I write this as we head into the second half of 2015. The last six months have been eventful. Although a credible growth trajectory remains a challenge for SA, Fitch maintained SA’s negative outlook, and affirmed its long-term sovereign foreign and local currency issuer default ratings at BBB and BBB+.

Government has said that the issues raised by Fitch – which include the country’s weak economic growth, failure to reduce the budget deficit and stabilise government debt, and its inability to materially narrow the current account deficit – are high on its list of priorities.

This is encouraging. The recent record high levels of the All Share Index relative to the low growth rates in the underlying economy are starting to be of concern to investors, as they wonder whether the low real-economy growth rates will eventually result in companies presenting stalling financial results, in turn putting the All Share under pressure.

There are many reasons for the current high All Share level. Investors recognise that many of our top companies have strong businesses that are not completely dependent on SA growth rates; that the country’s management is well regarded; and that, in a world of choppy emerging market sentiment, SA is a destination investors understand and trust. That said, sentiment is a fickle thing, and our valuations and market sentiment are by no means immune to global directional pressures.

The low growth level will not resolve itself by merely talking about it. We need to prioritise growth as a national imperative since it is only with growth that we will be able to constructively tackle our many socio-economic deficits. To this end, we need clear and constructive policy direction in support of the NDP and other growth kick-starters.

However, improving our economic prospects is a collaborative effort. I have written previously about the collective responsibility that business, government and civil society share in order to pave the way for SA’s economic prosperity.

As the JSE, one of the key roles we play in the real economy is to provide a platform for companies to access capital from willing investors. That capital is critical for economic growth, as recipients of capital use it to expand their companies, thereby creating employment and helping to grow the real economy. The more vibrant the exchange on which capital is raised, the better the price at which companies are able to access the capital they need to develop. Our other real-economy role is to provide a place where investors can exchange (or trade) their investment in all the firms listed on the JSE. The more vibrant that trading space is, the better the investors are able to choose when, where and how to invest and indeed when, where and how to change their savings and investment choices. And the returns can be used to support new real-economy ventures.

And so the symbiotic nature of our two real-economy roles is clear.

We continue to see entrepreneurs come to the market to raise capital. In June, alternative-energy company Renergen listed on the AltX. The firm raised R74 million prior to listing and intends investing this in alternative- and renewable-energy projects that support infrastructure development. Choppies (a retailer from Botswana) also listed on the JSE – significantly over subscribed – providing capital that will be deployed in extending that business.

The AltX, which is our market for smaller stocks, plays an important role in the development of SMMEs. Since inception in 2003, we have listed over 100 companies on the AltX, many of which have migrated to the Main Board and are inspiring stories of successful entrepreneurism. With each such listing, we help fund initiatives that enable development.

We also play a critical role in the real economy in a number of other areas. Our vibrant debt market is used to fund a range of issues from the national fiscus to infrastructure – including those focused on our current energy challenge (in and of itself an issue and serious growth constraint); our commodities market is used to help users and producers of commodities trade and hedge their commodity exposures. Again, both these markets are not just about trading investments but about using the product of those trades to manage businesses in the most optimal manner for growth.

It is also important that growth is sustainable and shared by all South Africans. Despite increased access to financial services in recent years, the savings and investment culture among South Africans is well below international standards (our savings ratio is around only 15% of GDP).

We launched our own tax-free savings account in April this year, which aims to achieve two things – firstly, to help people develop a culture of saving and reduce their overall household indebtedness. Secondly, it offers investors an opportunity to learn more about the dynamics of financial markets and the exchange, and allows them to access some of the JSE’s listed instruments in the form of ETFs. We have already seen positive take up of our tax-free savings account and are encouraged that we are offering South Africans an opportunity to create and preserve financial wealth.

The pursuit of economic growth appears daunting. At the JSE, we are constantly looking at ways in which we can support the vision to be a capable and economically successful SA. Fitch’s decision is a wake-up call and we challenge all sectors of the economy, including ourselves, to examine how we can contribute to improving our economic outlook. James Cash Penney, founder of retail giant JC Penney, once put it so succinctly: ‘Growth is never by mere chance; it is the result of forces working together.’

Nicky Newton-King
Chief Executive Officer, JSE

July 2015
Image: Hanlie Huisamen