Peter Brooke  00:00

 Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 28 of 2022, and I want to talk about investments - the real kind, like road, power stations, and data centres. I recently met the new mayor of Cape Town, and I asked him if he could only do one thing, what would his legacy be? And his answer was to spend and to grow Cape town's capex budget, which is about the best answer I've ever heard a politician give. Effective investment is the bedrock on which everyone - households, businesses, governments - can operate. Railing against Eskom, which is pretty popular right now, misses the point that the problem was created over 30 years by no or poor investment. 

00:47

As always, in this podcast, I try and add perspective, from looking at history and across the world. So, what better way than to take the average investment to GDP over the last 30 years? The average of 34 major countries has been 23% over that period. The winners in this exercise are almost all Asian: China, Korea, India, Japan, and a number of ASEAN countries like Malaysia, Thailand, and Singapore. Switzerland deserves an honorable mention, and we can see proof of this by their competitiveness in global exports, despite a ridiculously strong currency. Unfortunately, I also have to recognize that Australia has been above average, although it is interesting that a lot of this investment has been in property, which is not as good for competitiveness, and they have lagged behind in terms of their exports. 

01:41

The losers with below average investment are a mixed bag. Generally, Europe has lagged a little, which is perhaps not that surprising, with their slowing demographics, although they compared unfavorably with Japan. The United States has averaged 21% per annum, 2% below the average, which is and way below best in class. So, it is no surprise that their global dominance is eroding. The UK was particularly eye catching, with a 17.3% average investment, way the worst amongst developed countries. I also looked at the last 10 years across all countries, and the UK deteriorated to 17.1% over that time period. So, no sign of improvement. I can't see how Brexit and the upheavals and Tory Party are going to improve this. 

02:37

However, the loser over the 30 years and the shorter tenure period, is South Africa with a 16.3% investment rate. 7% lower than the global average. Persistent under-investment is why we have no electricity, and our water supply is failing. Importantly, this has come at a time when we have good population growth, meaning that more investment was required, not less. While this is intensely frustrating for South Africans, it also represents an opportunity. Allowing the private sector to transport electricity will speed up investment and accelerate growth. I hope that we see an easing up of the red tape around electricity this week, with the President's newsletter being an important lead indicator. South Africa badly needs to move back up the ratings, and I hope that the mayor of Cape Town succeeds in his ambitions. Until next week.