordingly.

Stuart Theobald is chair of Intellidex. This article first appeared in Business Day

The row between chief justice Raymond Zondo and parliament has been something to behold. In some sense it is the classic SA playbook: person who might well know a thing or two makes a comment about a situation. Other side takes offence and tells said person to stay in lane, or patronises and says they don’t really understand the full picture. A meeting is called, which both sides always say was “constructive” (because the meeting is more important than the content or meeting of minds) and they all continue on their merry way.

We saw this with former Eskom CEO André de Ruyter; with business vs government; business vs civil society; and NGOs vs the state.

The issue with Zondo is rather more dramatic in that we are talking about pinnacle institutions. Equally, the stakes are higher — we are talking about avoiding State Capture 2.0.

The parliamentary line of attack is odd. Ignoring for a minute whether they actually undertook any training or what that training was, parliament is essentially saying it is an empty vessel and its members aren’t really responsible for anything that goes on outside its halls. Proper institutions have a culture and a patter, a way of doing things and a momentum. Parliament seems to be suggesting that it has none of these — which might well be true.

Parliament didn’t appear out of nowhere with the transition to democracy and though it now operates (rightly) via majority rule, the majority party sees itself as more important than anything else. And that might be a root cause of SA’s problems, which  Zondo alluded to. Parliament’s stance thus far suggests that nothing will change, and that is a deep concern.

Investors, business and markets are asking serious questions about the current administration in cleaning up state capture and, in particular, the ability to guard against a repeat.

It is a strangely SA affliction to call out those who highlight risks. It comes from the unfortunate place of having designed things for a Mandela administration rather than a Zuma one. Institutional strengthening, shifts to the culture and professionalisation of the public sector, and the role of parliament must all be designed against an assumption that State Capture 2.0 is possible.

Being messy

This is all the more important with messy internal ANC issues, and the likelihood of messy coalitions after next year’s general election. SA businesses and investors are thinking about the risks and so by extension the quality of institutions such as parliament to contain any mess that might emerge after the elections. Even if our baseline is that the status quo continues with the ANC on 47% of support and one other party in coalition with it, the downside risks are alarming enough to require serious thought.

Coalition government at a national level has the risk of being messy and combative, in which case parliament should, but probably won’t, have a key role. The current desire to find codified (legislative or other) solutions to the coalition issue and mess that has emerged in Gauteng and could infect the national level seems to entirely miss the point. These are political issues that no codification can ever solve when sitting in a room as parties after elections.

The point of an institutionally secure framework is that it constrains the landscape on which the madness can occur and makes such codification unnecessary.

ANC succession

The lack of any sense of succession in the ANC isn’t helping the situation. While we can talk in probabilities of who takes over, there appears to be no sense of momentum and continuity in the longer term. This lack of urgency by many actors is alarming but not surprising. It has been 18 months since Zondo reports started to emerge. The weight of establishing accountability, of prosecutions and of institutional change hasn’t occurred fast enough to gain a self-fulfilling momentum that itself could be seen as a deterrence to future state capture.

The current foreign policy dramas I wrote about two weeks ago show how problems and irrational decisions can fester far longer than one might regard as reasonable. It is a far cry from where we thought we would be if we cast our minds back to the Ramaphoria five years ago.

Markets have a habit of vastly overplaying issues on the positive and negative side — consider the recent hysteria of an imminent national blackout or the overhyped risk of sovereign-level sanctions. A positive outcome of solid institutions, the rule of law is to constrain more extreme market musings. Unfortunately this isn’t the case sufficiently in SA (and is perhaps a missing angle on the Financial Action Taskforce issues that haven’t gone away and are very much about institutions).

This is not to say the baseline is particularly negative or to deny that there are underling sensible forces in the political economy and the ANC that constrain excesses (though often at one minute to midnight). Instead it is about a “flappy end” problem — the outlook appears poorly anchored with fat tails and deep uncertainty. That has negative consequences for investment and growth.

The situation is unlikely to change before next year’s elections and so we must all strap in — both for what dramas the political space might throw at us, and for moments of markets “throwing their toys out of the pram”.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Intellidex. This article first appeared in Business Day.