Alan Knott- Craig writes that in 2003, he launched his first business and rode the wave of an unprecedented economic boom. By 2007, he had sold it for a profit, unknowingly benefiting from a rising tide that favoured all businesses. Today, after years of economic struggle, South Africa shows signs of resurgence with the “Holy Trinity of Hope”: falling interest rates, improving sentiment, and stable electricity. The conditions are ripe for a new economic boom—prepare for a rising tide!
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By Alan Knott-Craig*
I started my first business in 2003. I sold it in 2007. I made money.
I thought being an entrepreneur was easy. Little did I know that I just got extremely lucky.
I started a business at the start of the greatest economic boom of a generation. When you’re on a rising tide, everyone does well.
2003 was the tail-end of a five year long recession caused by high interest rates and a global economic downturn post the DotCom bubble.
What followed was one of the biggest economic booms in the history of world, driven by low interest rates and property values shooting through the roof. Everyone everywhere (except Zim) did will.
You can compare the economy to the tides of the sea. For the years running up until 2003, the tide had been going out. No matter what you did, you were fighting the current. The odds of success were low.
In 2003 the tide turned. For five years thereafter, the tide was coming in. No matter what you did, the current was helping you. The odds of success were high.
I just happened to have a business during that time, and just like a lot of other companies, my business rose with the rising economic tide.
And I miraculously exited just before the tide turned. On 15 September 2008, almost exactly five years after I started my first business on 13 October 2013, the world was hit by the Global Financial Crisis.
Since 2008 the tide has been going out or standing still. Inflation has eaten away at nominal GDP growth. Then Covid hit, the global economy shrank, governments reacted with economic stimulus, inflation started spiking, and interest rates started going up.
It has been hard to make money, hard to do well, hard to build a business.
Regardless of what officials say, we’ve been in a prolonged recession, exacerbated by Covid.
The tide has been going out.
It’s been 14 years since the real economy has had a rising tide. 14 years of business being a struggle.
But things have changed.
We now have the Holy Trinity of Hope.
First: Interest rates.
The whole world looks to the US. South Africa can’t have low interest rates if the US has high interest rates (the Rand will massively depreciate against the Dollar and we will have even higher inflation).
Inflation is coming down in America. If US inflation comes down, then US interest rates will come down. If US interest rates come down, then SA interest rates can come down.
If SA interest rates come down, our economy will boom. Lower interest rates mean more money in the pocket of consumers to buy food, clothes and entertainment.
More consumers spending more money means more revenue for companies selling stuff to consumers. And those same companies will have even more free cashflow because their own interest bills will come down.
Lower interest rates = more money washing around the economy = a rising tide.
Second: Sentiment.
Up until mid-June of this year, many South Africans were feeling quite despondent. The initial euphoria of Rama-phoria had worn off after five years of waddling along aimlessly, watching crooks walk free, watching the roads get worse.
That despondency translated into negative sentiment (ie: people not believing in the future of SA), so two things were happening:
- People weren’t investing in SA (ie: buildings, factories, etc).
- People were taking their money offshore.
Since the Miracle of Mid-June (ie: the GNU), sentiment has done a 180-degree swing. Instead of being negative, people are positive.
Instead of pulling money out of their businesses, people are investing in their businesses.
Instead of taking money offshore, people are bringing money back to SA.
Positive sentiment = more money washing around the economy = a rising tide.
Third: Electricity.
I don’t know what happened, but the lights are still on.
Everyone, including me, was pretty sure that loadshedding would resume after the elections. “Surely keeping the lights on is a ploy by the ANC to try win votes just before the election before returning to the norm of Stage 6?”
Turns out, no.
The minister of electricity, Kgosientso Ramokgopa, deserves credit (if not a medal) for somehow righting a ship that seemed unrightable.
Assuming loadshedding is a thing of the past, that is a massive boost for the economy. For years we’ve been battling two currents pushing us in the wrong direction:
- Companies and families have been forced to invest in off-grid electricity solutions (batteries and solar panels), thereby sucking money out of other sectors of the economy (ie: buy a battery rather than a fridge).
- Businesses like factories and restaurants have been forced to limit their productivity by loadshedding hours. Less productivity means less profit and less wages and generally less money washing around.
Loadshedding is finished, which is triggering the two currents to flow in the other direction:
- Money is now being diverted from off-grid electricity solutions to other parts of the economy.
- Businesses are becoming more productive simply due to the dropping of constraints of working hours.
100% electricity = more money washing around the economy = a rising tide.
Interest rates. Sentiment. Electricity.
That’s the Holy Trinity of Hope.
There’s a good chance SA will see a rising tide not seen since 2003-2008. And every boat on the water will rise with the tide.
If you don’t have a boat, get a boat!
We might just be in for a lucky few years.
Read also:
- Curbing tender corruption: Separating economy and state – Martin van Staden
- Investors shouldn’t count out SA’s economy just yet, StanChart says
- Rampant copper theft threatens SA economy – estimated loss of R46.5 billion annually
*Alan Knott-Craig: Founder fibertime™
