The economy at an irreversible tipping point, caving in like the Antarctic ice shelf?

Johannes Wessels
@johannesEOSA1

The South African economy now resembles the slow-melting Antarctic ice shelves where a sudden instability and crumbling emerge, causing a dramatic cave-in of these buttresses and an inevitable and unrelenting acceleration of glacial flows into the sea. It is as if the long period years of economic melting caused by poor policies, public service inefficiencies and rampant corruption have brought the country to an irreversible tipping point.

There are signals of a sudden surge in movement in the destabilisation of trust and hope in a better future.  This has already triggered an acceleration in the erosion of both the country’s productive knowledge and its capital base.  

Fund managers of local financial service providers told EOSA of a substantial increase in local investors exiting local equities and investment instruments, shifting their investments off-shore.

And wealth managers of European banks who have escaped the January northern winters to visit their South African clientele, remarked that in almost every meeting with clients they were asked whether they do not know of someone in Europe who may be interested in a South African golf estate villa, seaside mansions or Lowveld game farm. They do not easily get interest from South Africans to invest in real estate here.

“We are open for business” is an irritating toddler tune

What has suddenly made the melting ice shelves unstable? Fund managers reckon there were at least four triggers for this uneasiness:

• Cyril Ramaphosa’s mediocre January 8 ANC speech that did not signal any sense of urgency for policy change and that regurgitated the same old collectivist slogans;
• The recent ANC’s NEC statement on Expropriation without Compensation that the executive rather than the courts would decide on whether there should be remuneration or not, including on the quantum of remuneration (This is a textbook example of an ad hoc decision that boils down to an “add havoc“-decision. See more examples);
• Cabinet’s decision to bail out SAA again, effectively shunted aside Tito Mboweni’s plea to stop throwing good money after a bankrupt entity;
• The glaring evidence at Davos that the investment world has little if any expectations of South Africa’s future.

In Davos Tito Mboweni experienced the “we are open for business” song sang by Ramaphosa since his days as Zuma’s deputy, was no longer a hit and rather perceived as an irritating repetitive toddler tune. Just back in South Africa he was castigated for voicing his opinion that the ANC’s decision on the nationalization of the Reserve Bank was wrong.  His position on terminating bail-outs for SAA was also overruled.

This week, South African fund managers mentioned significantly higher volumes of sales by South African investors of local equities and instruments.

Agencies and consulates experience an increase in enquiries about working permits and permanent residency permits.

Lending to Government becoming a reckless practice?

EOSA pick up signals that SA banks and financial institutions have warned (or are about to warn) the Government that they are approaching a Catch 22 position:  Government’s debt servicing has reached a threshold considering the widening budget deficit and that further loans would boil down to reckless lending. Banks in short are in danger of ignoring their fiduciary obligations by extending further credit to a Government that will not be able to service that debt. That would be akin to reckless lending.

With a declining tax base (more high-income individuals are emigrating and corporate South Africa is overwhelmed by higher and higher losses ) increasing taxes would be counter-productive and yield even less income.  If that reality sets in, it will be “hello prescribed assets”. 

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