WORLDVIEW: Outgoing JSE CEO flags SA’s biggest problems

By Felicity Duncan .JSE CEO Nicky Newton-King is retiring after eight years at the helm. She leaves an organisation that has been thoroughly modernised – she personally drove major projects like the JSE's demutualisation and listing and its acquisition of the SA Futures Exchange and the Bond Exchange of SA. But she also leaves an organisation that has been mercilessly buffeted by the biting winds of SA's economic decline..The JSE's interim results this week were a bloodbath – after-tax profits and headline earnings were down around 30%, and the bourse recorded a divestment of over R30bn by foreign investors. Equity trading revenues plummeted after the Alsi recorded a 2018 decline of 11% – among its worst since the wilderness years of the global financial crisis..___STEADY_PAYWALL___.None of this is really Newton-King's fault (well, maybe the 11% increase in operating costs). The problem is simply that no one wants to invest in SA Inc. The lost decade has done its work and foreign investors are looking elsewhere for opportunity. The most advanced and efficient stock market in the world cannot thrive in the absence of positive economic activity..In interviews, Newton-King has identified three basic problems that are haunting the JSE:.Sentiment hangover from corporate failures and corruption scandals such as Steinhoff, EOH and others;Slow domestic economic growth;A global shift away from emerging markets..The first problem is, obviously, one that the JSE must help to address. Tighter disclosure standards, improved corporate governance rules, and greater transparency are urgently needed to restore investor confidence in corporate SA – and reform of auditing practices would probably help too..But when it comes to items two and three, the JSE is powerless..Economic growth in SA is negative, and there are few signs of recovery on the way. Instead, the country seems to be stuck in a kind of mire made up of the Eskom crisis and the bitter political warfare rampaging through the ranks of government as the Zuma faction of the ANC seeks to tear down Ramaphosa and put an end to his reform plans..Ferial Haffajee recently laid out these issues with her usual flair. Toxic politics – especially the dominance of special interests in our political system – are causing paralysis in the state at the same moment as state intervention is desperately needed to fix Eskom and move back to sustainable growth. A growth trap is the net result..Now, SA is far from the only country mired in a toxic political swamp. Political paralysis is the theme of the day, from the UK to the US and beyond. Brexit has held the UK hostage for three years, displacing all other priorities. Meanwhile, a split Congress and electioneering have prevented any advancements in areas such as immigration, healthcare, education, or climate change in the US. Growth in the UK is minimal (negative, in some readings), and, as the fiscal boost from Trump's tax cuts runs its course, growth is slowing in the US..But unlike SA, those countries aren't contending with the additional challenge of a shift away from emerging markets..The Financial Times reports that in the last five or so years, growth in developed markets (excluding India and China and in per capita terms) has exceeded growth in emerging markets..Investors once assumed that emerging markets would eventually catch up with their developed peers by growing fast. But that belief has been shaken by emerging markets' poor post-crisis performance..In particular, Trump's full-frontal assault on trade – the driver of most emerging market growth – is dimming prospects for prosperity. Foreign investment into emerging markets has fallen sharply since 2010, and SA is just one more casualty in this capital retreat. The R30bn that flowed out of the JSE this year is a symptom not only of domestic weakness, but of a broader retreat from markets like SA..So, there's the JSE, buffeted by these global and domestic winds and struggling to maintain a holding pattern while awaiting better days. The situation is a microcosm of business in SA. Individually, the JSE is working hard to position itself for success. But faced with global and domestic factors beyond its control, all it can do is batten down the hatches and wait..Really, it's a catch 22. Economic growth requires positive business sentiment, which drives investment and production expansion, driving more growth and better sentiment in a virtuous circle. But economic stagnation has destroyed business confidence and cut off investment, leading to a vicious circle of poor sentiment, low investment, production declines, and worsening sentiment..If SA wants to escape this trap, it urgently needs to find political equilibrium and start dealing with its problems. The increasingly hostile global environment means domestic unity is more important than ever.

WORLDVIEW: Outgoing JSE CEO flags SA’s biggest problems

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