Fedgroup’s insights on South Africa’s path to stability and growth
Alec Hogg and Paul Counihan of Fedgroup explored South Africa's evolving political and economic landscape. Counihan expressed optimism about the country's future, highlighting the role of the government of national unity in fostering collaboration and stability. He emphasised the importance of energy security and fiscal discipline in attracting foreign investment. With a focus on impact farming and renewables, Counihan believes these sectors can yield stable returns. The conversation underscored the need to tell a compelling narrative about South Africa's recovery to build momentum and encourage local and international investment.
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Highlights from the interview
In a recent interview, Alec Hogg and Paul Counihan of Fedgroup discussed the evolving landscape of South Africa's political and economic situation. Counihan expressed optimism about the country's future, highlighting a shift toward stability driven by a government of national unity (GNU) that fosters collaboration across political divides. He noted that the current environment feels notably more positive compared to earlier in the year, suggesting that South Africa is on a growth trajectory.
Counihan emphasised the importance of energy stability and fiscal discipline for attracting foreign investment, while acknowledging that the global economy significantly impacts local markets. He mentioned that South Africa's reputation is improving, with growing foreign interest despite previous challenges. The conversation also touched on Fedgroup's focus on impact farming and renewables, sectors where they believe tangible investments can yield stable returns.
Both Hogg and Counihan agreed that telling a compelling story of South Africa's recovery is crucial for building momentum and attracting international investment. The dialogue reflected a cautious but hopeful outlook on the nation's potential, emphasising that unity and shared leadership are key to overcoming past obstacles and achieving sustainable growth. Overall, the interview underscored the belief that South Africa is at a pivotal moment, capable of harnessing its challenges to forge a brighter future.
Edited transcript of the interview
Alec Hogg (00:10.643)
This interview is brought to you by Fedgroup.
Alec Hogg (00:20.575)
Paul Counihan and I go back a long way. Paul, good to see you! The last time we met was in your offices in Johannesburg, where you gave me some insights into Fedgroup. You and the top team were there, and it really is an organisation that one warms to. You're innovative, you do things differently, and you have a long-term vision. You've been around since 1990, and I guess, having said all of that, you're also looking at the future of South Africa with a certain amount of excitement—as most people are—but also with trepidation. Is this new government of national unity just going to be another "Ramaphoria" shooting star? That's something I'd like to explore with you. You have many clients.
Paul Counihan (00:55.853)
So, we're going to start with the first thing…
Alec Hogg (01:15.852)
That would be asking you supposedly similar questions.
Paul Counihan (01:20.244)
Absolutely, and Alec, it's great to be with you this morning. Thanks for the opportunity. When you were with us at our offices in Sandton, we shared a bit of the vision we have for the future, and also some insights into our thought processes that informed our decisions. As a specialist financial services company, we really had to hone our skills into certain asset classes and sectors where we believe we can carve out more stability going forward for South African investors. That's really our focus area. We're a proudly South African business, and we believe heavily in South Africa. We're sitting back and genuinely enjoying what we're seeing at the moment. We are proud of what the country is achieving. But we're also realists, keeping our eyes and ears open for potential pitfalls and how we, as a business, can react to those while providing certainty and stability for an uncertain future. That said, I think you would agree that the future looks a bit more positive than it did at the beginning of this year.
Alec Hogg (02:35.709)
A little bit? No, Paul, I disagree—it's a heck of a lot more positive. It's been so interesting to me that Francois Crohan and others in their research have said that South Africans are conservative. Yes, you get these crazy individuals on the fringes who try to make trouble for the rest of us, but actually, as a nation, all we want is a better future for our children, to get rid of this corruption, and move forward. Maybe at last this is happening. Do you see it that way?
Paul Counihan (03:10.11)
Absolutely. Thinking about it, I probably underemphasized the difference. It really has been a tale of two halves this year, hasn't it? It's almost like my golf game—playing a decent first nine but somehow fizzling out on the second. The first half of the year was tough, with a whole bunch of things going wrong. But now, absolutely, we're in a purple patch driven by many positive things happening simultaneously. I like to say that we are fully plugged into the global economy. Often, what we achieve when things are going well—like they are now with positive signs and green shoots—is 50% due to our efforts and 50% luck that we create. We need to influence our future because we aren't always in control of the global economy and the marketplace. Events like the upcoming US elections will affect us.
Alec Hogg (04:32.319)
That's a very good point. Often, we get buffeted by the waves, almost like South Africa is just a cork on the ocean. The government of national unity seems almost a miraculous development, given what could have happened otherwise. But surely it's not the silver bullet.
Paul Counihan (04:52.915)
Absolutely. It's not the silver bullet. What we're seeing at the moment is the new family dynamics playing out, almost like a modern family. This new South African family will face challenges and learn how to navigate each other's boundaries. The important thing is that there's a genuine sense of pulling together politically for the first time in a long time. We went to the polls earlier this year, the results were fantastic, and we're moving forward in a remarkable way. Global communities are noticing this, which is significant. Despite foreign direct investment being at an all-time low, we are seeing genuine interest in South Africa. They understand the squabbles we face and have seen this movie before. As we move toward exiting gray status and achieving energy stability, the money being committed will start to flow. That's incredible for our country's stability. The GNU has created a platform that allows South Africans and the world to identify with a positive future for South Africa.
Alec Hogg (06:51.251)
You mentioned that you're sensing foreign interest. Is it going to take another 200 days of no load shedding and another 200 days of the GNU before they open their wallets?
Paul Counihan (07:05.801)
Maybe not. There are a few leading indicators that suggest positivity. Foreign investors look for growth, which is a major indicator. Uninterrupted electricity supply and the GNU are clues that South Africa is on a growth trajectory. We're expected to grow at around 1.6% on average over the next three years. Continued energy stability is crucial, but any disruption could create a wobble. One interesting component of GDP is fixed capital investment, which represents spending that builds value versus consumption. We need to see at least 2.5% to 4% of our GDP allocated to value formation capital to achieve the desired growth. As long as we maintain fiscal discipline, energy security, and the GNU is effective, we can encourage investment from both local and foreign sources.
Paul Counihan (09:23.474)
It's an important expectation. We expect to exit grey list somewhere between February and June next year when we are reassessed. The challenge, Alec, is that since we're in a purple patch, expectations have risen. If we don't meet these expectations, the fall may be harder. A year ago, our expectations were low; now, they are much higher. If we miss critical targets like exiting grey list, the global community may be unforgiving, though we might understand the situation better ourselves.
Alec Hogg (10:23.643)
It sounds a lot like 2018—Ramaphoria, Cyril's big smile all over the front pages. We got excited that we had missed a bullet with Mr. Zuma, but then it kind of fizzled out. This time around, do you feel it won't fizzle out? Is this time different?
Paul Counihan (10:29.607)
I really do. There's less talk and more tangible actions and measurable outcomes within our control. I believe we have a better understanding of what we need to achieve. The GNU has provided a solid foundation for realignment and collaboration in the political landscape, which helps other elements come together. However, I believe we are still 50% masters of our destiny; the rest depends on external factors. No one knows how the elections will unfold, and we are dealing with a two-horse race. Global dynamics, such as what's happening in China, will also affect us. We recently saw some weakening in the rand, which is largely unrelated to our actions. A strong China is beneficial for South Africa due to our export markets, so any loss of confidence there can hurt us. While it's a privilege to be part of the global community, we often feel the impacts in a big way.
Alec Hogg (12:14.324)
Thanks for saying that, Paul. When we produce geopolitical news, our partners at The Economist and the Financial Times have their fingers on the pulse of global events. However, we don't see as much interest from South Africans in global politics, as local politics seems to be a spectator sport. We must keep an eye on what happens elsewhere, given that this is a very open economy.
Paul Counihan (12:44.295)
It is indeed a superbly open economy. As investors, there's been a huge shift toward diversifying globally. This year, being invested in the rand has proven to be beneficial, as it has been a strong currency for good reason, despite our grey list. Understanding the importance of diversification is crucial for both investors and citizens. Currently, our executives are exploring further opportunities offshore as we expand our skillset. We've worked hard to specialise and understand our domestic market, and now we're confident enough to look at aligned opportunities internationally.
Alec Hogg (14:14.057)
Apart from everything else you do, you're known as specialists in impact farming and have taken a leadership role in the renewable sector. Are you looking at international impact farming opportunities?
Paul Counihan (14:31.643)
Absolutely. It's a funny story—I remember when I started at Fedgroup. I arrived at a farm visit in my work shoes and a suit, which I've never lived down. Now, I happily run around in my fellies and leave the jacket behind when we're on the farms. We pride ourselves on tangible impact assets, which provide stable returns. For over three decades, we've focused on tangible sectors like impact farming and renewables. Through this, we've created a successful impact farming platform. We genuinely see lower risks in these alternative assets, which we find to be incredibly predictable based on decades of analysis and data. Yes, we want to deepen our understanding of global markets. We've been called on to advise global partners because we can showcase how well we've been doing locally. Our reputation is growing internationally as we prove that impact farming and renewables can yield positive returns and environmental benefits. This may open doors for further investment, creating value and growth that benefits us all.
Alec Hogg (15:58.187)
So, would you say that at the end of the day, what we really need is a great story of a successful South Africa to build momentum, both locally and internationally, to attract foreign investment?
Paul Counihan (16:12.323)
Exactly. And I believe that's what we have. We have a story that shows how our situation can improve. We're no longer a pariah state; we're now being welcomed back into the fold. The world sees South Africa is on a recovery trajectory and is paying attention to how we handle the challenges. People are seeing our unity and efforts to move past divisions. If we can maintain this path of shared leadership, I believe we'll see more interest and investment.
Alec Hogg (17:03.865)
Well, Paul, I do hope we get there. Thanks for your time this morning, and I look forward to further conversations.
Paul Counihan (17:09.831)
Thanks, Alec. It was a pleasure.
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