Out of Africa always something new” – Pliny the Elder (AD 23-79)
When I first invested in South Africa in the early 1990s, hopes were high that the Roman philosopher’s words might have been descriptive of a different kind of African democracy, economy and market than the one that many cynics expected.
The optimists noted strong and honest leadership, rule of law, business structures that bore scrutiny against the best in the world, allied with a global political elite that was willing the new South Africa to succeed.
There was real optimism when the Government of National Unity was formed in 1994. It was led by the African National Congress (ANC), but also included the Inkatha Freedom Party and the predominately white – and hitherto pro-apartheid - National Party. As Nelson Mandela became the first post-apartheid President, expectations among the previously disadvantaged black majority were high. These expectations included better housing, a fairer distribution of the country’s bountiful resources and greater equality of opportunity.
The new government embarked on a Reconstruction and Development Programme, aiming to meet some of the expectations of the newly enfranchised electorate. However, Mandela vowed to govern for all South Africans, not just for the supporters of the ANC. This was demonstrated most memorably by his donning a Springboks rugby jersey as he presented the World Cup to Francois Pienaar. His government also sought to maintain a reputation for financial probity and discipline – exemplified by the appointment of the internationally highly-regarded (and non-politically affiliated) Chris Liebenberg as his Finance Minister.
In other words, this government went out of its way to avoid the post-war mistakes made by most of the countries on the African continent that had gained independence as Europe’s empires were dismantled.
A wasted opportunity?
Many were sceptical. One only needed to look across South Africa’s northern border towards Zimbabwe for evidence of a resource-rich African country squandering its abundant natural advantages. Zimbabwe’s huge mineral wealth was also accompanied by a highly educated workforce – a significant advantage relative to South Africa, where school boycotts had been one of the many instruments in the long fight against apartheid. Zimbabwe’s wasted opportunity has been well-documented, its politics dominated by a President who repeatedly confounds the views of those who think that it can’t get any worse.
But over twenty years later have the cynics been proved right in South Africa? The political career of Jacob Zuma, President since 2009, has been dogged by controversy. This month, Zuma survived (yet another) no confidence vote. And this March, a controversial cabinet reshuffle brought the departure of the well-regarded Finance Minister, Pravin Gordhan. This seems a very far cry from the atmosphere of optimism surrounding the accession of Mandela to the Presidency all those years ago.
The equity market still contains good quality companies to invest in – but these are companies that must operate in an increasingly challenging economic and political environment.
The South African Rand, which has fallen precipitously since my early forays into the market, has weakened further since March. In the debt markets, investors require a significant premium to fund the country - further evidence of the disappointing relative position in which South Africa finds herself. The equity market still contains good quality companies to invest in – but these are companies that must operate in an increasingly challenging economic and political environment. Those South African companies who chose to seek a listing elsewhere are probably not regretting their decision today.
It feels that South Africa is at somewhat of a crossroads. The ANC meets later in the year to choose a new leader. That choice will be an important one for South Africa. The calibre of person chosen by the party will act as a clear signal for international investors. Can the new leader revive the atmosphere of hope instilled by Nelson Mandela all those years ago? Or should the people of South Africa look across the Limpopo River to Zimbabwe to see what their future might look like? I hope that they choose wisely.
Head of Economic and Thematic Research
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