Few better than South Africans know and understand the kind of effort, maturity and concessions required to make any kind of meaningful strides towards transformation.
Well, this is how the World Economic Forum (WEF) 2019 has likened the current geopolitical, economic and environmental global outlook – transformative. However, without any kind of collaborative political will and unifying leadership around the table, we fear 2019 may be another year of ever-more escalating social and political rifts.
One might even regard the lack of attendance by most leaders of the G7 as a ‘leading indicator’ of what might lie ahead. This is, of course, concerning for a world congress that has emphasised that some of the top 10 global risks include extremely pressing matters such as extreme weather events, and socio-economic challenges such as large scale migration as the world moves into the Fourth Industrial Revolution. Even the Fourth Industrial Revolution brings its own risks, for example, the potential of large scale cyber attacks.
Unfortunately, there is arguably a continuity challenge to address these risks: a long lead-time is required to implement meaningful change, but initiatives are often subverted by changing government administrations around the world. Tackling such challenges are estimated to cost trillions of dollars of spending per annum. Few governments have the appetite and willingness to propose such budgets.
Team South Africa at WEF 2019
When it comes to South Africa (SA), ‘team SA’ needs to compete for limited US dollar allocations out of Davos given the massive bills many countries are already facing to address their own challenges.
Team SA would need to take into account and in order to attract funds, present a medium-term strategy that focuses on the quick ‘wins’ around growth. This must include how to reduce unemployment (and resultant productivity gains) and overlay this with long-term strategic goals of socio-economic benefit for low-income people.
We would expect strategic thinking to incorporate SA’s plans in creating a Fourth Industrial Revolution architecture to create the relevant skills that will likely be required in the long run. This means a discussion around leveraging technology and digital transformation.
Year ahead and asset classes
The 2018 WEF Risks Report cautioned about broad macroeconomic challenges the global economy would likely face, despite strengthening growth in some of the world’s largest economies last year.
By our assessment, 2019 is probably the period in which those warnings are realised. Going into 2019, while we expect some respite from rising oil prices and the Federal Reserve hiking cycle, we still project slower global growth, driven by the United States and China policy. This view raises questions around our outlook for earnings, inflation and the consequent response in interest rates. Perhaps the greater certainty in financial markets is continued, increased volatility.
One can just look to the high levels of global indebtedness (also highlighted in the 2018 WEF Risks Report) and the deteriorating credit profiles of some of the low-income countries that built up significant dollar-denominated liabilities over a period where interest rates were low.
Tightening financial conditions placed a meaningful strain on these countries, but we do expect that a more dovish Federal Reserve Committee provides a certain amount of relief for these economies.