Reflections
R
Five- to 15-year scenarios: South Africa
What will the South African economy look like in five, 10 and 15 years? Benn’s five-year view is that the country will normalise back to its sustainable growth rate, which is GDP growth of 2-2.5%.
“We’ll get out of the doldrums, but we’d need a very favourable global environment to push higher than that.”
Looking at the 10-year scenario, Benn says the high road would suggest 3-3.5% growth. “But that’s a very positive outlook and will hinge on whether Cyril Ramaphosa gets two terms and gets the policy framework right. There could be quite significant job growth and a fairly significant transformation of the economy. There’ll be a strong emphasis on skills development and education, which is good. There’ll also be a lot more business investment.”
Benn adds that the National Development Plan (NDP) provides a very sound framework for economic growth and the transformation of the South African economy by 2030. However, delivery has been underwhelming, largely because of political interference and corruption. This means the Ramaphosa Cabinet will need to act swiftly to build up capacity and skills within government departments and parastatals to avoid falling into the same trap. “There’s already been significant action to address corruption and we’re likely to see significantly more urgency when it comes to delivery,” he says. “Ultimately, the success of the NDP over the next 10 years will depend on the extent to which corruption can be rooted out and policies can be executed.”
Benn believes the 15-year view wouldn’t be much different from that of the 10-year view, with 3-3.5% GDP growth predicted. “South Africa will still labour under a two-tier economy. These things take decades to fix and we’ve got 23 years of waste behind us, where very little was done to transform the economy and education system or enable the youth to develop skills. These things can only be corrected over a 20-year time horizon, but I see a positive environment if all goes well,” he says.
Five- to 15-year scenarios: the world
Looking at the global economy, Zangana says Schroders’ five-year view is that there will be reasonably good growth for the next two to three years, with the possibility of recessionary
concerns starting to arise by years four and five.
“Usually you get a business cycle every five to eight years and we’re well advanced in that phase. But thanks to fiscal policy in the United States, we’re going to see an extended economic cycle this time around, so I’d say the next three to four years could be good.”
Over the 10-year scenario, Zangana predicts a recession followed by a recovery and, overall, reasonably good growth for the period.
“For the 15-year view, you’d anticipate at least two recessions over that period, although you’d expect growth to start to slow on a structural basis, especially in Europe and the United States,” he says. “This is because of an ageing population. The demographics are slowly, but surely getting worse and the growth in the working-age population is going to fall and, in some countries, shrink outright – a bit like Japan over the past two decades. So we can expect world growth to slow over that period.”
Final advice to South African investors
Benn says investors must be aware that investment time horizons should never be less than three years. “We don’t recommend any shorter time horizon,” he advises. “In fact, we prefer five years and beyond, particularly when it comes to buying equities, which – by their very nature – are a long-duration asset.”
No matter how diligent fund managers may be, it remains extremely difficult for them to spot potentially bad investments, simply because they are on the outside looking in.
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