The D’s of a post-Covid-19 world

05 August 2020 | Opinion

Windhoek • Floris Bergh

Have we seen the bottom? It appears so.
The National Statistics Agency (NSA) released a set of six sectoral indices with data to May 2020 for the following sectors: Beverages, Building Industry, Electricity, Livestock, Tourism and Transport. They all still show that, compared to the same time last year, economic activity is down massively. However, compared to preceding months, except for Tourism, activity has picked up. This means that we have probably reached the bottom of the current downswing in the second quarter of 2020. The GDP number for the quarter is likely to be of the order of -35%.
What is clear though, is that the road back to normality, if pre-Covid-19 levels are to be regarded as such, will be long and slow.
We await the publication of second-quarter GDP numbers for several developed economies. These are likely to be of the order of -20% to -40% as it encapsulates the period of the hard stop to economic activity due to the lockdowns and should constitute the bottom. It means that the next few quarters should be an improvement, but on average, global GDP is set to contract by 5% for the year. Growth should rebound by a similar amount in 2021 as economies open for business.
So, what about the future? What will it look like?
We think the new normal could be described by eight major trends that we call the D’s of the post-Covid-19 world:
• DISTANCING: It is a word that became widely used during the pandemic. However, it will also apply between countries, in personal relationships, schools, universities, workplaces, between ethnicities, and between rich and poor. This theme will result, amongst others, in global bloc forming of the Anglo-Saxon bloc (dominated by the USA) vs the Eastern bloc (dominated by China) vs the uncomfortable straddlers of Europe and Africa in the middle. Namibia will be such a straddler of the blocs with interests on both sides.
• DISORDER: The fight will continue for control of multilateral institutions such as the IMF, WB, WHO, UN, and WTO. This disintegrates the rules-based order as the USA puts self-interest above international interests. More regional conflict and mass protests are likely. Namibian socio-political tensions are set to rise.
• DEMOGRAPHICS: By this, we mean shifting inter-generational spending patterns that will prioritise connectivity and content, mass retirement of the Baby Boomers, ageing populations, smaller workforces and rising dependency rates. Namibia’s unemployment rate will worsen and remain a serious problem, especially amongst the aspirational youth. One could say that Namibia enjoys favourable demographics in its young population, but they need to be mobilised into gainful employment as it were.
• DATA: It will be the new oil, i.e. an important strategic asset. This trend also includes digitalisation and automation. It encapsulates virtual reality, block-chain technology and artificial intelligence, as well as the tension between the use of data for security vs its encroachment on privacy via tracking and tracing. Namibia is still behind this digital curve, which means there is a huge opportunity for enhanced efficiencies.
• DISRUPTION: Traditional industries and behaviours will continue to be disrupted such as payments, financial services, client interaction, education, energy, auto’s and transport, property, shopping habits and banking models (low-interest margins). This theme also includes the increasing frequency of natural disasters/diseases, which is now well known. Global climate imperatives may disrupt national agendas. Namibian industries and sectors will not escape disruption, but this also means there will be opportunities to do things differently and perhaps more profitably and inclusively.
• DEBT: An immense global pile of debt is owed by households, corporates and sovereigns, which leads to a general deterioration of creditworthiness. This also means that the world cannot afford higher interest rates because it will lead to more defaults. The huge amount of borrowing by sovereigns leads to ever-increasing government involvement in economies as 10%+ deficits and 100%+ debt ratios become the norm. In Namibia, this debt theme is also playing out. We do not foresee a default on the horizon, but urgent reform is needed.
• DEFLATION: Here, we mean low growth rates and low to no inflation and not necessarily falling price levels in the strict sense of the word deflation. Production and consumption of “more and more” will no longer be the economic model. This results in little to no growth in per capita incomes leading to increasing inequality. We do not foresee outright deflation in Namibia, but a definite growth challenge.
• DISCOUNT RATE: Interest rates will likely remain at historically low levels, which means the opportunity cost of foregoing interest will be low. This presents a challenge to conventional investment decision making, which centres around the discount rate, as central banks pursue unconventional policy. This means that the “cost” is low to explore alternative investments such as private equity and direct property as well as non-yielding assets such as commodities and digital currencies. It also means that high yielding assets will remain in demand.

Sensible investments
In this challenging environment, it is clear that one should search for the most sensible investment strategy with the aid of a wealth creation partner that has stood the test of time. For instance, the “Distancing” theme means one should take a view of which geographies and/or currencies are likely to outperform. As nations turn inward, those with large domestic markets, natural resources, respect for property rights and flexible economies are likely to do well. Add to this leadership under the “Data” theme, which means, amongst other things, digital transformation, as well as adaptability to the “Disruption” theme and one, should be able to form such a view.
The “Distancing” theme with its implied bloc-forming provides a framework of thinking about the USA dollar debate. It is clearly in the interest of the opposing bloc to talk the dollar out of its reserve currency status as the underdog takes some market share from the dollar. However, so much of global trade, global financial transactions and central bank reserves are done and held in dollars, that it is hard to see it lose its pre-eminence. That is not to say that it will be stable and ever appreciating. It is subject to large cyclical swings just like any other currency.
The “Debt”, “Deflation” and “Discount Rate” themes mean that investors can lend to certain governments at attractive yields. With global yields low – it is estimated that 25% of total global debt now carries negative yields – domestic yields present a stand-out opportunity for good, inflation-beating returns. However, it also means that one should watch one’s counterparty exposures closely for credit risk.
Similarly, investors should consider each macro-theme and its investment implications, while bearing in mind that they also overlap and are mutually reinforcing. It is by no means an exhaustive list, nor is it the only approach to be explored, but, we believe, it is a good place to start.
*Floris Bergh is the Chief Economist at Capricorn Asset Management.

Similar News


Card fraud on the increase

2 days ago - 17 September 2020 | Opinion

Windhoek • Riaan ViljoenDuring the lockdown, a whole new generation of users discovered the joys and convenience of online shopping.Worldwide, online debit or credit card...

Be our guest and be your own host

4 days ago - 15 September 2020 | Opinion

Windhoek • Jurgen IsaacsWe sit behind our computer, tablets and other devices all day. Creating documents, doing projects, sending out quotes and all matter of...

Safeguarding our children’s mental health

5 days ago - 14 September 2020 | Opinion

Windhoek • Ayesha WentworthLife is tough, no doubt about it. Just assess your own life and all the things that are thrown at you on...

Managing your debt the easy way

1 week ago - 11 September 2020 | Opinion

Windhoek • Loide DavidIn August, the Bank of Namibia (BoN) cut its benchmark interest rate by another 25 basis points (BPS), a standard unit of...

No going back to old way of schooling

1 week ago - 11 September 2020 | Opinion

Windhoek • Prateek KhareWith the reopening of schools around the country, there are many questions in the minds of every stakeholder of the education sector,...

Is your testament up to date?

1 week ago - 10 September 2020 | Opinion

Windhoek • Paulina ElifasCrises have one thing in common: crucial decisions matter. One lesson we continue to learn as we fight Covid-19, is the significance...

An argument for cannabis

2 weeks ago - 03 September 2020 | Opinion

Windhoek • Angela Prusa2020 is slowly coming to an end. As I reflect on the Cannabis Journey in Namibia, I want to share the following:...

To truly develop Namibia

2 weeks ago - 31 August 2020 | Opinion

Windhoek • Llewellyn le HanéWe talk a good game as Namibians, but we are prone to not embracing real change. A small shift here, a...

When the going gets tough…

3 weeks ago - 27 August 2020 | Opinion

Windhoek • Sidney HansteinTeam Namibia member Outsourcing Solutions, a locally owned company that specialises in tailoring world-class human resource services to the needs of Namibian...

Be the CEO of your finances

3 weeks ago - 27 August 2020 | Opinion

Windhoek • Ester KaliAs we draw to an end of women’s month, allow us to reflect the importance of women when it comes to her...

Latest News

Qatar also heading back to...

2 days ago - 17 September 2020 | Transport

Come 15 October, Qatar Airways will be flying to Windhoek three times a week again.The announcement came earlier today, and follows the decision by Eurowings...

Sen Pang leads UN Namibia

2 days ago - 17 September 2020 | People

Sen Pang, the newly appointed United Nations Resident Coordinator in Namibia, was received at State House, where he handed over his Letter of Credence and...

Informal market coming for Havana

2 days ago - 17 September 2020 | Infrastructure

Windhoek mayor Fransina Kahungu said the city received a pledge of N$5 million from the ministry of industrialisation, trade and SME development to help build...

Eurowings makes a Namibian return

2 days ago - 17 September 2020 | Transport

Eurowings will resume their Frankfurt-Windhoek route this weekend, with the first flight landing at the Hosea Kutako International Airport (HKIA) on Sunday.In a media statement,...

Another Air Namibia resignation

2 days ago - 17 September 2020 | Business

The national airline’s chief financial officer Werner Schuckmann has tendered his resignation with effect 30 September 2020.The process to recruit a substantive chief financial officer...

Card fraud on the increase

2 days ago - 17 September 2020 | Opinion

Windhoek • Riaan ViljoenDuring the lockdown, a whole new generation of users discovered the joys and convenience of online shopping.Worldwide, online debit or credit card...

Masking Namibia

2 days ago - 17 September 2020 | Social Issues

Local social impact agency, Arba Stature, in partnership with Namibia Breweries Limited (NBL) donated 2253 face masks to 25 schools through its #CoverNamibia campaign.Designed to...

GIPF says investments safe

2 days ago - 17 September 2020 | Economics

The Government Institutions Pension Fund (GIPF) said that it is aware of the de-registration of the Baobab Capital (Pty) Ltd (the fund manager) and Baobab...

International accolade for EIF

3 days ago - 16 September 2020 | Environment

The Environmental Investment Fund of Namibia (EIF) received a certificate of merit for outstanding Sustainable Project Financing at the Karlsruhe Sustainable Finance Awards, recognising its...

Load More