Stephen Cranston Associate editor
Kuben Naidoo. Picture: BLOOMBERG
Kuben Naidoo. Picture: BLOOMBERG

SA can expect only modest cuts in the repo rate, Reserve Bank deputy governor Kuben Naidoo says.

Speaking at the Alexander Forbes Umbrella Fund conference in Pretoria on Monday, Naidoo said he expected it would be a shallow cutting cycle.

This is in spite of an imploding economy in which GDP growth has fallen from 1.5% in 2015 to 0.3% in 2016 and into negative territory for the first two quarters of this year. Naidoo said SA was getting poorer in per capita terms even before that.

He said a recovery looked unlikely so long as there continued to be mistrust between the public and private sectors. Much of the private sector was holding back on local investment as policy uncertainty continued, and the JSE was dominated by rand hedges such as Naspers, British American Tobacco and AB Inbev.

He said many companies found the African continent to be more attractive than home. As recently as in 2014, SA invested more in the rest of Africa than China did.

The Reserve Bank could not afford to cut rates too aggressively because of the risks to inflation, he said. "And when it says we are targeting a 3% to 6% range it doesn’t mean we would be happy with 5,99%, 4.5% is more like it."

Naidoo said SA had experienced an exceptional increase in output in the five years leading to May 2011. At the time factors such as load shedding and the National Credit Act took some of the fizz out of the economy. But during those years unemployment fell from 30% and 22% and the number of people working increased considerably. Unemployment, according to the Reserve Bank’s measure, has since increased to 27%.

Naidoo said it would take 30 to 40 years of the right policies to bring unemployment to the level of developed economies. But, he warned, we should not be in denial about the impact of technology as even skilled jobs become automated.

He predicted that robo advisers, not humans, would deliver financial advice to all but the richest 2% of the population, who had more complex needs.

He said that SA’s problem was not just that the general standard of maths was so poor, but that even the maths taught in the elite South African schools was inadequate.

Naidoo said that the low South African savings rate, of about 16%, was well below India’s 24%, for example. This was partly because of the higher dependency ratio in SA, where one worker might be supporting up to 10 people. One of the problems was that just 42% of people of working age in SA were in employment (including the informal sector) compared with 60% in India.

Another reason for low savings was SA’s lax pension preservation regime.

In SA, the average worker is retrenched three times in their life and each time is allowed to spend their pension pot.

Another factor, Naidoo said, was that short-term insurance was underdeveloped in the middle and lower end of the market, which hit people when there were disasters such as fires or car accidents.

Naidoo said he believed South African citizens were unusually susceptible to scams such as Ponzi schemes.

The paradox was that SA had one of the highest levels of contractual savings in the world, equivalent to eight times national income. Often this was offset by debt on the other side of the personal balance sheet. Naidoo said contractual savings should grow quicker while debt should be temporary.

The amount of wealth in people’s own homes was also significant. But perceptions of wealth had also been affected by the strength of the JSE, which is up five-fold since the 2008 global financial crisis.

Naidoo said that people should not expect to maintain their recent standard of living. Ageing baby boomers and Generation Xers should not expect to rely on their children for financial support, he said.

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