Not a good time to be stuck in the here and now

The recent RMB Think Summit found that, if we look beyond our present problems, the future holds a lot to be optimistic about

Given the inconvenience of load-shedding, the frustration of being stuck in traffic, the delays in shipping bulk goods and the slow implementation of economic reforms in our everyday lives, it is easy to be stuck in the here and now.

It is also easy to be inward-looking, thereby missing the external shifts that will have significant structural changes to the domestic business environment. In conversations with industry colleagues and clients, I get a sense that many of them are now firmly inward-looking and stuck in the here and now.

This is why it is necessary to have circuit-breakers that can make us stop and think from different perspectives. This week, we held our inaugural annual RMB Think Summit, which is an evolution of the RMB Global Markets Seminar that started in 2010. The Think Summit provided an opportunity for us and many of our clients to pause, reflect, validate, challenge and stress-test our views and beliefs by listening to experts who have roots in Africa, Europe, Asia and North America.

The topics included international relations, the future of globalisation to macroeconomics, China’s evolving role in a changing global economy, global markets and investment opportunities, Africa’s opportunity from its rising and youthful population, and the next phase of the fintech expansion.

Before I summarise the summit’s main points, let me briefly outline the consensus views. Globally, US economic growth is expected to slow significantly. The country’s inflation is projected to gradually moderate but be sticky on its way down. Inclusive of this week’s 25 basis points, the US Fed hiking cycle has peaked and the next move is down with uncertain timing.

The dollar is expected to continue weakening. China’s reopening would partially offset weakness in growth from the US, Europe and the UK to the benefit of emerging markets. In South Africa, economic growth is expected to be stagnant, and inflation moderate but still sticky, with likely volatility on its way down.

Interest rates still have another 25 basis point step-up given the upside surprise in February and March followed by a long pause until inflation expectations show sustained momentum towards the midpoint. The rand will remain weak, surprisingly, even with a weak US dollar.

Unemployment will remain high. From a geopolitical and international relations perspective, the other assumption given various government officials’ public remarks since Russia invaded Ukraine is that South Africa is aligned with Russia. Given the upcoming Brics summit in August and the fact that President Cyril Ramaphosa invited Russian President Vladimir Putin, who has a warrant of arrest from the International Criminal Court pending, political risk will rise as we move towards the summit and ahead of the elections in 2024.

This is a generalised view with risks seen from potential sanctions and cutting of trade ties, including being removed from the African Growth Opportunity Act (Agoa) which gives preferential access for selected African countries to US markets. Against this backdrop of what I consider to be a consensus view, let me provide a synopsis of what was challenged by the speakers.

First, the assumption on South Africa’s position on Russia was challenged. The unipolar world led by the US and its hegemony will come to an end. There will be blocs of countries or regions, each with an influential player or players. Countries will compete for trade, technology, talent and influence within each bloc and the blocs will compete with each other. Within this world, countries must not have broad-based alignment, but rather strategic alignment on specific issues that advance them.

This challenged the common view that countries are split into two blocs, the East and West, and within this South Africa is aligning more with Russia and China in the East than with Europe and the US in the West. Ramaphosa later explained the government’s view. He said South Africa is not aligned with any country and forms part of a group of countries that are nonaligned.

Historically and from a markets perspective data shows countries that are not aligned, or are neutral, experience better returns in equity, bond and currency markets, and experience smaller increases in interest rates. From a markets perspective, the message was that the US is headed for recession because of aggressive interest rate hikes, which should have stopped when Silicon Valley Bank failed.

The next move in US rates will be down in the next few months and it will be an aggressive cutting cycle. Locally, the forecast is of slow but positive growth, not outright recession. The next move for US rates will be down in the next few months and it will be an aggressive cutting cycle.

The other views pertaining to Africa were more positive than usual. A youthful and rising population is an opportunity for Africa, not a burden. Africa will be a supplier of labour to the rest of the world, and we should view that as a source of remittances and therefore a benefit.

Technological innovation and artificial intelligence will help unlock growth for Africans and small businesses across the continent.