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