I was recently approached by someone after a presentation who said: “You are always so positive; you must be really embarrassed now.”
I replied by asking him what the value of his house had done over the previous three or four years. “Yes, well that has doubled,” he answered.
“And the value of your South African investment portfolio?” I asked, to which he replied, uncomfortably, that that too had doubled.
The point simply is that we cannot take it for granted that we as South Africans have a divine right to a constant upward trajectory in asset prices. In fact, asset prices are often, but not always, a fairly good indicator of whether things are falling apart. Not one week goes by without letters to the country’s press complaining about how the country is falling apart.
In apartheid South Africa, most of our annual budget was spent on roughly 15% of the population. If you were fortunate enough to have reaped those benefits, the quality of education, health services and policing would have deteriorated for you now that the budget is being spread across the other 85% as well. If, however, you previously received hardly any benefits, then simply having access to a school, hospital and police station must be a fairly tangible improvement.
I had a similar debate with a London-based journalist recently. “Explain to me,” he said, “how it is that all we read about is the problems South Africa faces, yet your asset prices have risen remarkably over the past five years?”
So how does one explain this conundrum? Are asset prices wrong? Are things falling apart? Will asset prices eventually recognise our “issues” and collapse in a heap? Or could it possibly be that asset prices have risen because, despite many problems, we are also getting quite a lot right?
I explained to the journalist that back in 1994 the world gave us no more hope than it gives Iraq today, with a leading global publication stating then that “SA would inevitably slide into civil war, as the level of ethnic tensions between blacks and whites could never be bridged”. Over the next 10 years, we confounded a sceptical world to the point where the world today tends to give us the benefit of the doubt — that despite our problems we can still add value.
What we as a country need to be careful of is that we do not ignore our problems, because they will not go away. Our risk is that we allow one of these problems to become so ingrained in society’s fabric that it is irreversible. Aids, poverty, crime and corruption all have to some degree the potential to overwhelm us irreversibly and the effects of these must not be underestimated. Fortunately we are tackling these challenges from a remarkably strong economic platform, thanks to prudent management of government finances.
Unfortunately, however, our problems get far more air time at dinner parties than those factors that we are getting right. As South Africans, we need to be wary of living like this, as we can actually wind up depressing ourselves.
How many dinner parties have you been to recently where people toast the fact that we are experiencing a record expansion of the South African economy, our longest growth period since World War II? Or that we are creating record numbers of jobs? Or that we are in a structurally lower inflation and interest-rate environment? Or that the stock market is up 280% over the past four years?
Shouldn’t we be celebrating that the economy is growing at 5% plus, that inflation is below 6%, that we are experiencing the strongest commodity bull run for 30 years? That in the first quarter of 2007, earnings in South Africa were up 33% and should be only slightly softer in the second quarter, that we are running a budget surplus, that foreign capital is flowing in and that confidence is at 25-year highs?
The answer, unfortunately, is these facts are not discussed much. Sure, we have problems — some big ones, in fact, that urgently need attention — but no, we are not collapsing. Much is going well, and asset prices are reflecting this.
Jeremy Gardiner is a director at Investec Asset Management