South Africans sometimes tend to the parochial, to a narrow view from the tip of Africa that fails to pace the country in its proper global context. That’s why interviews like this one, with US-based banker Bradley Ziff, are so interesting – Ziff puts South Africa in its place, that is, in its proper global context, compared to its appropriate peers.
And the comparison is not flattering. There’s the usual litany of problems – currency woes, labour unrest, infrastructure bottlenecks, and slow growth. And then there’s the fairly brutal assessment of the future – 10 years until South Africa hits some infrastructure milestones, 20 years until there is real social change for the majority of South Africans. Yet, there is also an upside – South Africa’s amazing achievements since the end of apartheid and the great economic strides the nation has taken in the last 20 years. It’s not all sunshine and roses, but South Africa remains, if nothing else, a fascinating place. – FD
To watch this CNBC Power Lunch video click here
ALEC HOGG: The U.S. dollar, fed tapering and the political climate in South Africa has had an impact on global and regional economies. Bradley Ziff, Senior Risk Advisor at Misys Global Banking is with us in the studio. Well Bradley, it’s nice to have you here. You don’t have a South African accent.
BRADLEY ZIFF: I will not.
ALEC HOGG: Where do you hail from?
BRADLEY ZIFF: I hail from New York City. I’m originally from California – so no accent from either location.
ALEC HOGG: So you see this country with the eyes of someone who’s based 10,000 kilometres away. Our election clearly, for us, is big news. Is it playing any part in investors’ perceptions of South Africa?
BRADLEY ZIFF: I think the largest perceptions of investors in South Africa are much more heavily dominated by some of the domestic issues, which are tangible to most South Africans. They are certainly looking at the volatility of the currency – no surprise to you. They are certainly looking at some of the issues relating to the brownouts, electricity, and some of the short-term issues affecting at the country. They’re looking at the miners strikes, what’s happening to platinum, and the inability to export that type of commodity. They’re looking at how South Africa is going to fare against some of their peers as it were, in the rest of Africa. Those are some of the constraints they look at, as well as some of the structural issues in the country: unemployment, lack of infrastructure, schooling and education…those are all things economists have mentioned to me from some of the global institutions – all within the last 24 to 48 hours.
ALEC HOGG: We’ll pick up on those, but I really just wanted to dwell a little on the elections. One of our biggest Sunday newspapers had a headline over the weekend that the ANC – the ruling party – is concerned that its share of the vote will go from around two-thirds to below 50 percent. Is that a positive or a negative, if that were to happen, for the global community?
BRADLEY ZIFF: I think for most investors, the one thing they care about is stability. When you look at the agenda for the ANC, you’re looking at something, which typically, as it would be for any opposition party, reflects the need for a greater investment in the country, changes in the approach, concern about bribery and corruption, and issues they want to have focus on. Investors are always going to be concerned about finding out whether or not that opposition party – the ANC is obviously well known and has a long traditional history going back to the Mandela age. They want to be confident that if there is going to be a changeover, it’s going to be orderly and it’s not going to have further effects on an already fragile financial economy.
GUGULETHU MFUPHI: What about South Africa’s competitiveness against its emerging market peers?
BRADLEY ZIFF: I actually think that South Africa right now, is doing marginally well. You are looking at growth rates in South Africa, which are, right now, about two-point-seven percent – a little bit down from the three percent projections. When you compare that, to some of the commodity-rich countries, they’re running at a growth rate of about four percent. If you look at your peers broadly in emerging markets, it’s about five percent, so you’re a quote off – a little bit – on that area. Some of the major concerns is the volatility when you look at South Africa is the fragility associated with the effects of some of the global issues which, I’m sure, at some point they will get to what affects South Africa and its core – as well as some of the issues that are inherent to the structure of South Africa. When I talk to investors and I talk to people who analyse what’s happening in the country, their concern is that this country is probably a solid two decades away from making real substantive changes on the social side. It’s maybe about a decade away on the infrastructure side, which is a fairly good-sized gap, compared to some of the other countries you’re looking at. When you look at some of the trends that have developed, when you look at Turkey or Brazil for example, and you look outside the region you’ll see the same difficulties they’ve had with the currency issues because of fed tapering etcetera. They may however, have a somewhat better foundation to deal with the local issues, which are all issues that investors are facing.
ALEC HOGG: You say ‘people you talk to’, and just to give us perspective, the other day I had a look at where we would rank if we were an American state. Our economy, at 350 billion South African USD would come in below Indiana. We would be State number 17 if we were part of the U.S – point-three-eight percent of global GDP.
BRADLEY ZIFF: That’s correct.
ALEC HOGG: That’s small.
BRADLEY ZIFF: Yes, it is.
ALEC HOGG: When you take a global view, how many people actually care about what happens in the southern tip of Africa?
BRADLEY ZIFF: I would not necessarily equate the size versus the importance of the country. I think everybody who looks at emerging markets – and especially when you look at a country like South Africa – you’re looking, not at the current state; you’re looking at the potential. You’re looking at the growth. When you decide to use denominators such as population obviously, China would be the largest. What people are really looking at is what the growth potential is in China. As China continues to drive themselves into the market by trying to interfere as it were, with the currency – drive the yuan down…that’s something that’s going to be of concern to investors. They want to have a free market, so as they look at the potential for South Africa – and honestly in fairness, the rest of Africa…some of the other counties including Nigeria, Ghana, and Mozambique – they are looking at opportunity for growth over the next 3/5/10/15 years. You’re looking at South Africa…at a total transformation. A number of the people I’ve spoken to will honestly say they’re not sure that the period for apartheid – while it may have legally run out and while it may be socially going through the transformation – economically, we are still in a fairly segregated environment here that is still going through those efforts. That, I think, is one of the biggest challenges.
ALEC HOGG: To get back to what you were saying earlier, last year one-point-nine economic growth…this year two-point-seven projected: that’s not gangbusters. That’s lower than the United States this year, so something needs to happen here. Something radical needs to happen to get onto that front page.
BRADLEY ZIFF: That’s correct. I think that growth needs to be dealt with and certainly, as you point out it’s even in many cases lower than where the U.S. is, although I’m not sure that the latest numbers would have given us quite an advantage with South Africa. I do think that many of those issues you’re referring to are tied to some of the issues investors care the most about. We can talk about some of them specifically. You keep about 65 to 70 percent of your institutional capital here in South Africa, not allowing it out for foreign investors. You have probably, a pretty good-sized private equity investment here, but a low hedge fund alternative community, which is not allowing some of the growth patterns that people are looking for. The domestic banks, while they’re stable…very good capital in the sense of having about ten, maybe even eleven or eleven-and-a-half percent, which will meet the Basel criteria. They are still left with non-performing loans. They’re left with a concern of what will happen from a ratings difficulty, should people begin to take a look at the loan structures and the payoffs that are going in that regard. There are therefore, some structural issues, I think, that make investors a little bit wary in that regard.
GUGULETHU MFUPHI: What do we need to do to change that?
BRADLEY ZIFF: Firstly, I think it’s fair to say that change does not happen – I’m sorry to be trite – overnight. I think it’s fair to say that when you are looking at a populace where 90 percent of the populace at least, is going through a process where the education system needs to be changed and where you are looking at issues of how to deal with labour versus big business – which is a significant challenge for South Africa – those balances have to be struck. Thirdly, there’s going to be a necessity to actually understand how we deal with a lot of the instability of having an unpegged currency, and the volatility that can have. There’s a significant movement as I think some of your former guests have talked about, about of bonds, out of cash and into equities and people are seeing that. People have to have a confidence in whether or not these markets can actually improve. I think it’s important for big business/large corporations to be able to contribute to that process: Barclays for example – here locally –and Absa make a big commitment out of their financial sector to help train students. You’re therefore looking at something, which requires basically, if you will, a public/private partnership – not just government in this process, but the private sector I think, joining in.
