Much is made about the cost to the country of the billions of Rands that have been squandered or stolen by Government over the last decade. However, I believe there has been and still is an equally serious hidden cost in the form of many South African businesses, entrepreneurs and investors being cautious of making long term investments in the country, due to a lack of confidence.
To be clear, I’m not talking about investing in highly liquid listed local asset classes, such as equities, bonds or cash – although these have not exactly proven to be overly attractive either.
The S&P 500, for example, has delivered a total return of nearly 100% in the past five years, the NASDAQ 147% and the MSCI World Index 131%. Even the 10 year US Treasury bond delivered a return of 12%.
In contrast, the total return in rands for the SA general equity market over the same period is around 30%. The return in US dollars is down 13%.
While these returns are worrying, what concerns me more is the reluctance of South Africans to commit funds to longer term plays such as new businesses, infrastructure and property.
According to the 4th quarter business confidence index by Rand Merchant Bank and Stellenbosch university’s Bureau for Economic Research, confidence is now at the lowest level since the second quarter of 2017. The index declined from a revised 34 points in the third quarter to 31 points.
I completely understand the impact that this lack of confidence has on investment decisions. Over the last year or so I have been presented with a number of interesting opportunities to invest directly into local businesses, venture capital and Section 12j funds and property. When assessing these opportunities, what ultimately tipped the scales in favour of not investing in some (not all) of these ventures was a lack of confidence in the future of the country.
Major issues such as the management shambles and massive debt loads of state owned enterprises (SOE’s), uncertainty on land reform and NHI, unacceptable crime rates, a consistent brain drain, high levels of red tape and poor access to finance for small businesses, a stagnant economy and a hugely volatile currency all combine to raise the risk profile of committing funds to medium to long term projects in SA.
While some may subscribe to the philosophy of Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, who is credited with saying that “the time to buy is when there’s blood in the streets.”, many would-be investors just can’t afford to take that sort of risk.
Especially when there is a whole world of investment opportunities out there. Whenever I am presented with an investment opportunity, I always ask myself – if I was born and lived in some other country, say Japan, and someone presented me with the opportunity to invest in a particular business or fund in South Africa, would I do it? This question helps me take emotion and patriotism out of the process and focus on the actual opportunity and risks.
Make no mistake, I am committed to this country. I have no intention of leaving these shores – it is my home and I love it dearly. I hope to see it succeed and know I need to play my small part in ensuring that it does. But hope is not a strategy.
Potential investors, both local and international, need to regain their confidence in the future of South Africa. President Cyril Ramaphosa seems to get this and he is definitely making the right noises on some of the big issues, such as rooting out corruption and repairing the key SOE’s. Most importantly, it looks like he is trying to appoint competent, appropriate people to key positions.
So I say, keep going Mr President. Give us back our confidence. Do this and not only will the foreign direct investment follow, but the thousands of South Africans sitting agonisingly on the side-lines will unleash their considerable wallets and brainpower on this beautiful land.