Cautiously optimistic despite the fragile economy

ARTICLE BY

SHARE THIS POST

After a highly challenging year, in hindsight we might view 2018 as a decisive one in our history and consciousness – where we broke free from both the legacy of 2007 ANC Polokwane Elective Conference and the debilitating pull of the 2008 global financial crisis (GFC).

While it may not feel like it right now – there are grounds for cautious optimism. 

Major economies made progress in 2018 in terms of normalising monetary policy from the abnormal and exceptional policy in place since the GFC. The US Federal Reserve (US Fed) raised interest rates by one-quarter percentage points four times in 2018 (and a cumulative 2% since it started hiking in 2015) and continues to reduce its stock of US government bonds by $50 billion per month, while the European Central Bank ended its €15 billion monthly purchases of government bonds in December (after reducing it to €30 billion last October) and could hike short-term rates in 2019 shortly after the European summer.

According to the South African Reserve Bank (SARB), more than one-fifth of emerging economies also raised interest rates in 2018 (compared to less than one-tenth the previous year). The gradual normalisation of global interest rates is positive for financial markets after years of distorted policy where interest rates were kept abnormally low.

Of course, interest rates are still low compared to their longer-term averages, and the Fed this year indicated it might pause it its hiking cycle. But, compared to where we were not too long ago, the world is in a better place. This is especially true with inflation. Four years ago, no developed economy had an inflation rate above 0.5%, whereas many are closer to 2% today. It’s important because having some inflation in the system eliminates a significant negative tail-risk for the global economy, as it makes developed economies debt burden far more manageable.

While global growth slowed in the last two quarters of 2018, the IMF still expects the global economy to grow at 3.7% in 2018 (and 3.6% in 2019). The SARB in turn is expecting the SA economy to slowly pick up to 2.2% economic growth by 2021, after having grown by just 0.7% in 2018.

These SA growth expectations look reasonably pessimistic, and it is not unreasonable to think economic growth could exceed these relatively low expectations in subsequent years, provided the challenges around Eskom can be resolved.

So, while the Ramaphosa rally in terms of renewed consumer and business confidence in 2018 was short-lived, it would be churlish not to acknowledge that today we are in a much better place than one year ago, given the significant changes implemented in 2018 to repair its institutional framework. Boards at State Owned Enterprises (SOEs) have been stabilised, key institutions (SARS, National Treasury, SARB) have been strengthened, and supposedly captured individuals side-lined. 

At the same time, despite mediocre growth for much of the Zuma regime, the SA consumer has significantly deleveraged with consumer debt as a percentage of disposable income falling from 87.8% in 2007 to 70.9% in 2018, and real credit growth negative since 2014 despite increases in real disposable income.

Finally, South African CPI inflation averaged just 4.8% in 2018, and is expected to remain close to the mid-point of the 3%-6% target band in 2019.

Of course, all bets are off the table should Eskom default or continue with its rolling blackouts. Such an outcome will be very negative for both the SA rand (and SA inflation) and the SA economy.

Subscriber Terms and Conditions

  1. APPLICATION OF TERMS
    • These terms and conditions (“Subscriber Terms”) apply to the subscription by any qualifying member of the South African Underwriting Managers Association NPC (“SAUMA”) to the services and benefits offered by FIA Services (Pty) Ltd (“FIA Services”) under the SAUMA affiliation arrangement (“Subscription”).

  2. NATURE OF SUBSCRIPTION
    • A Subscription under this arrangement:
      • does not constitute membership of FIA NPC;
      • does not confer any voting rights or governance participation in FIA NPC; and
      • is governed solely by the contractual relationship between the Subscriber and FIA Services.

  1. ELIGIBILITY
    • To qualify for the Subscription, the applicant must, at the time of application, be a current paid-up member of SAUMA.
    • FIA Services will verify the applicant’s SAUMA membership status with SAUMA prior to activation, and may re-verify such status periodically.
    • If a Subscriber ceases to be a paid-up member of SAUMA, the Subscription will correspondingly be terminated.
    • Applicants are required to authorise FIA Services to confirm their SAUMA membership status with SAUMA as part of the application process.

  1. SERVICES
    • The Subscription entitles the Subscriber to the following benefits:
      • Complimentary access to the FIA CPD Platform;
      • Complimentary access to the FIA Insight Magazine (digital edition);
      • Advertising opportunities on FIA platforms at a discounted rate of 15% (fifteen percent) off the prevailing published rates; and
      • Invitations to attend FIA Technical Webinars annually.
    • FIA Services reserves the right to update, vary or substitute the Services from time to time, provided that the overall value and nature of the benefits remain materially the same.

  1. FEES AND PAYMENT
    • The monthly subscription fee is R260.00 (two hundred and sixty rand) for up to seven registered individuals (Key Individuals and Representatives), and R36.00 (thirty-six rand) per additional registered individual thereafter, excluding VAT.
    • The Subscriber shall provide FIA Services with the required details of each individual to be registered under the Subscription for the purposes of activation and billing.
    • All fees are exclusive of VAT, which shall be charged at the prevailing statutory rate.
    • Subscription fees are reviewed annually in March and may be adjusted with effect from 1 April.
    • Any changes to the Subscription, including but not limited to the number of Representatives and Key Individuals registered under the Subscription, may only be effected once annually during the annual review period in March of each year, with such changes taking effect from 1 April.
    • Subscription fees shall be billed monthly in arrears, unless the Subscriber elects an annual billing cycle at the time of application.
    • The Subscriber shall ensure that all billing information (including contact details, authorised signatories and bank account details) is kept accurate and up to date.
    • Non-payment of subscription fees may result in suspension of access to the Services until such fees are brought up to date.
    • The Subscriber acknowledges and agrees that all subscription fees payable under these Subscriber Terms may be collected by way of debit order, which shall be processed by the holding company, FIA NPC (The Financial Intermediary Association of South Africa), on behalf of FIA Services. Payment to FIA NPC shall be deemed to constitute valid and sufficient discharge of the Subscriber’s payment obligations to FIA Services under these Subscriber Terms.

  1. ONBOARDING
    • Onboarding will be conducted as a Subscription with FIA Services under the SAUMA affiliation arrangement.
    • Onboarding will not confer FIA NPC membership status or any associated rights.
    • Onboarding is conditional on confirmation of the Subscriber’s current SAUMA membership at the time of application

  1. DATA PROTECTION
    • FIA Services will process all personal information in accordance with the Protection of Personal Information Act 4 of 2013 (POPIA) as set out in our POPIA policies.
    • By subscribing, the Subscriber authorises FIA Services to confirm their SAUMA membership status with SAUMA and to process personal information for the purposes of fulfilling the Subscription.

  1. TERMINATION
    • The Subscriber may terminate the Subscription by giving FIA Services one calendar month’s written notice.
    • FIA Services may terminate the Subscription on one calendar month’s written notice, or immediately if the Subscriber breaches these Subscriber Terms and fails to remedy such breach within 14 (fourteen) days of receiving written notice.
    • Termination of the SAUMA–FIA Services affiliation agreement shall not automatically terminate these Subscriber Terms.
    • Termination by the Subscriber shall not relieve the Subscriber of liability for any subscription fees accrued up to the effective date of termination.
    • FIA Services may suspend or terminate the Subscription with immediate effect in the event of non-payment of fees by the Subscriber.

  1. GENERAL
    • These Subscriber Terms are governed by the laws of the Republic of South Africa.
    • Any disputes arising under these Subscriber Terms shall be dealt with in accordance with the dispute resolution provisions contained in the FIA NPC membership terms and conditions, as modified to reflect that the contractual relationship is with FIA Services.
    • Any notices required under these Subscriber Terms may be validly delivered by email to the addresses provided in the Subscriber’s application form, and such notices shall be deemed received on the day of transmission if sent during business hours.
    • The Subscriber may not assign, cede or transfer any of its rights or obligations under these Subscriber Terms without the prior written consent of FIA Services.
    • No variation of these Subscriber Terms shall be of any force or effect unless reduced to writing and signed by both FIA Services and the Subscriber.