Cape Town – Should Nkosazana Dlamini-Zuma win the ANC leadership race, there is a fear of populist policies emanating from her camp which would ultimately be much less friendly for growth than those of her opponent Deputy President Cyril Ramaphosa, according to Nazmeera Moola, co-head of fixed income at Investec Asset Management.
Speaking to Fin24’s Moeshfieka Botha, Moola said: “I think there is a firm understanding that we need growth to be more inclusive in South Africa. We need transformation on a grassroots level to actually take place for education for young kids, particularly poor black children, to improve dramatically.”
Moola pointed out that populist policies implemented in Venezuela and Argentina recently didn’t “end well”.
The fact that cash deposits by households in commercial banks have shot up from an average of 14.5% of GDP to over 18% reflects a lack of confidence in the economy, said Moola.
A positive electoral outcome lifting confidence levels in the average consumer will make people think that there is leadership in the country, “which currently between the politics, between Eskom and Steinhoff doesn’t seem to be visible”.
With greater confidence and a “really nice consumer spending boost”, the country’s growth could move towards 2.5% in 2018, “a world away from the 1% we struggling to eke out this year – and that has huge benefit on tax revenues”, said Moola.
She concluded: “It’s all about growth. If we get growth going, everything else will look better.”
Moeshfieka Botha: With the ANC elective conference on hand, we have to be looking at how the markets will react and what the economy will look like in the event of a Cyril Ramaphosa win or a Nkosazana Dlamini-Zuma win. In studio to unpack the impact of these two different scenarios, we have Nazmeera Moola, co-head of fixed income at Investec Asset Management.
Q:What will we be facing on the economic front if we see a CR17 win or an NDZ win?
NM:We need to look at it in terms of immediate reaction from the markets and the longer-term impact (12-18 month impact) of either candidate winning.
The first one is a little bit easier, because we know what markets fear and expect from each candidate. So we know that the rand, or the bond market or even the JSE are not priced for either scenario. So we’re likely to see a rally in the stock market, in bond prices, in the currency if Cyril Ramaphosa wins – and we are likely to see something of sell-off if Nkosazana Dlamini-Zuma wins.
The question on what happens on a 12-18 month view very much depends on the policies both of them bring to the table, and currently the general expectation is that Cyril Ramaphosa’s policies are going to be slightly more market-friendly… and I think I should actually pause there for a second, because I don’t think that the endpoint either candidate wants to get to is markedly different.
I think there is a firm understanding that we need growth to be more inclusive in South Africa. We need transformation on a grassroots level to actually take place for education for young kids, particularly poor black children, to improve dramatically. So I think everyone wants to get to that position. I think the question is “How we get there?” and there’s the general fear that the policies from the Dlamini-Zuma camp are going to be much more populist, and if that were the case – that is ultimately going to be much less friendly for growth. We’ve seen the results of populist policies in Venezuela and Argentina recently – and it doesn’t end well.
MB: Are international markets expecting a definite outcome from this elective conference?
NM: I think everyone is expecting a definite outcome and one of the most negative scenarios I see is some sort of postponement of delay to the conference. Or there’s the inability to hold the conference over the weekend because of court cases, or because the accreditation process becomes flawed and contested. I think the biggest risk is a collapsed conference.
MB: I hope we have a conference that goes forth and also a conference that yields positive results for South Africans going forward – I think we need that.
NM: I think we desperately need that, and if you look at the structure of growth over the last 18-24 months, one of the surprises for me is is how much cash we’ve seen households accumulating in commercial banks. So households historically have had an average of 14.5% of GDP in terms of cash deposits, and this has gone up to over 18%. What this reflects is the lack of confidence by households in the economy.
So if you get a positive electoral outcome, that engenders confidence in the average consumer , that makes us think that there IS some leadership in the country – which currently between the politics, between Eskom and Steinhoff doesn’t seem to be visible.
But if we get into 2018, and we’re feeling more confident, you could get a really nice consumer spending boost – and that means you could get growth that looks like 2.5% next year – which is a world away from the 1% we struggling to eke out this year – and that has huge benefit on tax revenues. So it starts to solve a lot of the pressures from ratings agencies, as well. It’s all about growth. If we get growth going everything else will look better.