July 2015
Recently there was an advert on TV, with people all over the world talking about things uniquely South African. This is very cool, until they get to the part where we have load shedding, then it all becomes farcical. At face value we understand the effects of the load shedding, but the implications stretch further than us not being able to watch our favourite TV show at 7pm on any given night.
It is the failure of our government to be able to provide power to the whole country, and unfortunately this isn’t a short term problem. The economy relies on power to function. Can you imagine what we look like to the rest of the world? Why would you as an investor, institutional or individual, take the risk to invest in a country that puts such restrictions on the everyday workings of a normal economy? Out of 10 Emerging Markets worldwide South Africa is one the country that the rest of the world see no investment opportunities in over the next 2 years. That’s a very sad state of affairs. We normally consider ourselves a 1st world economy, I’m sure most people have changed their perceptions over the past 6-12 months. If we as South Africans have lost confidence in our country how could we expect foreign investors to have faith in it?
This load shedding issue will have lasting implications:
- For locals, the price of electricity seems to be increasing. So we are paying more for something that we have limited use of.
- Why would foreign investors choose a country to invest in that has no continuous power source?They know that an economy needs power to produce, manufacture and mine. If these industries are affected then their investments will be effected. Capital allocation decisions are taken with long term views. There are far more attractive Emerging Markets that do have power that can offer far better returns.
- Without foreign direct investment, this leaves huge pressure on the Rand and our local equity and bond markets, impacting investors.
That said, there are positives that can come out of this crisis. In this case it is the ingenuity,brainstorming and invention by South Africans to be able to make a plan.
We need to generate energy (power) in the many years to come and although this already exists throughout the world, wind farms and solar farms are being created. Upington has some of the hottest average temperatures in the world, and has subsequently been earmarked for a 5000 MW Solar Park.
The government has developed a Special Economic Zone (SEZ) around this area. This is for the manufacturing of solar components and a couple of other support industries. The idea of the SEZ is to create an environment for growth which offers additional benefit to investors, local and foreign. The idea is to create employment, develop skills and generally uplift the area. With the creation and development of these sorts of areas it creates rejuvenation and hope countrywide.
http://www.csir.co.za/nationalwindsolarsea/docs/SEZs-DTI.pdf
The development of Wind farms also creates employment and further growth opportunities. To date this tends to be investment from offshore sources, but the impact is the same. Local population reaps the rewards, through employment creation and further skills development.
Let’s not forget about our very own Elon Musk. Of course we claim him, even though he has been away a very long time. The idea that we actually won’t need to rely on Eskom at all will make everyone very happy. Unfortunately Mr Musk’s invention will only be affordable to the upper income groups. The device is a Lithium battery, called a Powerwall, which is designed to be wall mounted. For domestic use they come in 7 kWh or 10kWh options. Solar panels convert the sunlight into electricity, the Powerwall then stores surplus electricity generated from the solar panels during the day or from the grid. The converter then converts direct current electricity from solar panels or the battery into the alternating current. The price ranges from $3000-$3500. We can only hope that as the demand for the product increases so the cost will decrease.
http://www.teslamotors.com/powerwall
How about a Shack Light, called a Lightie. Michael Suttner has designed a light for the lower income groups. It is a Picosolar tubular device, it has been designed to screw onto a 2lt coke bottle, to give it durability, with an LED light attached. The Photovaltec Panels that surrounds the light in its tube absorbs energy from the sun. No more need for paraffin, which is costly and dangerous. The cost is around R110. Perhaps everyone should start using these! I think the problem that we face is coming to terms with our situation. We get very used to the creature comforts that surround us, but as the saying goes “what doesn’t kill you makes you stronger”, and South Africans have always been resilient people. As far as investment in the South African market is concerned, we see a degree of caution ahead due to the challenges we are faced with. The grass is not greener, especially if you are Greek right now, but that does not mean that there are no investment opportunities, you just need to dig little deeper to find them acheter du cialis 5. This is part of job that we love taking very seriously on your behalf.
Sean Quigley
Senior Wealth Planner