Emerging markets expert Mark Mobius of Franklin Templeton Investments keeps a close eye on the political situation across countries. This is with a view to identifying investment challenges and opportunities. Right now, he believes there could be a few bargains to be had in South Africa’s consumer sector, though he’s not impressed with what is generally available to investors. South Africa’s economic problems are significant and, if not addressed soon, will spark a major shift in political power in favour of the anti-white, anti-capitalist Economic Freedom Fighters (EFF) party, is his forecast. Mobius flags up the bloated civil service and small base of heavily squeezed tax-payers as significant factors. He expects the situation to remain tough for South Africans, with higher energy and transport costs eating into disposable incomes that are unlikely to keep pace with inflation. With President Jacob Zuma sounding a lot like the EFF’s Julius Malema as he beats the land expropriation drum, don’t hold your breath that some astute decision-making in the best interests of economic growth will be taken at the highest echelons of the ANC any time soon. Gross Domestic Product is likely to be at best barely positive until there is a change at the helm. But it is not all doom-and-gloom, as Mobius is sifting through stocks with an eye on identifying companies that could generate superior returns amid the economic challenges. – Jackie Cameron
Cape Town – If South Africa’s economic situation doesn’t improve, attracting the young and unemployed could make the EFF a more potent force, according to Mark Mobius, an emerging markets fund manager at Franklin Templeton Investments.
Mobius, who recently visited South Africa, pointed out that SA’s debt position, however, is not as bad as some other countries’ – including Brazil – although the government debt-to-GDP ratio has risen to the current 46% from 25% to 30% in 2008.
“There is a general consensus among observers that plenty of government waste exists, with unnecessary spending, corruption, public sector inefficiencies and inflated pricing,” said Mobius.
“At the same time, the government’s wage bill is rather high – the number of people employed in the public sector increased to 2.69 million at the end of the 2014 from 2.16 million in 2008.”
Mobius said SA has been lacking any real growth drivers over the past year, and estimates for 2017 gross domestic product (GDP) to remain lacklustre, although slightly better than in 2016. The International Monetary Fund (IMF) is projecting growth of 0.8% this year, while National Treasury predicts growth of 1.3%.
“On the fiscal side, the government is trying to manage the deficit as best it can with Finance Minister Pravin Gordhan at the helm, but the slow economy and a small but highly taxed base makes it harder to grow government revenues,” said Mobius.
“Revenue is dependent on a healthy tax base, but the percentage of households receiving at least one social grant increased to 45.5% in 2015 from 29.9% in 2003.”
Higher food and fuel prices ignited inflation last year, but Mobius believes better rains, more abundant crops and a stronger currency should help prices stabilise, along with interest rate stabilisation or even a rate cut.
“Overall, we are cautiously optimistic, but think the situation will remain tough. The South African consumer will likely continue to remain under pressure from higher utilities, transport costs, low wage growth and constrained credit,” said Mobius.
“While South Africa has its challenges, the consumer sector is one where we continue to search for potential opportunities. We think economic improvement and the increased spread and acceptance of technology could prove drivers for companies in this space.” – Fin24