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Don't panic about outcome of ANC elective conference - economist

Dec 16 2017 18:11
Carin Smith

Cape Town - There is no need to panic about the outcomes from the ANC elective conference, according to Leon Greyling, managing director of Alexander Forbes Investments.

"Whatever the situation, there are always opportunities in difficult political environments. Equity markets can, perversely, become a hedge against cronyism and corruption," he said.

"Money is better invested in private markets, which have an effective self-correcting mechanism, as opposed to the public sector. Financial markets have the ability to adjust and find a new form of expression, even during difficult political and economic times."

In the view of Greyling and Lesiba Mothata (chief executive economist at Alexander Forbes Investments), it is easy for emerging market countries - including South Africa - to slip into an undesirable spiral of political cronyism and credit ratings downgrades. At the same time, there is "nothing new under the sun".

"What we are witnessing in SA - higher debt levels and political leaders showing cronyism - is reminiscent of countless other outcomes in emerging market countries," said Greyling.

"What is clear for SA in particular, however, is that negative political and economic outcomes would need to worsen before the country arrives at the crisis levels seen in Indonesia [for example]."

To Greyling and Mothata SA is unique in that it has strong and functional institutions. These include an independent central bank and auditor general, an active judiciary, a free press, corporate businesses with solid balance sheets, a financial system of world repute and a constitutional democracy.

"The foundations, which were absent for Indonesia during its crisis, are solid and safeguard SA from adverse shocks, including those of a political nature," said Mothata.

"It is worth noting that if Nkosazana Dlamini-Zuma wins, it will take a lot to materially change the foundations of the country. Given the existing checks and balances at play in the economy, it would require a heavy hand to completely annihilate the architecture on which SA was founded - including the constitutionally entrenched independence of the central bank."

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