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How do these occurrences influence the workings of a financial plan?

Disasters such as bird flu and droughts directly bring employment and jobs, and those immediate family members relying on the incomes earned, into danger. I recently overheard that in an area close to me, only two cellars will be operative in the upcoming harvest season, due to lack of wine grape production resulting from the drought.  I cannot imagine the hardship it will wreak on families affected. One particularly characteristic of oenology and viticulture – the peculiar circumstances of this year’s growing season affects two future harvests.

The economic impact of these occurrences is a given, and that may affect your and my investments in some way.

Not that long ago we were used to crises occurring with perhaps reasonable intervals between them (9/11 in 2001, the credit crunch in 2008). In some cases it is debatable if we have recovered, such as the impact of the 2008 economic aftermath which had a pronounced impact on the availability of credit.

However, I look little closer to home. The last indication by the World Bank on South Africa’s growth rate is 0.6% for 2017 – rated downwards by 0.5% – and regardless of a bounce-back of 2.5% in the second quarter that was deemed insufficient. In similar vein the 2018 expected GDP projection is set at 1.1% (previously 1.8%). This projection is not limited to South Africa, but to all commodity exporters, which appeared to be the primary focus of that specific report.

“The new report said the expected recovery in commodity exporters was weaker than envisioned in January‚ mainly reflecting longer than expected adjustment to low commodity prices in some countries” (Timeslive). There is always a story why things turned out differently; such is the nature of economic research.

According to data on the website of Trading Economics (Ieconomics Inc., New York), South Africa is looking at economic growth of 1.1% “in 12 months’ time”. It seems they are playing by the same rules. Do not confuse economic growth with economic development, though. The latter is a broader term indicating the extent to which citizens’ quality of life has increased. It considers intrinsic personal factors not included in economic growth, such as literacy rates, life expectancy, and poverty rates.

Statistics and predictions should be seen in context to make real sense.

The SA population is expected to grow by 1.2% in 2018, with a median age of 26.3 and a fertility rate of 2.52 (vide Worldometers, a Dadax initiative). They have the 2017 population figure at 56.7 million. Stats SA’s 2017 mid-year figure is reported at 56,5 million. My interest lies in the accompanying graph, which indicates a downward trend in yearly population growth.

 

The population growth rate for the relevant years are given as 1.11% (2010), 1.40% (2015), 1.31% (2016), 1.25% (2017 est.) and 1.2% (2018 est.). A quick look at the GDP (economic growth) figures for the past few years indicate that we are not always matching economic growth to population growth, which any economist will tell you is not a good long-term plan to follow.  Already we have an official unemployment rate of 27,7% – and widely deemed inaccurate as far as the real, on-the-ground figure goes. This rate is stated elsewhere as substantially higher amongst the under-thirties – and the average age for South Africa is around 26 years.

Feed into this the xenophobia (inasmuch as purists may point out that mostly black-on-black violence does not deserve the term “xenophobia”) that seems to raise its head regularly. It is glibly said and believed across the board that foreigners “take” jobs away from South Africa’s indigenous employment pool. I want to return to this point later.

One would be excused for becoming market- and investment shy with all this noise. It seems that danger lurks everywhere. Investment paralysis – or shall I say financial paralysis – becomes the new “normal”; to sit on the sidelines, and to sit and sit.

The new record highs of the JSE Allshare Index earlier this month may require a rethink of this philosophy, but how?

During a recent discussion on one of the financial radio programmes, the matter was briefly touched on. Although the discussion followed a different line, the vitals similarly apply. Time is against the investor. Staying out of the market for a prolonged period of time may dramatically impact projected figures. In the course of the discussion the presenter and his guest discussed the need to stick with a financial plan that had been carefully laid out and not to give in to crises thinking.

In my next article I want to expound a little more on this, and try to understand why we are sometimes our greatest enemy in things financial.

Dr Theo Marais ran a financial practice for more than a decade. Currently he lectures business and economic subjects and entrepreneurship at private university campuses in the Peninsula and offers leadership training programmes to private enterprises. His views may not be regarded as advice, but may be discussed with your financial intermediary.

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