The MTBPS Mini-Budget Speech | and the Boks win Strengthens the Rand again, and Buffet

The MTBPS Mini-Budget Speech

On Wednesday, Finance Minister Enoch Godongwana delivered his Mini-Budget Speech (Medium Term Budget Policy Speech – MTBPS). 

Never designed to give the extended detail of the main Budget Speech in February each year, it does outline the overall strategy for the next three years.

This year, we now see SARS collections to be R19,7 billion higher than estimated in our February Budget speech V2.0. This is in stark contrast to this time last year, when we saw that Revenue collections were expected to be R56,8 billion lower than the forecasted amount (albeit well higher than the 2023 year before). 

At the same time, a new 3% inflation target over the medium term was confirmed, meaning the new targeted inflation band is 2-4% per annum, with the midpoint being at 3% per annum.   

Looking at SA’s national debt levels, Treasury shared the gross loan debt summary as;   

 Our view is that the key fiscal metrics were broadly as expected, and continue to point in the right direction. 

Importantly, for the first year since 2008, the debt ratio will not rise, though the peak in the debt ratio is slightly higher than projected in the February Budget. As it trends lower, the debt service burden will decline gradually.

At the same time, as good as all this news was, the next non-negotiable is for better national GDP economic growth. 

SA’s economy is projected to grow at an average of 1,8% over the medium term. However, the National Treasury has lowered its GDP forecast for this year to only 1,2% versus the 1,4% in the May main budget. It’s great that tax collections are far higher than previously expected and that inflation is lower, but in the longer term, we simply need greater economic growth. 

Overall, the market favoured the speech, where for many it was better-than-expected, even on the higher expectations beforehand. Bond and equity (share) markets, as well as the Rand currency, strengthened strongly on Wednesday afternoon in response immediately after the speech, the Rand breaking below the key R17 to the US dollar resistance level yesterday.  

A few weeks back, on 10 October, I mentioned, rather tongue-in-cheek, “of course, this is by no means statistical, it is very noticeable that the Rand currency was stronger whenever the Boks played well”. 

This was also in the context of anticipation of the SA’s grey-listing removal, for which we said at the time that if this came through, it would be expected to be accompanied by a strengthening of the Rand. I therefore said at the time that “should we see this, I’ll stick by my story, and say that we still need to at least give some credit to the Boks”.

The further Rand strength on the MTBPS this week – I’ll again have to at least give some part-credit to the Boks, after their stunning win against France last weekend.  

Ratings Agencies Update Later this Afternoon

Later today, SA will receive a further credit rating review update from S&P Global Ratings, which assesses South Africa’s long-term foreign debt, currently rated BB-, three notches below investment grade. 

Earlier this week, Goldman Sachs was quoted as saying that although it’s still too early for an upgrade, this is now on track for early next year. At this stage, just an increased positive outlook with good commentary this afternoon will signal growing confidence in the country’s fiscal consolidation efforts and be (further) positive for local markets and the currency.  

In turn, Ninety One and Investec’s Annabel Bishop was quoted as saying, “With projected debt levels lower than before, and growth likely to ramp up towards 2.0% y/y in the medium-term as the domestic freight crisis shows clear evidence of lessening, several factors are aligning for a credit ratings upgrade”. 

After 10 years of decline, has South Africa turned the corner? | SA’s top 20 CEOs

Adrian Enthoven, a board member of Business Leadership South Africa (BLSA) and CEO of Yellowwoods, recently interviewed South Africa’s top 20 CEOs, asking if the country has economically turned the corner. 

“Just to be clear, this is not to say our economic picture is suddenly healthy, but has the trajectory changed?” 

“Discovery’s Gore has spoken frequently about how South Africans are particularly prone to“declinism bias”. The term was coined by the German historian Oswald Spengler in his book The Decline of the West. In the “declinism” cognitive bias, individuals view the past more favourably than the future, and believe that society, culture or civilisation is in decline.

There is a clear explanation for this phenomenon in biological evolution: our survival instinct required us to prioritise the negative, always scanning for threats that could harm us. This is precisely why the media feeds us a steady diet of bad news — because we are biologically wired to give it more attention. Moreover, when we approach the world with a negative mindset, we are more likely to seek out information that validates that fear. This is called confirmation bias, and it locks us into a vicious, self-fulfilling cycle of determinism that prevents us from seeing positive patterns or the new opportunities emerging.

Since we do not need to have the same survival instinct when thinking of the past, positive memories are more likely to be recalled. The contrast between our negative view of the present and our positive view of the past results in “declinism,” where we believe that things are getting worse and worse.

Even when we strive to assess our circumstances objectively, the fact is that our brains still operate subjectively. Our immediate emotions — those currently skewed by the negativity bias — carry disproportionately more weight than our past emotional experiences. This present bias leads us to conclude that current conditions are worse than they truly are, and, critically, that this downward trend is fated to continue.

We must overcome negativity and “declinism” and recognise the great strides we have made, which have created a positive trajectory for our economy.  The frog does not recognise the rising temperature until it is boiling, but it seems the reverse is also true. We need to recognise that not only are some of our most intractable problems solvable, but we are solving them.

To conclude, after a decade of decline, South Africa has turned the corner. 

Our economic trajectory is once again positive and improving. The structural reforms, which have not received the attention and recognition they deserve, are fundamentally transforming our economy and have unleashed an unprecedented wave of investment into the network industries. If sustained, they will be the impetus to start spinning our economic flywheel, unleashing a virtuous cycle of confidence and investment that will accelerate economic activity and drive prosperity for decades to come.

We have collectively achieved what was considered impossible — reversing years of economic decline. But the path ahead requires persistence, purpose, and every deck hand. It brings to mind the call of President Jan Brand, well known and much admired by my Free State family: “Alles sal reg kom as elkeen sy plig doen [Everything will come right if everyone does their duty].” 

Our task now is to focus with unwavering resolve on safeguarding these hard-won gains and completing the structural reforms necessary to build a foundation for durable prosperity for all South Africans. DM

You can read the full article via the Daily Maverick by clicking on this link: After years of decline, has South Africa finally turned the corner?

Market Expectations 2024 | What We Said a Year ago 

It’s always interesting to look back and see how market events unfolded compared to our previous expectations. 

From my Friday article 15 November 2024 last year, Izak Odendaal, as our chief investment strategist, shared his detailed thoughts on both the SA and international markets and events, as Donald Trump was coming into his 2nd presidential term, and further global geopolitical risks were unfolding.    

“Video Recordings - Izak Odendaal 

Economic Overview by Izak Odendaal. 

Izak Odendaal is our chief investment strategist, and he speaks economics from a local investor point of view. 

This was recorded just before the US election, during which Izak freely shared his frank assessment and opinions. This includes a discussion on the local political environment, our GNU's progress, and how this fits into the global perspective.   

To view this recording, click on the link below; 

Our clients invested with all this in mind, have benefited very well over the last year.

What Could Be Warren Buffett’s Final Words 

The 95-year-old Oracle of Omaha shared some powerful lessons this week, in what may be his final letter to shareholders (other than his intention to still do his annual Thanksgiving letter), telling his followers, "I'm going quiet" in his full letter attached. 

It reads less like a financial document and more like a masterclass in humble leadership and legacy. 

The most enduring part of the letter wasn’t financial. Buffett didn’t talk about markets, mergers, or money; rather, he talks about life, leadership wisdom and sound judgment for maybe the last time.   

From his attached letter in closing;

A Few Final Thoughts

“One perhaps self-serving observation. I’m happy to say I feel better about the second half of my life than the first. 

My advice: Don’t beat yourself up over past mistakes – learn at least a little from them and move on. It is never too late to improve. Get the right heroes and copy them. 

You can start with Tom Murphy; he was the best. Remember Alfred Nobel, later of Nobel Prize fame, who –reportedly – read his own obituary that was mistakenly printed when his brother died and a newspaper got mixed up. He was horrified at what he read and realised he should change his behaviour.

Don’t count on a newsroom mix-up: Decide what you would like your obituary to say and live the life to deserve it.

Greatness does not come about through accumulating great amounts of money, great amounts of publicity or great power in government. When you help someone in any of thousands of ways, you help the world. Kindness is costless but also priceless. 

Whether you are religious or not, it’s hard to beat The Golden Rule as a guide to behaviour. I write this as one who has been thoughtless countless times and made many mistakes, but also became very lucky in learning from some wonderful friends how to behave better (still a long way from perfect, however). 

Keep in mind that the cleaning lady is as much a human being as the Chairman”.

Friday Finish Line