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The tide is turning, especially for the hopeful remnant

Simon Osuji by Simon Osuji
December 5, 2023
in Finance
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The tide is turning, especially for the hopeful remnant
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It has been a tough year for South Africans. In fact, we have been having tough years for as long as we can remember.

Inflation has slowly increased since the 4% levels we saw pre-Covid. In 2022, inflation reached nearly 7% and will most likely be around 6% in 2023. Higher inflation means buying power deteriorates faster, making South Africans feel poorer. Interest rates, which are also higher than they should be, are doing their share to make us feel miserable.

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Unemployment has slowly increased recently, but it seems to be stabilising around 32%. Gross domestic product (GDP) per capita (per person), adjusted for inflation, has slowly decreased over the past decade, which literally means that South Africans have become poorer. And it does not end there.

If you are fortunate enough to be investing for retirement, your total liquid assets have probably not grown by more than 6% to 8% each year for the last five years (and much less over the last 10 years); especially not if you adjust for fees and taxes.

Once you also adjust for inflation, it means that your assets have been losing value, too.

The blame game

Most South Africans will blame the government for their predicament, and rightfully so. The ruling party has been one of the greatest destroyers of wealth (like capital) and livelihoods in South Africa’s history. Corruption, cadre deployment, poor economic policies (like black economic empowerment), and weak employment policies favouring employees over employers are only some factors that have contributed to SA’s current and ongoing conundrum.

Read:
How policy continues to fail South Africans
Balance and restraint: Let the game flow

However, it is not as easy as simply blaming the ruling party. Since the Global Financial Crisis in 2008/2009, rich countries have artificially boosted their economies and markets with monetary and fiscal policy in a way that has led to a structural change in business cycles, sentiment, and valuations.

So, while our government was failing us, the rest of the world was turning against emerging countries and their assets.

It is, however, worthwhile to note that amid the mounting obstacles, many individuals have created substantial wealth through legitimate pursuits in SA.

These individuals, many of whom are our clients, always look internally, not externally – they observe, learn, and improve themselves and those around them. They do not blame but create. In this way, their skills are always in demand, and they end up creating substantial amounts of wealth. We refer to these individuals as ‘the hopeful remnant’.

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Shift to emerging economies

That being said, the tide is slowly shifting back to emerging economies. Rich countries can no longer keep their economies artificially strong and must now unwind their support. Also, while intervention in rich countries kept their economies alive, their economic fundamentals deteriorated. Debt-to-GDP ratios in these countries are set to exceed 120% of GDP, more than double the rate in emerging countries. Companies in emerging markets have remained resilient amid insurmountable odds, while many in rich countries have been kept alive by intervention.

Read: Financial crises and emerging markets

A shift in the tide of sentiment is something that we can look forward to in SA, especially the hopeful remnant. However, because of the manoeuvres of rich countries, the business cycle has been extended, meaning that we might have to wait a few more years. This might give us enough time to go through the pain of our local politics. Now, more than ever, it is important to remain patient and follow sound financial principles.

Remember to always speak to your financial advisor and investment experts.

Dr Francois Stofberg is senior economist at Efficient Wealth and managing director of Efficient Private Clients.



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