SA economy a ticking time bomb unless we achieve policy certainty

By Nedgroup Investments


The South African economy is in desperate need of a boost and business holds the key. But before businesses will start committing to the significant investment that the domestic economy needs, policy certainty is crucial.

This was the overall sentiment from various speakers at the annual Nedgroup Investments Treasurer’s Conference held yesterday in Sandton - a gathering of top local corporate treasurers and financial managers. Speakers included representatives from Nedbank, UCT, BlackRock and a keynote address from SARS commissioner, Edward Kieswetter.

Mike Brown, Nedbank CEO said: “Our economy needs a doctor. While we have made progress in the right direction, but it is not as fast as we would like it to be and in many ways we are running out of time in terms of delivery.  Unemployment is increasing and the underlying reasons for this are structural – not cyclical.  It is a ticking timebomb. This is one of the reasons why we have chosen to reinvest 1.5% of profits in the youth employment scheme to try and change this trajectory – and we need more corporates to do the same.”

Sean Segar, Co-Head of Nedgroup Investments Cash Solutions and host of the event echoed this sentiment. “Corporate cash reserves are at one of the highest levels we have seen in recent years - not necessarily because companies are doing well, but because they do not have the confidence to deploy it,” he said.

And yet, almost all the speakers stressed in some way that business’ investment in the economy is crucial.

“To quote my favourite Africa Idiom: If you want to go fast, go alone. If you want to go far, go together,” said Kieswetter.
“It’s also clear that for businesses to increase investment, we need policy certainty, political certainty – and they also need to know that the lights will stay on before they commit to invest in South Africa,” summarised Segar.

Chris Yelland, Managing Director of EE Publishers painted a bleak picture of the financial and operational state of Eskom, remarking that the financial situation at Eskom is completely unsustainable financially, operationally and environmentally, and a restructure is now crucial. “There is no more time to talk. We need to implement,” he said.

Both Brown and Segar remarked on the sense of disappointment in terms of the lack of turnaround in the economic environment since the 2018 Treasurers’ Conference held around the same time last year.

“We were hoping to be able to talk about a “new dawn” when we started planning the theme for this year’s conference – but it seems we are not quite there yet. Clearly, we are still dealing with the hangover of the highly destructive Zuma years and in hindsight, the realisation is that we probably still have to go further backwards before we go forwards,” said Segar.

However, this is a tough pill to swallow for South Africans, and for businesses who still need to function in this wait-and-see environment - and whom are being called upon now to be the catalyst for big investment. Segar says it’s crucial that businesses start to see positive signals from the right places – starting from the top.

“It’s time to get Team SA to perform. To do that the country’s leadership needs to select the right players, with the right skills who can do the job, but who will also function together as a team.”

“We also hope that events like the Nedgroup Investments Treasurers Conference enable key players such as corporate treasurers to get the context of the environment they are in so that they can make sure they are deploying cash in the most effective and efficient manner and not sitting on idle reserves.”

One of the ways Segar says corporates can do this is to make sure they are earning as much yield on their cash as possible – by parking it in a low risk, highly liquid money market investment where they can generate yield while waiting for the right opportunities to come along. “The ultimate goal is to spur investment – but until the conditions are right for that – we urge corporates to make their money work for them,” says Segar.