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Discovery CEO Adrian Gore with President Cyril Ramaphosa. Picture: Freddy Mavunda
Discovery CEO Adrian Gore with President Cyril Ramaphosa. Picture: Freddy Mavunda

In the next week or two, more than 20 JSE-listed companies are expected to release financial results. Their fortunes are expected to be mixed. Those of commodity companies such as Sasol, Anglo American Platinum, Anglo American and Kumba will naturally be pinned to their underlying commodity baskets (which at spot prices don’t look too shabby).

More domestically focused companies such as Spur, Woolworths, City Lodge, Curro and Motus will reveal a performance affected by a variety of factors: the post-Covid recovery in business activity; effects of necessary cost-cutting initiatives; business disruptions from the unreliable electricity supply and, more pointedly in the review period, the July 2021 riots; sharply rising input costs; slow vaccine rollouts; and a constrained consumer spending environment.

These factors are sure to be cited upfront in virtually all the investor presentations released with the results.

This is not new. For the past few years, these kinds of opening slides have become standard scene-setters — a window onto the macro-environment businesses say they are subjected to in SA. The list almost always cites challenges (rather than opportunities or tailwinds), and often accurately includes points such as fragile consumer confidence; high unemployment; rising poverty and inequality; an increasingly onerous regulatory burden; a volatile currency; a deteriorating fiscal position; political challenges; and policy instability and inaction.

With this mounting wall of challenges, it’s hard to imagine any investor is optimistic that finance minister Enoch Godongwana could offer much hope in his inaugural national budget speech.

A popular quote, attributed to Mark Twain, holds that "history doesn’t repeat itself, but it often rhymes". A lesser-known but related quote is from Voltaire, who said: "History never repeats itself; man always does."

This is perhaps the unenviable position in which the minister finds himself. It is hard to imagine he will be able to outline a compelling, investor-inspiring budget that is different in substance to those of his recent predecessors.

Any household’s budgeting, spending and saving is evident in the family’s income statement and balance sheet — and the national budget functions in the same way. And, just as the average South African is at best employed informally, with uncertain income and mounting debts, so the country’s financial situation is tenuous, too.

While Godongwana might have the benefit of high commodity prices and tax collections bolstering income projections, the expansion of social and income grant payments, and narrowing tax base, do not bode well for the sustainability of SA’s finances.

Businesses have lost virtually all trust of being able to operate in a supportive, let alone an enabling, environment

But this is only where the finance minister’s predicament begins.

President Cyril Ramaphosa, in his recent state of the nation address, emphasised that "the state of the nation is linked inextricably to the state of our economy" and that the cause of record unemployment in 2021 was a direct result of low economic growth, which in turn was a result of a long-term decline in investment.

Ramaphosa emphatically conceded that it is business, and not the government, that creates jobs. But for business to do so, the government must "create the conditions that will enable the private sector — both big and small — to emerge, to grow, to access new markets, to create new products, and to hire more employees".

Given the government’s abysmal track record of implementing some of the most important and critical economic reforms, businesses in the formal sector — many of which are represented on the stock market — have lost virtually all trust of being able to operate in a supportive, let alone an enabling, environment.

Opportunity in adversity

Structurally declining or weak economies only present certain kinds of opportunities, you see. Virtually every large-business leader I have engaged with in SA speaks of running their core domestic business with a defence — not an offence — mind-set. Yet the economy and the country need large businesses to operate at scale — which is when they employ at scale, have long production runs, generate meaningful operating leverage, build further big factories, and deploy additional capital.

These businesses don’t see the inequality in SA just as an insurmountable reality but, ironically, as an opportunity too. A country with our age demographic and low per-capita consumption creates an exciting canvas for growth.

Any businessperson or investor who continues to allocate capital to local businesses has a sense of real faith in better days ahead — but, tragically, little trust that the actions of current decision-makers will turn that genuine hope into reality.

*Govender is chief investment officer of Perpetua Investment Managers


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