Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients,.

A victim can never be a victor unless they change themself into one. Consequently, a country stuck in a prevailing ideology of victim mentality cannot create sustainable, inclusive economic growth. Put differently, it cannot create wealth, which includes skills, jobs, and opportunities.

Unfortunately, there seems to be a growing sense of victim mentality among South Africans. It also seems as if it is not just the younger generation stuck on misguided ideologies like wokeism but many benefactors of government redistributive policies, including employment schemes, grants, and tenders. Victims, like pessimists, hold on to the past. They are unable to take responsibility for their own lives, despite the environment, and are unable to work toward the creation of a brighter future for not only themselves but also those around them. Victims, therefore, often have a strong sense of entitlement and self-enrichment

In South Africa (SA), victims look for a hero leader or hero party to save them. They are not looking for someone who can change them. They look for someone who speaks to their mentality and entitled wants, not their needs. They also often hold on to empty promises and are unable to make tough choices by discerning and accepting truth objectively. The end of this three-decade-long process is a downward spiralling poverty trap: An increasing number of individuals who are dependent on redistributive policies that are insufficient in producing enough wealth or, put differently, sustainable, inclusive economic growth to meet the unending wants of victims.

What is more concerning is the current choice around which government must lead our country that is stuck in a victim mentality. Most of the options that voters have in SA give them what they want and not what they need; they give them more dependency (grants, tenders, employment schemes, etc.) and not more freedom (skills, opportunities, etc.). Instead of having accountable leaders who can inspire victims towards a victor mindset – as we have seen in countries like Singapore, Mauritius, maybe even Botswana, Latvia, and Estonia – most leaders in SA put politics ahead of the country.

For this reason, after the election in May, we will, most likely, see more of the same type of results that we have seen in the past decade of ANC rule. Unless some unexpected, positive external shock occurs, economic growth will remain too slow to create jobs, and unemployment will continue to increase. Standards will continue to deteriorate, including those at schools. Infrastructure will worsen, state-owned enterprises will fail, and we will maybe have a slightly improved electricity supply but only if the private sector (including households) starts to produce more of their own electricity. And so, the list goes on.

That being said, there is another ideology, albeit only among a handful of individuals currently. Individuals who are action-oriented optimists. A remnant of individuals who do not seek redistribution but opportunities to create wealth. Individuals who take responsibility for their own lives, despite the faltering macro-economic environment. From this mindset, we expect to see another type of party emerge or become more prevalent in the years to come. A party that has the wisdom to deliver budget surpluses and the integrity to execute effectively. A party that has the courage to make tough strategic trade-offs and who can, therefore, win the rural vote but also the urban vote. A party that understands the nuances of victim mentality and how to change it, slowly, over time, into a victor mindset.

So, instead of abstaining from your responsibility to vote, we encourage you to vote. Every vote has the potential to steward this ship towards the change that we need to get SA out of its yesterday into the fullness of what it can be.

Instead of merely reciting interesting numbers, our aim has always been to try and tell the story behind the numbers. The reason for this is simple: Stories relay the deeper truths behind numbers. The story behind this year’s Budget is an interesting one, mostly because it was so masterfully orchestrated. Maybe even as well as one of the Fitzgerald or Hemingway classics.

From his opening remarks, the minister gave a Shakespearean effort to set a tone that would appeal to all those who have an appetite for Budget announcements, which, in South Africa’s case, exclude the masses. The Budget rang a perfect pitch in the ears of anyone who believes in market efficiencies, i.e. capitalism. To paraphrase the minister’s capitalist remarks: We are at the end of what is possible with redistribution; we must first increase the size of the economy through prudent management and execution; we must reduce spending; we must spend more efficiently; and so on. Nothing was said about the National Health Insurance Bill, the basic income grant, or higher taxes that will be needed imminently.

The minister’s song had such a pretty lull to it that one could easily be hypnotised into forgetting the absolute dismal results that the ruling party has to show for the last 30 years, their lack of accountable leadership, and their absolute inability to execute effectively. It was, therefore, a masterpiece of political electioneering aimed at a particular crowd: Higher-income households, city dwellers, investors, capital markets, and everyone leaning more right.

Only three days later, during the launch of their election manifesto, the same ruling party promised to implement prescribed assets for pension funds, establish a sovereign wealth fund, run an expansionary fiscal policy to support growth, consider levying export taxes, and protect certain local industries. During other campaigns, there have been promises of homes that will be redistributed, and jobs that will be created. This is much more in tune with what we have come to expect from the ruling party: Socialism, redistribution, and their inability to create sustainable, inclusive economic growth. These will all require higher taxes, much more spending, much less free markets, and much more state intervention. Almost the exact opposite of what we heard during the Budget. This was yet another masterpiece of political electioneering, this time aimed at everyone else.

The story then behind it all is that nothing has changed in the ruling party and, by implication, for South Africans. The ruling party, and a few other heavy hitters, have lost their way. They confuse distribution for wealth creation. They confuse keeping people busy with job creation. They confuse having plans for execution. They confuse effort for results. What this means for South Africans is that we must vote; we must vote with our understanding and not with our emotions because change starts with individuals taking more responsibility. For markets, this means that it is more of the same: No growth, a strained rand, and elevated interest rates until real change can come, or until the global cycle completely shifts back to emerging markets, somewhere around 2030 to 2035.

Battered by low wage growth, high interest rates, and increasing debt levels, many South African consumers are in the worst financial shape that they have been in for years, maybe even decades. The result is a persistently weak economy. But, the worst might be over.

A faltering economy, driven mostly by a failing state, meant that salaries and wages in South Africa (SA) failed to keep up with inflation during 2022 and 2023, resulting in a decline in household buying power of about 5%. The danger of plummeting salaries, however, is not just that households stop spending sufficiently to grow the economy but that consumers will need to borrow money to make ends meet. In these tough times, consumers often turn to unsecured loans, which are not backed by any assets, which means banks charge higher interest rates to offset the risk. This usually does not end well for the borrower. The last time there was a boom in unsecured loans (between 2012 and 2014), many households ended up poorer than before because they could not keep up with the interest rates that they were being charged.

In the end, lower incomes and higher interest payments – not least because of the unsustainably high interest rates that the South African Reserve Bank has forced on us – have put South Africans in a very tight spot. Consequently, households have been unable to purchase the goods and services that they previously could afford, putting strain on various sectors of the economy. In fact, we have not seen the services sector perform this poorly, so consistently, for a very long time. The reason for this is that SA is a consumer-driven economy with more than 60% of its gross domestic product (GDP) attributed to private final consumption. As such, when households are under pressure, economic growth is under pressure. And if economic growth is under pressure, households are under pressure, and so the vicious cycle continues.

Fortunately, despite the uncertainty of the upcoming elections and the reaction of capital markets, the outlook for 2024 is much different. Inflation has been easing and even the outlook for food prices is positive. Interest-rate cuts may only be a few months away and could be reduced by at least 1%. Even unemployment figures have improved, albeit only slightly. Amidst cooling prices and the resilient nature of recovering enterprises, we are even expecting higher income growth this year. Overall, the purchasing power of households should improve, together with their standard of living, which declined during 2022 and 2023. That being said, consumers will probably only really feel the difference in 2025.

Concerning the upcoming Budget Speech, a few things have caught our attention: President Cyril Ramaphosa is committed to extending a COVID-era monthly payment for low-income citizens until March 2025. These payments can eventually become the basic income grant that he hinted at a month ago, when he said that there is a “strong case” for it despite fiscal constraints. Despite the strain that a basic income grant will place on the fiscus, it might not be all bad news. For one, it will reduce the gap between those who have (jobs) and those who do not, as well as alleviate some of the socio-political tension in our economy. We expect the ruling party will use policies like these as an electioneering tool to win votes in the upcoming election. Many also expect Ramaphosa to sign the National Health Insurance into law. But even if he does, we believe that it will be vehemently opposed in court and will not see the light of day for many more years to come (at least not in its current format). Ramaphosa also intends to fully implement the previously announced pay increases for 1.3 million state employees. Consequently, the consolidated budget deficit should widen to 4.8% of GDP this year, and remain at 4.6% in 2025, a major overshoot of official estimates. We doubt that the markets were expecting anything different and should, therefore, not react too negatively. But we would still advise our clients to brace for impact.