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Opportunity Issue 100

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Opportunity magazine is a niche business-to-business publication that explores various investment opportunities within Southern Africa’s economic sectors and looks to provide its readers with first-hand knowledge about South African business. Opportunity also looks to present South African business to international markets that may have interests in investing in South Africa. The publication is endorsed by the South African Chamber of Commerce and Industry (SACCI).

INVESTMENT The influence

INVESTMENT The influence of the 2021 economy on potential 2022 investment factors George Herman, Director and Chief Investment Officer at Citadel, the specialist wealth management company, describes the current economic outlook and outlines the investment factors to be considered in 2022. Medupi power station. Stable energy supplies are vital to attract investment. Credit: Eskom Global economic cycles, commodity prices and interest rates have favourably impacted the South African economy, despite some negative repercussions resulting from the pandemic. A spurt in domestic consumer demand and a restrained inflation increase are other contributing factors resulting in a record year for the country from a macro-economic perspective. The events of 2021 will have an influence on the potential for investment in 2022. Global inflation is on the radar The global demand for commodities works in favour of the rand, also increasing export earnings, while oil imports plummeted during lockdown. Global inflation, however, should be kept top of mind as it appears global growth has peaked and will likely start to decline while the energy crisis in Europe and global supply-chain bottlenecks are already promoting global inflation. In addition, global trade is decelerating and global monetary policy will consequently lead to higher interest rates. Economic growth targets unlikely to be achieved Says Herman, “Taking population growth and productivity growth into consideration, South Africa should be able to achieve a real economic growth of 2.5%, but there are certain factors working against this target which are likely to result in the economic growth in 2022 being less than half of that attained in 2021. Realistically, we can expect an average real growth of about 1.5%, as has been the case over the past decade.” This does not bode well for employment, since the formal sector has already lost 1.5-million jobs in the wake of the pandemic and further pressure on employment could increase the risk of both social and political unrest. Policy certainty is key Policy certainty is a critical necessity for South Africa, particularly with regards to strategic issues where policy needs to be divorced from political influencers and based solely on economic realities. “Ideally, South Africa requires a significant overhaul of the current inflexible labour laws; realistic strategies for alternative versus carbon-based energy; stable and 26 |

INVESTMENT reliable energy supplies; and an end to the uncertainty surrounding land ownership with a definitive spectrum auction,” says Herman. Investments, risk markets and equities “In the investment arena, global inflation remains in the spotlight. If central banks resort to tighter monetary policy because of inflation, rates might need to be increased earlier or faster than currently anticipated and consequently risk markets will experience a risk-free rate shock,” says Herman. It is uncertain whether quantitative easing can be removed from the system without causing a collapse in global growth or asset valuations. Central bank balance sheets have reached unprecedented levels and need to be capped and reduced. “Equities have reached new heights thanks to a surge in earnings and equity valuations have therefore been re-rated lower. This is good news for the central bank reflationary strategy, though further earnings growth is needed to prevent risk-reversals. “The pandemic significantly hindered any solid investment or new business opportunities, including property-related investments. Investors have therefore tended to stick to listed markets, also preferring well-structured, long-term investment solutions,” notes Herman. Looking ahead “In terms of the rand’s prospects for 2022, we can expect marked fluctuations related to the prices of specific commodities. Industrial metals are considered a driving factor of global growth and South Africa as a commodity-exporting country is subject to global growth dynamics. Strength in base metals will lead to a stronger rand that is relatively unaffected by the macro-fundamentals of either the country or the economy. However, any deceleration of global growth will lead to concomitant weakness of the rand as demand for commodities declines,” concludes Herman. President Ramaphosa welcomes an investor to the Atlantis Special Economic Zone, wind turbine tower manufacturer, GRI Towers. Credit: GRI SA Investment Conference The fourth South Africa Investment Conference will be held in March 2022. Postponed from 2021 because of a variety of events such as local government elections and COP26, the conference will again seek to market the country as a investable destination. Over R650-billion of investment commitments have been made at these conferences, as leaders from business, government and the investment community forged relationships and explored ways to reignite growth in South Africa. In 2020, nearly R120-billion of investment commitments flowed into new projects or expansion of existing projects. A major topic in 2021 will be growing African integration through the African Continental Free Trade Area. AfCTA allows for African countries to work together in a trade tariff-free environment, making Africa a dynamic force in the international arena. ABOUT CITADEL Citadel is a specialist wealth management company with over 28 years of experience in providing holistic financial solutions. Citadel enables its clients to explore the true potential of their wealth by presenting them with tangible advice and solutions. Citadel offers a variety of services including investment advice, asset management, risk management, estate and legacy planning (fiduciary) and philanthropy. Kindly note that this article does not constitute financial advice. For more information about Citadel and its services, visit @Citadel SA George Herman | 27

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