Following the major political changes at the start of 2018, a new word has entered the South African vocabulary – ‘Ramaphoria’.
According to Wayne McCurrie, fund manager at Ashburton Investments, the word describes the ‘warm fuzzy feeling’ that permeates the fabric of the new “New South Africa”.
“It is really amazing how (effectively) changing one person can make such a difference. The future looks much brighter,” he said.
However, McCurrie says that, in addition to giving the South African public the ‘warm and fuzzies’, there are also other tangible economic reasons why South Africa is in a better place compared to a couple of months ago.
He outlined the following reasons behind Ramaphoria and the global context that currently prevails.
McCurrie said that it was sometimes to South Africa’s advantage to be a relatively small country in the bigger scheme of things.
“The Global Financial Crisis a decade back almost brought the world’s economy to a grinding halt,” he said. “We only really experienced the crisis as an ‘observer’ and were shielded to a large extent from the fallout.
“Make no mistake, if the world’s economy had collapsed (and this was a real possibility without decisive action), South Africa would have been sucked in,” he said.
Fortunately the big central banks released massive amounts of liquidity into the system in the form of Quantitative Easing, he added.
“This was really just printing money to throw at the problem, the biggest liquidity injection ever undertaken.
“In monetary terms, it was of the same scale as the monetary cost of the second world war. Interest rates were dramatically reduced so that asset prices would be supported and consumers and companies did not drown in debt.”
McCurrie noted that the plan has now worked and now that ‘the medicine’ (Quantative Easing) is no longer needed, it is in the process of being withdrawn.
“What we are now sporadically experiencing is some form of ‘withdrawal symptom’,” he said.
Storm cloud on the horizon
McCurrie cautioned that with Quantative Easing (effectively low interest rates) being withdrawn, interest rates are likely to drift up globally.
While he reassured that this is very normal for this advanced stage of the current global economic cycle – the rising rates bring new dangers with them.
“While not forecasting a catastrophe, it is probably accurate to say that the best years for investment markets are behind us,” he said.
“The very favorable environment for equity in particular (low interest rates and a strongly recovering economy) is near its end. This may worry the market and will at certain times almost scare the market. Be prepared for this.
“The very favourable environment has also (justifiably so), driven global equity markets to an elevated level. They are ‘highly priced’ and could be unsettled by the spectre of rising interest rates,” he said.
McCurrie added that the true cost of the President Zuma years is that South Africa’s economy should have started recovering two years ago, when the commodity cycle turned.
“Mainly because of low confidence, brought on by the uncertainty prevalent at the time, our economy was held back from participating fully in this recovery. Now that this has changed and this uncertainty has dissipated (with one exception – the land issue), we are playing catch-up,” he said.
While this growth is positive, McCurrie said that South Africa is not embarking on a multi decade period of expansion at 4%+ growth rates.
“To get the economy to this sort of growth path does not change by changing one person. It requires an extended period of competent and rational macro and micro economic management, accompanied by the structural reforms that are necessary. Hopefully we will get there, but are definitely not there yet,” he said.
As a result, McCurrie believes that ‘Ramaphoria’ is thus “returning to where we should have been, had we not had the Zuma years”.
“It is most welcome and we almost deserve it, but a little caution is required,” he said.
“South Africa can potentially deliver a growth rate of say 2% per year for the next few years, assuming that the global storm cloud does not arrive. The rand will most likely not collapse, but will most probably weaken a little from current strong levels.”
Speaking on the issue of land expropriation without compensation, McCurrie said that the issue remains the biggest uncertainly prevalent in South Africa at the moment.
“While it is vital that land ownership must be addressed to promote social cohesion, how it is done is vital to market stability,” he said.
He added that this “worry” will prevail until the market has certainty.
“Until this happens, we are going to hear scare stories which will worry markets/investors,” he said.
“We will hear ‘Zimbabwe land grab’, ‘The state will own all land’, ‘Chaos will prevail’, ‘The end of the rainbow nation’ etc.”
“Be very aware that these are lobby groups postulating to their support base. Do not believe all the scare stories.
“Our new President has assured the nation that this issue will be handled with caution in a responsible manner that will not threaten food security.
“Until a policy document/statement is issued by the new administration the uncertainty will unfortunately still prevail, putting a bit of a dampener on Ramaphoria,” he said.