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00:00Mary, really good to be speaking to you.
00:02Mary is CEO of one of the largest banks in Africa,
00:05and there is so much to talk about.
00:09We'll talk about some of the domestic evolution of the economy within South Africa.
00:14A big election happened this year.
00:16But first, I just want to start with a question about the state of the global economy,
00:21because one of the themes that has come up throughout the course of this morning
00:24is that it's been quite the ride in terms of policy uncertainty, tariffs, geopolitical realignment.
00:33I mean, all of this has been emanating from the U.S.
00:37And there are economies, especially emerging market economies, that are especially exposed,
00:43especially when you have the U.S. pull back on things like U.S. AID funding.
00:49So let me just ask you, from your standpoint right now, at this point in time,
00:56how do you see the winds coming through from the global economy
01:00when you think about the outlook for 2026?
01:02Thank you, Joanna.
01:04I guess we started the year, I remember the mood at the World Economic Forum.
01:08I mean, that was being very positive, with a positive outlook,
01:13expecting global GDP growth of about 3.3% for this year and next year.
01:19And this year, as we sit now, I think they've been revised down, downwards since then.
01:25I think the level of uncertainty across the world is probably at its highest.
01:30I mean, it's much higher than any of the other crises that we've lived through the pandemic,
01:35with people just really not knowing what is the economic framework that we are working with.
01:41Global fracturing and supply chain fragmentation is happening constantly.
01:47So I guess there's a big rebalancing that's happening.
01:51You know, I don't think we go back to the levels that we've seen,
01:55and I think the kind of global order that we've operated.
01:59And so there's a lot of adaptation.
02:01I mean, our clients, when we've engaged with them, particularly on tariffs,
02:05you know, I think you could see there's a lot of thought on resilience,
02:08and how do they continue without, you know, with a loss of being able to export to a big market like the U.S.
02:16And people are innovative.
02:18You know, I think that's always a thing when you're faced with so many changes,
02:21is that you forget that people adapt, businesses adapt, and so forth.
02:25So, yeah, I guess the trade, you know, the uncertainty on trade has really weighed heavily,
02:30even on the South African economy.
02:32I think we've had to revise our growth outlook.
02:36And as I said, I think we have seen inflation.
02:39The promise last year we thought inflation is coming down.
02:43Inflation is ticking up globally, which makes it difficult for policymakers,
02:46because in an environment like this, this is when they want to support the economies.
02:50But many of the governments across the world sit with high levels of debt anyway.
02:56So, you know, the capacity to be able to respond and support the economies during this time, it's limited.
03:03So, yeah, in this operating environment, what we've seen is that I guess there are some companies
03:07that are able to be resilient and pivot away,
03:10and some companies that have conducted their business in a way that they've exported to different markets.
03:15Yeah.
03:16But, you know, I mean, ultimately, those ones that are dependent on making sure,
03:20you know, where there was dependency, that it's not a change they can make right away.
03:25South Africa specifically has been a target of President Trump.
03:30Political, domestic policies, you know, have become part of the discussion.
03:37Ongoing trade discussions taking place now between South African representatives,
03:41this delegate, you know, speaking with the U.S. about the reduction of tariffs.
03:45But, you know, it is a time of tension between South Africa and the world's largest economy.
03:50As an industry leader in South Africa, how has this complicated matters for you?
03:55And how would you like the tension with the United States to be resolved?
04:00Yeah.
04:00So, I mean, South Africa and the U.S. have got very deep, strong historical ties.
04:05Okay, so, I mean, that's, we consume even the culture, apart from just having it as an export market.
04:13So, there are really a lot of linkages between South Africa and the U.S.
04:17And there are about 600 companies that operate in South Africa that are U.S.-based
04:21and South African companies that also operate in the U.S.
04:25So, obviously, we would like to see the relationship make less headlines for the reasons that they have.
04:33You know, I think President Ramaphosa has probably done well to articulate the,
04:40and provide some clarity on issues that, you know, when we live in South Africa,
04:45there is definitely no way that there's any basis to some of the, you know, to some of the narratives.
04:50But clearly, there's a recalibration, and I guess what matters to us really is actually the trade aspects.
04:57You know, so South Africa is, at the moment, I think, we're paying about 30 percent on exports from South Africa.
05:03We have not retaliated, and there are discussions that are underway that we are optimistic that they're going to get to a lending.
05:10How do you think the expire of Agua, which is the trade accord that allowed for tariff-free South African
05:18and other African exports to make their way into the U.S.?
05:20That expired yesterday.
05:22What sort of an impact do you think that's going to have on small businesses?
05:25On small businesses, it is quite significant, you know, because I think if you make,
05:29I mean, if you're exporting wine, and I think the U.S. has been your main market,
05:34those kind of reconfigurations take quite a bit of time.
05:37I mean, look, our clients that operate in sectors where they export and they've been beneficiaries of Agua
05:45are already making plans, but, I mean, there's no doubt that it's going to have an impact on jobs.
05:50It's going to have an impact on just those companies' ability to grow,
05:54and more so the countries on the continent.
05:58You know, I think South African countries now, reading the leaves for the last couple of months,
06:03they've, you know, they are not betting on Agua being renewed.
06:06It would be great if it's actually renewed, but I think that they are making alternative plans.
06:11But, I mean, across the continent, some markets are, you know,
06:14they don't have the kind of resources to be able to diversify away.
06:18So, again, hopefully that's one that it goes through Congress, and it's, again, supported.
06:23But, yeah, I mean, I think there's also quite a high likelihood that that's not the one
06:27where South Africa is able to be successful.
06:29I mean, if you look at Botswana and Lesotho, some of our neighboring regions,
06:34you know, their tariffs are lower and South Africa is higher.
06:36So, we cannot discount the fact that, you know, there's a political tension there
06:41that might get in the way.
06:42Yeah.
06:43That being said, you know, we're talking about all of these global macro headwinds.
06:46If you look at, I mean, you posted your earnings a couple of weeks ago.
06:49My colleague Jennifer Zabazaja spoke to you around the earnings.
06:53Pretty solid earnings growth, north of, you know, 13%.
06:56Where is that growth coming from in an environment where there are so many global macro uncertainties?
07:02Yeah.
07:03So, I guess the GDP growth in South Africa has really been legelaster for quite a number of years.
07:12And largely because, you know, the economy has been hamstrung by state-owned entities
07:18that have a monopoly on transport, energy, that have not been functioning for a very long time.
07:24So, one of the things that give us hope and, you know, I think we're able to be constructive with the outlook
07:29is the economic reforms that are taking place in the country.
07:33So, on energy, I think ESCOM has done well to stabilize the days of load shedding.
07:39And then the energy factor and reliability factor keeps on improving.
07:43So, that's a positive outlook.
07:45There are more reforms that still need to take place.
07:48But, you know, as business, we are encouraged that government, at last,
07:52is tackling some of these structural impediments to growth.
07:56So, in the medium term, we're quite constructive about that.
07:59And, again, on the transport and logistics side, that's also improving.
08:03There's momentum recently, about 11 private sector companies have been awarded a contract
08:10to be able to operate on some of the trans-net lines.
08:13So, that's a big shift in South Africa that I think in the last, you know, it's overdue,
08:18probably should have been done about 20 years ago.
08:20But those are things that are important to support the medium and long-term growth prospects of the country.
08:26So, that's encouraging.
08:27And, currently, I mean, as a group, we've always said, you know, South Africa is our primary market.
08:35We'll have operations outside to make sure that they provide resilience and growth for the portfolio.
08:41So, it was quite pleasing to be able to grow earnings in South Africa by 13% in an environment where, you know,
08:48GDP growth is less than a percent.
08:50So, yeah, so, I guess, I mean, the growth comes from corporates and small businesses, you know.
08:57So, we are seeing the trickle-down effects of the economic reforms that are taking place.
09:02Households are still under pressure.
09:05I mean, like the rest of the world, we've seen a high inflationary environment with high interest rates.
09:10So, that has put pressure on households.
09:12But, even then, that inflation is starting to come down.
09:17Rates have come down.
09:18They would probably have come down further.
09:21But, the Reserve Bank would like to lower the inflation target at the bottom end of the range.
09:29And so, that will be about 3%.
09:31In the long run, that's very good for South Africa.
09:35Because poor households, inflation is probably the thing that eats most into their wealth.
09:40And, also, I suppose, from a lending capacity point of view, that's going to be helpful.
09:45And, most importantly, for government debt.
09:47So, we have this transition.
09:49We've got the structural economic reforms and then the monetary reforms that are taking place.
09:53All of that are supportive of an environment that should have better growth prospects for the banking sector
09:59and a lot of other businesses operating in Asia.
10:02So, I do want to bring it back to that reform momentum.
10:04Are you pleased with the pace of the reforms that are currently being looked at in South Africa?
10:11Or, would you like to see a pickup in momentum?
10:13We would always advocate for better.
10:16We would always advocate for a faster pace.
10:19But, you know, I have an appreciation of how complex that is.
10:22You basically have to start with an entity like Transnet that operates the transport and the train networks,
10:31which is not working.
10:32It should have tackled some of the reforms a long time ago.
10:36And, during the time when there are performances like this, that's when you're going through with the reforms.
10:40So, it's complex.
10:41And, I do think government working in partnership with the private sector is actually making the right moves.
10:48We put a lot of pressure on them and they respond.
10:51But, I would say at the moment, yeah, things are probably moving as well as they could under the circumstances.
10:58Because it takes up, it requires capacity actually to be able to undertake reforms,
11:03which is why a lot of governments don't end up doing it.
11:06But, yeah, I mean, I think it's encouraging.
11:08Let me say that in short.
11:10Okay.
11:10I think people in the room would be surprised to hear that the South African run is at the strongest level in the past 12 months.
11:17The Johannesburg Stock Exchange is, I believe, at record highs.
11:20So, we talk again, you know, about some of the structural issues holding back the South African economy,
11:26some of the global macro headwinds.
11:28But, the capital markets are telling a different story.
11:31Why do you think that's the case?
11:33And, how do you see the outlook from here?
11:35So, I think, as one talks about the global levels of uncertainty,
11:40I think this is one of those moments when, as South Africa, rich with the commodities that we have,
11:47I think that we've been a beneficiary of that.
11:50So, prices of gold and the platinum group metals have gone up.
11:55So, all of that has been very supportive in an environment of global uncertainty.
12:01Interest rates coming down were good for the banking sector as well.
12:04So, that easing and monetary policy conditions.
12:08And so, yeah, I think the JSE this year hit new levels, as you said.
12:12And, even from July, when it got to 100,000 level, the index is already at about 108, about 20% return in dollar terms.
12:25So, that is quite significant.
12:27Off a low base, because I think the last couple of years, investors, particularly foreign investors,
12:33have sat outside looking for the trends to turn around.
12:38So, I think some are encouraged about that.
12:41The Anglo transaction that happened resulted in quite a lot of outflows.
12:45Yeah, that came out yesterday.
12:46So, yeah.
12:47So, when you look at that, you have to remember that, okay, but that's a big transaction that's taken place.
12:52But, it is encouraging that the JSE is coming back again.
12:56I think the big aspect that one, or the two driving factors that I think are quite important,
13:01is that political risk has subsided with the government of national unity, as fragile as it is.
13:08The second aspect of what's supporting the JSE at the moment,
13:13because it's definitely not a growth outlook, because that still lacks luster.
13:18I think it is the fact that these structural economic reforms are going to take place,
13:22so that people are believing aspects of that story, that it's different to the one told before.
13:28And then the last one, I think, that you see in financial markets being reflected,
13:32is the fact that inflation targeting, there's trust in the South African central bank,
13:39that inflation expectations will be lowered.
13:43So, I think from about May, we've seen a reduction of about 70 basis points in the yield curve.
13:49I mean, this is where other governments' yield curves are going the opposite direction.
13:54And so, yeah, so there's belief in the economic reforms that are going to take place,
13:58and then obviously just supported by the commodities cycle.
14:01It sounds like you really do believe it was right for the SARBs at the South African Reserve Bank
14:05to change the way they think about their inflation target.
14:08There was support from the business community for that.
14:10Yeah, I think there is support, because if you actually look at our peers around the world,
14:13you know, you can see inflation target is a bit outdated.
14:16Three to six percent, people have moved to like a single point on that.
14:21And then I think, you know, they've been targeting four and a half percent for a while,
14:25that's the SARB, and lowering it to the bottom end of their range, it does sound prudent,
14:31particularly where we are with inflation.
14:34Because if they were doing it when inflation was high, I think the resistance would be,
14:38I think they would meet, they'd be met with more resistance than at the moment.
14:44And then another part that actually is supportive is that China has quite, has excess supply.
14:50So we've seen in the South African market, if you look at the new cars that are sold,
14:56the top 10 of that list is cars from China.
15:00So those come at a cheaper price point.
15:03In the long term, it's a problem for South Africa's manufacturing capacity,
15:07but in the short term, it's actually reducing inflation in the market.
15:12So if we can at least capture that and reduce our long-term debt,
15:16our long-term cost of debt, that will be a positive outcome,
15:19because we do have opportunities with the oil price and, I suppose, cheaper imports.
15:24Yeah, it's an opportunity for South Africa.
15:26Well, to round up, let's look ahead.
15:27South Africa is hosting the G20 this year.
15:29You are co-chair of the Trade and Investment Task Force for the B20.
15:35What are some of the themes that you're going to be exploring this year?
15:38So as the private sector of B20,
15:41particularly the work stream on trade and investments,
15:44we have not shied away to bring back the topic on the table that, you know,
15:50we do need to operate globally in an environment where there are lower trade barriers.
15:56Trade is particularly very important for growing economies in Africa.
16:00I mean, the level of trade in Africa is low.
16:03So, again, promoting some of the objectives of the Africa Continental Free Trade Agreement is key.
16:10Advocating for world organizations, like the World Trade Organization, I think, to be supported,
16:18because smaller countries have got absolutely no chance in this environment where, you know,
16:23the big countries have their own trade arrangements and they are not at the table.
16:29So I, you know, so I think we have not shied away given, you know,
16:33given the U.S. stance on South Africa's involvement.
16:36You know, I think we have stayed true to really what we believe can unlock the potential,
16:42particularly for Africa and globally.
16:44And we've continued with the themes that started in India and Brazil as part of the G20.
16:49And, yeah, we think that's important.
16:51And maybe just to go back to the beginning, which is, you know, again,
16:54a lot of the policy uncertainty stemming from the Trump administration's tariff policy.
16:59Do you think that this creates an opportunity for South Africa,
17:02for African nations to rethink who their trading partners are?
17:07I think that's already started happening, actually, for quite a number of years.
17:11You know, I think that it's quite important to have a diverse range of export countries.
17:18And, you know, South Africa has actually been nurturing that.
17:21So America remains a very important market, as I started at the beginning,
17:24that it goes beyond trade.
17:26A big level of FDI in South Africa has come from the U.S. and culturally as well.
17:32So it's important, actually, that we are good neighbors with everybody in the world.
17:37Mary, that's a nice place to leave it.
17:39Thank you so much, everybody.
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