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News

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Thu, 25 Oct 2018
SA ECONOMY, A BREAKDOWN

The World Economic Forum (WEF) has published its latest Global Competitiveness Index, showing that South Africa has dropped five places in the rankings since 2017.

The report measures and assesses the competitiveness landscape of 140 economies, and gives insights into what drives economic growth among them.

This is done through assigning scores to various indicators across 12 key pillars – starting with a country’s institutions, all the way through to the business dynamics.

In 2018, South Africa ranked 67th globally – with an overall score of 60.8 – attaining the second spot in Sub-Saharan Africa. This is down five places from 62nd place in 2017.

According to the WEF, among its strengths, South Africa is home to a large market size (68.4), good infrastructure (68.6) and a well-developed financial system (82.1, 18th).

More specifically, South Africa’s financial sector offers a relatively balanced access to various sources of finance, including credit (100.0, 11th), venture capital (33.0, 63rd), equity (100.0, 2nd) and insurance (100.0, 3rd).

In addition, South Africa’s innovation capability is relatively advanced (44.3, 46th), although limited by insufficient research and development (37.5).

Among its weaknesses, however, South Africa’s performances on the health pillar (43.2, 125th) and security (43.7, 132nd) sub-pillar are among the worst in the world.

Driven by high incidence of communicable diseases and high rate of homicides (34 per hundred population, 135th), these factors are major challenges for the economic and human development of the country.

Low ICT adoption (46.1, 85th) is another important restraint on South Africa’s competitiveness. Only 54% of the adult population has access to the internet, and only 70 out of 100 people have subscribed to mobile-broadband services (66th).

Similarly, the digital skills (116th) and critical thinking skills (78th) of the current workforce are inadequate for the progress of a successful economy in the Fourth Industrial Revolution

 

 The bad news

Among the 98 individual indicators measured by the WEF, South Africa ranks in the lowest quartile (bottom 35 countries) in 13 categories, which emerge as the main factors dragging us down the competitiveness rankings.

According to the WEF’s assessment, much of what’s holding South Africa back competitively has to do with labour and crime – particularly the high rate of murder coupled with an unreliable police force, and the friction between labour and employers that often results in protracted strikes which bring industries to a halt.

Other factors dragging us down the rankings include a lack of digital skills, poor education, and poor healthcare.

# Indicator Rank /140 1 Co-operation in labour-employer relations 136 2 Homicide rate 135 3 Flexibility of wage determination 133 4 Time to start a business 128 5 Organised crime 125 6 Healthy life expectancy 124 7 Reliability of the police service 119 8 Digital skills 116 9 Hiring and firing practices 111 10 Terrorism incidence 108 11 Pupil-to-teacher ratio 107 12 Inflation 106 13 Active labour policies 106

South Africa and crime

The WEF mentions South Africa in two very specific contexts relating to competitiveness – namely security and inequality: two areas South Africa puts in the worst performance.

Globally, performance among all countries is best on Security. Here, the median score is 72 and half of all countries score 75 or above, with Finland (97.5) coming closest to being free from terrorism and crime.

With equal scores of 33.8, El Salvador and Venezuela are the worst performers, but crime and [...]

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Wed, 05 Sep 2018
IS YOUR INVESTMENT PORTFOLIO READY FOR OPPORTUNITIES 20 YEARS AWAY?...

Long-term investing requires thinking about what the world may look like in 20 years from now and allocating capital to those areas of the economy that will grow in relevance.

To capture the prevalent investment themes of the next couple of decades requires a different approach, and access is not always easy. Most opportunities, especially in the nascent stages, are not yet listed and therefore only available through private markets.

However, the hard work can be well worth the effort. Many investors such as pension savers have an investment horizon that spans more than a decade, yet their investment strategy does not take into account the high potential long-term trends that will shape the world into which they retire.

Increasingly, we are seeing emerging global investment themes focused on solving global issues.

The United Nations’ Sustainable Development Goals are a set of 17 global goals that cover social and economic development issues. These include poverty, hunger, health, education, climate change, gender equality, water, sanitation, energy, urbanisation, the environment and social justice.

Unlike the UN’s Millennium Development Goals, which ended in 2015, the Sustainable Development Goals do not distinguish between “developed” and “developing” nations. This represents a significant shift in how investors should view the investment world, namely not as emerging or developed markets but as one world facing multiple correlating issues but from different sides.

Examples of emerging global trends include African urbanisation, where themes such as healthcare and hydropower are driving opportunities in multiple countries.

Namibia is aiming to implement universal health coverage and eliminate malaria in the country by 2020. Meanwhile, Kenya plans to tender for $600m-worth of new contracts for facilities and equipment, oxygen supply plant and information technology systems. All of these developments address key unmet needs that demonstrate investment potential.

Apart from infrastructure, healthcare investment opportunities in frontier markets such as Africa exist in financing medical equipment; cost-effective pharmaceutical production; supply-chain management; fit-for-purpose health insurance; and other new technologies. The International Finance Corporation, the private-sector arm of the World Bank, states in a report that health spending in sub-Saharan Africa is expected to double in the next 10 years. In developed markets, the ageing population is significantly increasing the demand for a variety of healthcare services, products and facilities.

Energy warrants a closer look as a theme of its own. Only about 7 percent of Africa’s enormous hydro-power potential has been harnessed. Investment opportunities exist at a broad level and also in subcomponents of the energy sector. Existing gaps include using biomass to generate heat and power simultaneously, known as biomass cogeneration, as well as large-scale wind power and urban waste-to-energy projects. On the smaller end of the scale but just as significant are small-scale renewables: improved cooking techniques, solar water heaters, wind pumps and small hydro.

Tied to the UN’s aim to end poverty by 2030 is a global theme of food security. The International Food Policy Research Institute estimates that ending world hunger is expected to cost an extra $11bn a year.

Developing efficient agriculture production that takes advantage of innovative technologies and practices [...]

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Wed, 05 Sep 2018
6 IMPORTANT ELEMENTS EVERY FINANCIAL PLAN SHOULD HAVE

As an investment planner at Liberty, in her view, one needs a “full-circle” understanding of what your financial plan is.

She lists 6 important features a financial plan should have:

Budgeting or paying off debt

Personally, Rampersad draws up a monthly spreadsheet. That works for her.

She also uses good budget apps to help her keep track of her expenses – in real time – compared to her income.

“You must identify your spending as you cannot deal with something you do not acknowledge – for instance what you really spend,” she says.

She often gets asked whether it is a good idea to consolidate your debt or not.

“There are two schools of thought. You can do that especially if your home loan interest is lower, but it depends on the rate you pay and how many years you have to pay off your home loan, as well as your age,” she explains.

She prefers only to consolidate debt if the money you put into your loans decreases your repayments.

Saving

Rampersad often gets asked how long a savings term should be. In her view, it should not be more than 12 months.

“When you save, you should save in a short-term, risk-free product like a fixed deposit or money market account,” she suggests.

The reason why she advises one should not breach a 12-month savings term is due to the impact of inflation, which eats into your spending power.

For instance, your spending power could be halved in 10 years’ time due to the impact of inflation. That is why the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) targets inflation.

Investment

After a year of saving, you should then invest the money you saved over that period.

“Investing can be daunting. You need time on your side. You have got to start even if you start with small amounts. All you need is just to get started,” she suggests.

This brings one to the question of what to invest in.

“There are lots of investment products. So, how do you decide? That is where a financial advisor comes in,” she says.

“Tax-free savings products are good. They were introduced because SA has a poor savings culture. Any growth on an investment in such a product will be tax free and each member of the family can open one.”

She says a stokvel is probably the most popular informal way of saving in SA. At least it is a start to save. Yet, she points out that just keeping the money in the pool does not even earn market rates.

By putting a lump sum or lump sums either in unit trusts (even as little as R50 a month) or in a money market account, one can get a lot more growth than just “keeping it under the mattress”.

Insurance

Risk planning should actually be your starting point, suggests Rampersad. In her view, the value of a good financial planner comes to play here too.

Retirement

In general, women save about a third the amount a man saves at the same age. A 65-year old woman, when she retires, needs more [...]

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