SA Affordable Housing May - June 2020 // ISSUE: 82 | Page 5
EDITOR'S NOTE
Is renting really
Eamonn Ryan, Editor
‘dead money’?
Long after Covid-19 has vanished from the South
African landscape, the nation’s junk status will still be
haunting us all. There’s little point in saying Moody’s
credit rating agency “kicked us when we’re down”,
as one analyst said, or “couldn’t have come at a worse time”,
as the government said – because for the last ten years and
more, South Africa has been ‘down’ or experiencing ‘bad
times’, and just waiting to worsen.
The world has actually been through a golden age over
this time, with the longest unbroken spell of economic
growth and investment bull markets, in a long time. It all
passed us by. Even before that, the resources price bubble
passed us by because we didn’t have the infrastructure to
get more minerals to port and hence to China. Australia
capitalised on that, while we squabbled about which race
should own what. The past decade has been one of constant
global growth, while South Africa slipped into recession
during the final quarter of 2019, and has posted its weakest
growth rates ever in the past five years – never exceeding
1.3% and in some years falling below 1%.
We have conspired to convert every global ray of sunshine
into a black, stormy night for South Africa. That we’re in the
position we are now comes down to lack of risk management.
Though risk management is an exceedingly boring
subject, it is all-important. Anyone who reads history,
philosophy or economics knows that life happens in
cycles; every upswing is followed by a downswing.
If a country knowingly turns every upswing
into a downswing – as we have done through
failure to invest in our infrastructure followed
by the state capture of the Zuma years
– then when the actual downswings
come, the graph of economic growth
is locked into an ever-downward
spiralling trend.
During those good
years as a country we
should have been
preparing for the
next global
shock. Risk
management is not a matter of having a negative frame of
mind that always expects the worst, it is about recognising
the inevitability of certain events and preparing for them.
If you misplace your car keys it can be a disaster – but if
you recognise the likelihood of at some time in your life
misplacing them, and have a spare set in your safe, then its
scarcely even a hiccough.
We are likely to see the rand break through the R20/USD
level, and this means that the value of property investments
over the last decades will have fallen by about 95%. Don’t
be fooled when analysts boast your property investment
portfolio grew 13% last year in rand terms, when the
currency depreciated by 17%. You’re 4% worse off. In a
country like this, which lives on imports, that 4% difference
will come back to bite you as inflation. Over the coming
months the cost of imported construction materials will rise,
and the cost of building affordable housing will rise.
“The government's own capacity to limit the economic
deterioration in the current shock and more durably is
constrained,” Moody’s said, blaming “unreliable electricity
supply, persistent weak business confidence and investment
as well as long-standing structural labour market rigidities”.
All matters which are under our own control. South Africa
had been edging towards such a situation since last year
due to politically constrained economic reforms and broader
governance failures coupled with rising debt levels.
The Minerals Council noted the rating cut with
“disappointment” if not “surprise”, and lay the blame
at the door of President Cyril Ramaphosa's government.
Calling the downgrade “largely a result of the government's
own making”, the council said it was the outcome of
“the inability to implement a comprehensive package of
economic structural reforms” such as enabling private sector
investment in power generation.
Eamonn
[email protected]
www.saaffordablehousing.co.za MAY - JUNE 2020 3