A great buzz, but SA lost in the mix with its ‘charity case’ stance

Posted in: Economics, i-Blog, Politics, South Africa on January 24, 2020

Intellidex’s head of capital markets research, Peter Attard Montalto, attended the UK-Africa Investment Summit in London on 20 January. He conveys his thoughts on some issues affecting South Africa.

There was a really great buzz at the summit and its side events, thanks in part to the fact it was packed with over 2,000 people coming together in one place, some barnstorming rhetoric from Boris Johnson and a collaborative atmosphere between capital deployers and capital users.

Clearly everyone understood the opportunities on the continent as a whole but also appreciated the depth of talent, capital and knowledge that is available in London regarding funding for the African continent.

South Africa, however, got somewhat lost in the mix.

The fact President Cyril Ramaphosa didn’t turn up and Finance Minister Tito Mboweni was somewhat underutilised meant that the government, despite a busy schedule, was somewhat left behind by other, more dynamic government delegations. These had more specific, well-crafted sales pitches and a firm offer – generally as part of regional hubs playing to specific domestic strengths and specialisations.

We saw in last year’s presidential investment conference in South Africa and in speeches from International Relations and Cooperation Minister Naledi Pandor that SA still lacks a crisp narrative apart from “things are getting better, we are big”. In fact, a speech that Pandor gave on Sunday night at an event I attended really failed to hit the market – but in a way that often crops up with the government. The idea somehow emerges that SA is a charity case and because it suffered apartheid and came out the other side, it is thought of as a good narrative for investment. This is crazy.

Investors look to the future and analyse risk-adjusted returns. Similarly, the idea was expressed that if investors are unwilling to invest in SA then the country would “go it alone”. Robust sentiments for sure but not a helpful pitch.

The government sorely needs to work on its offering and pitch.

Ramaphosa’s presence would not have made a huge amount of difference in London – or Davos – to be honest, though the rhetoric would have been crisper and tighter.

SAA and Eskom

SAA is seen as a sign of the status quo in both policy and more general thinking and attitude to the economy. This concerns investors, even if the issue itself has little direct bearing on foreign investors who avoid SAA wherever possible.

Eskom has some elements of this “revealed preference” around the functioning of the developmental state but energy security is actually the real issue. We are seeing the impact now of closing smelters coming through in company results but foreign manufacturers look at the operational problems, the lack of procurement of new generation capacity and political and ideological blockages to embedded and distributed generation. Then they just see that the cost benefit analysis gets thrown out of whack because of the need to install generators or other alternatives for their operations.

More generally, the electricity situation relegates SA to an unfortunate “any other African country” bucket in marketing terms – but more so given the lack of speedy progress on resolving it. Of course, this has a more direct impact of blocking off potential investments in renewable energy.

Reform and policy inertia

Fundamentally, reform is about moving the cost-benefit dial for investors and action is needed now for future effect.

There are so many things that could have been done; it is partly about tone and moving away from state-owned assets like SAA, recognising a crisis and a need for speed and talking to that in resolutions. The ANC should also put pressure on government, for instance, by setting timelines on reporting back.

More specifically, there could have been much more specificity on unblocking issues like embedded generation and distributed generation, specific references to REIPPP round 5 occurring, highlighting desired outcomes from the energy war room and dialling down references to clean coal.

More widely there should have been focus on the “Tito paper” itself and its implementation. Overall however, it is action that should be the focus.

The problems here that are deep-seated and are ones of public relations and spin obscuring reality, policy contestation in government and then blockages of ideology, inefficiency, ineptitude and lack of capacity all coming together in a toxic mix to prevent policy flowing into implementation action. This is compounded by a very late realisation and then minimal action by the Presidency to actual find ways of bypassing the dysfunctional state by using the private sector and trusting it to deliver – which in turn loops back to mindset and the status quo.

In relation to that, ANC secretary-general Ace Magashule’s statement that the recent NEC meeting in Irene was “the best NEC meeting they’ve had” is largely spin that analysts – and investors – are sceptical of. We poke more for our clients on the details of what actually occurred.

There were some small and subtle shifts occurring at this NEC that we have been talking to clients about (accepting restructuring at SAA for instance) but the reality is that much stayed the same.

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