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Welcome to Mind Matters week of 4 April 2022
Global and local economic news
The rising toll of the war in Ukraine
“Prices are rising in anticipation of potential shortages. And what will happen is high-income countries will be able to pay, while lower-income countries will have access problems.” Sven Smit from McKinsey senior partner and chair of the McKinsey Global Institute.
This is a very good overall picture of the elements combining to make our lives, livelihoods and the challenges facing our planet more difficult to navigate right now. The interview is below in .pdf and .mp3.
SA's ICT sector grows despite economic slowdown
South Africa’s ICT sector continues to demonstrate signs of growth, recording R243.6 billion in revenue in 2021, up from R243 billion in 2020.
This represents an overall increase of 0.3% in total sector revenue, according to the 2022 State of the ICT Sector in SA report.
3min 40 sec read with data from the industry represented in easy to read graphs.
Silver lining for South Africa’s petrol price hike this week
A stronger rand exchange rate and the government’s decision to intervene on higher costs means South Africa’s ‘record’ petrol price hike this week will be comparatively muted, say economists at the Bureau for Economic Research (BER).
Note the dependencies on the price of petrol in SA and our economy. It would be a good exercise to list the ones appearing in the article. 2 min 30 sec read.
SA government debt will continue to rise faster than the global average: Janus Henderson
The second annual Janus Henderson Sovereign Debt Index expects local borrowing to grow another 10.3% this year.
Janus Henderson forecasts that South African sovereign debt will rise to $311bn (R4.5tn) by the end of 2022. That will be 51.1% higher than the debt that was owed by the government at the end of 2019, before Covid-19 hit.
It will also represent a 10.3% rise over the course of 2022, higher than the 9.5% rise in global debt the group expects this year.
Note the comment about shorter-dated bonds. 3min read
Why Stagflation Is Not A Concern, But There Are Other Things To Worry About
The possibility of a reoccurrence of stagflation after a 30-year hiatus is getting a lot of press these days. Stagflation is when there is high inflation, high unemployment, and slow or negative real economic growth—a world that is triply uncomfortable. Traditionally there are two periods in the 1970s that economists have defined as stagflation, 1974-1975 and 1978-1982. Both periods overlap with recessions.
Understand more about the term "stagflation" by reading this article or listening to the recording. This is an American perspective, but worth reading because the elements that supposedly contribute to stagflation are clearly drawn and our economy is influenced by the bigger players. 5 min read
Inflation and investments
South African Roelof Botha to head Sequoia, the world’s foremost venture capital firm
Not known for outrageous tweets, opinionated podcasts or anything that draws unnecessary attention to himself, South African Roelof Botha has quietly been named Senior Steward of the world’s most celebrated private equity firm, Sequoia Capital.
His goal, Botha writes on his LinkedIn profile, is to help exceptional founders realise their highest ambitions.
This is a great story to read as it shows how Botha has built his career and reputation within private equity and venture capital. 5 min read.
NMG Benefits extends investment abilities with Sequoia stake
Johannesburg-based advisory and intermediary firm NMG Benefits has acquired a stake in boutique discretionary fund manager Sequoia Capital Management as it looks to expand its ability to manage and execute client investments.
Note that this is not the same company as venture capital frim from California which Roelof Botha is to be heading up from June 2022, but worthy news. 3 min read. Find out what characterises a discretionary fund manager (DFM) by going to their site.
Elon Musk enters Twittersphere with $3bn stake – with insight from The Wall Street Journal
Tesla Inc. Chief Executive Elon Musk disclosed a 9% stake in Twitter Inc., sending shares of the social media company more than 25% higher.
In a securities filing disclosed Monday, Mr. Musk reported owning almost 73.5 million shares of the company, a roughly 9.2% stake.
This to be read in conjunction with the one below.
Elon Musk to Join Twitter’s Board of Directors After Becoming Largest Shareholder
The announcement Tuesday came after a flurry of calls in recent weeks between Mr. Musk, Twitter Chief Executive Parag Agrawal, and independent board Chairman Bret Taylor, as company officials learned that Mr. Musk was amassing a 9.2% stake in the platform, a person familiar with the matter said. The discussions culminated, according to the person, in the company offering a board seat to Mr. Musk.
Twitter shares soared over 27% on Monday, after Mr. Musk’s position in the company was first disclosed, and advanced 2% on Tuesday, closing at $50.98.
Who knows what Elon Musk's plan is ...certainly gets the shares moving! 4 min read
Musk buys 9.2% of Twitter, but will he realise the growth implied in the share price?
We, at Global & Local Asset Management, believe that Musk should have asked himself this very important question before purchasing this block of Twitter shares:
Is Twitter able to deliver the growth implied in the share price?
We at Global & Local Asset Management would have advised Musk to consult New Age Alpha’s, “Avoid the Human Factor Score” to view the probability of Twitter NOT being able to deliver on the growth implied in the share price.
Lovely article to get you thinking about how to invest. Note the disclaimers used by Global & Local Asset Management - that's very good and you should get into the habit of doing that too when asked for advice on these matters. 3 min 30 sec read
Cash/money market investments and the lurking inflation monster
The S&P 500 Index reached a (new) all-time high of around 4 800, towards the end of 2021, before the latest market pullback. Whilst the reasons as to why the index has had a pullback are well documented, many have resorted to ‘panic selling’ and cashing in, or those who were sitting on cash before, have simply opted to continue doing so.
What does the phrase “an all-time high” mean? What would you do if you had $1000 dollars invested in dollars? 3 min read.
Investing in Corporate Credit in a Rising Interest Rate Cycle
South Africa entered a rising interest rate cycle for the first time in three years when the SA Reserve Bank’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points (bps) at each of its previous three meetings. The impact this will have on corporate credit in the years ahead will largely depend on the extent and time frame of future rate increases.
The decision to raise rates has been driven primarily by rising inflationary concerns, oil shocks, and volatile emerging market sentiment giving rise to outflows of foreign capital. The Quarterly Projection Model rate forecast suggests that we will remain in a hiking cycle for the near future, leaving investors debating the pace of the upcoming rate hikes.
Find out what a basis point is and then read the article. 5 min read.
Asian shares slip as Japan 'tankan' shows weaker outlook
TOKYO — Asian shares were mostly lower Friday as a resurgence of Russian attacks dashed hopes for any quick end to the war in Ukraine.
The retreat followed a broad decline on Wall Street, which closed out its worst quarter since the pandemic broke out two years ago.
A closely watched quarterly gauge of business sector sentiment in Japan called the “tankan,” carried out by the Bank of Japan, found the benchmark indicator for large manufacturers dropped for the first time in seven quarters, losing three points from a survey in December to 14 points from 17 points.
Once again we can't get away from the impact of the war in the Ukraine across the globe. 3 min read
Industry news
Actuary honoured with coveted Chancellor’s Medal
Bradley Moorcroft, an actuarial science graduate, is the recipient of Stellenbosch University’s (SU) coveted Chancellor’s Medal for 2021.
The medal is awarded annually to a final-year or postgraduate student who has excelled academically, has contributed to campus life in various ways, and has worked hard at developing co-curricular attributes.
This is a wonderful achievement for Bradley. Nice to see an actuarial student claiming this medal. 4 min read
However, I am also interested in the use of the word "actuary" in the title. In view of last week's article on who may call them themselves an actuary, it appears that the media is perpetuating the misuse of the noun.
However on hearing the error the Stellenbosch actuarial science department had the title changed immediately to:
Actuarial Science graduate honoured with coveted Chancellor's Medal
Ukraine War-Related Claims Despite Exclusions
European and U.S. insurers, already facing mounting losses in the past year, have been driving up premiums due to the increased coverage cost and prevalence of so-called ransomware attacks.
Cyber insurance—whose market ratings agency Fitch says totaled over $2.7 billion in 2020 in the United States alone—covers a business for the repair of hacked networks, business interruption losses and also cyber ransom payments.
Such policies do not cover war, or attacks by so-called “state-sponsored actors.”
Do you think the war and exacerbating cybercrimes may make insurance unaffordable? 5 min read.
Global Insurance Losses From Russia-Ukraine War Could Range From $16B to $35B
While recent articles in the press have focused on the industry’s aviation exposure to leased jets that have been confiscated and grounded in Russia, other specialty lines are also exposed—such as trade credit, political risk (contract frustration, agriculture and commodities), cyber, political violence and marine hull war, said S&P.
Get the full picture of in the impact of the war in the Ukraine on the bigger players in the insurance industry. 4 min read.
FSCA is concerned about life insurance premium increases
The FSCA says it will continue to ensure that insurers adopt “a fair and balanced approach” towards premium increases, while taking into account the valuable role the insurance industry has played in difficult economic circumstances.
The Ombudsman for Long-term Insurance saw a 48% increase in the number of complaints related to policy lapses last year, as policyholders struggled to pay premiums, the FSCA said in its 2022 Financial Sector Outlook Study, which was released this week.
3min read.
Actuaries: Social Inflation Increased Commercial Auto Claim Costs by $20B Over 10 Years
The Insurance Information Institute teamed up with the Casualty Actuarial Society to measure excess losses that cannot be explained by regular increases in the Consumer Price Index. The analysis attributes $20.7 billion in commercial auto losses from 2010 to 2019 to loss-development factors that cannot be explained by general inflation. The amount is equal to 14 percent of the total $148 billion in claims paid during that time.
Moore said social inflation can be easily missed by actuaries who use the traditional loss-development method. He said that can impact claims management, in addition to rate filings.
Social inflation could be described as increasing claim costs caused by out-sized verdicts and increased litigation, although there is no formal definition of the term according to the article. This is a good read because it shows how theory has been applied in practice. 4 min read
Cyber security
Experts Confirm Cyber Incidents Up Since War in Ukraine Started, Insurance Underwriters Adapting
Concerns about increased cyber incidents across borders have been raised since Russia launched a full-scale military invasion of Ukraine on Feb. 24. The Harvard Business Review reported that while Ukraine has been a target of Russian cyber attacks for years, incidents resulting from Russia’s recent invasion could quickly spread beyond Ukraine.
A well written article from America's Carrier Management. 5 min read.
US claims South Africa targeted in Russia’s global hack attack campaigns
South Africa has emerged as one of about 135 countries the US claims Russian government employees targeted as part of two massive hacking campaigns aimed at disrupting energy companies and critical infrastructure.
The alleged aim was to “undertake a sophisticated campaign to target and compromise (i.e. ‘hack’), and maintain persistent access to the networks of critical infrastructure and energy companies worldwide”.
This article covers much more than just the risk of being hacked, it traces some of the background to SA's relationship with Russia regarding energy and how these negotiations could have paved the way for infiltration. 7 min read
Data scam and impersonation fraud statistics are skyrocketing, here’s what you need to know
Two years ago, another credit bureau, Experian, had a data breach relating to 24 million consumers. The South African Fraud Prevention Service (SAFPS) reported that, in the year after the Experian breach, it saw a massive jump in fraud across the country. Chief executive of SAFPS, Manie van Schalkwyk, said fraud listings increased by 62%, victim listings increased by 54% and impersonation fraud tripled, rising 337%.
4 min read
R90m hack at Postbank kept under wraps
Unknown individuals, most likely working from inside the aspiring state-owned Postbank, stole millions through the social grant system late last year. The breach, which has been kept a secret, is the second time the SASSA payment system has been compromised since Postbank took charge of the social grant payment system in 2018.
This is frightening, we cannot keep losing money, it's as if the country is bleeding profusely and continuously. No amount of printed notes can stop this condition. 4 min read
Technology and financial services
Digital skills crucial for Africa’s 15m new jobs target
ith Africa’s population expected to double and reach 2.5 billion people by 2050, the continent needs to create at least 15 million new jobs by 2025 to combat the unemployment crisis.
To obtain this target, governments will have to invest heavily in the tech and digital industries, and create green job opportunities, while modernising the agricultural sector to increase productivity.
The Harambee Mapping of Digital and ICT Roles and Demand for South Africa Survey found that digital skills and services have the potential to pave the way for over 66 000 jobs in SA’s ICT sector, two-thirds of which are entry-level roles.
Why should you bother about employment? Because insurance is only a prospect for those who are employed. Lets' get behind the drive to skill our people SA! 4 min read
SARB forges ahead with blockchain experimentation
he South African Reserve Bank (SARB) is making headway with experimenting with digital ledger technology (DLT) for interbank wholesale settlement.
Interbank settlement is the transfer of funds between the bank of the originator and the bank of the beneficiary in relation to a payment transaction.
Read more about how blockchain is intended to be used by SARB. 4 min read.
Applications Open for the First National Bank (FNB) Graduate Programme 2023
Take advantage of the opportunity to apply!
Banks discriminating against black people, says consultant
FINANCIAL investigations consultant Emerald van Zyl has said the matter of discrimination at a banking level was not a new one and South Africa’s banks have only one purpose, and that is to increase their profits.
A very disturbing article. 4 min read.
Better forms of energy?
SA energy to light up?
Investments made at inflection points are often the most rewarding. They’re slippery, though, because it’s easier to believe an established trend will continue.
The decay of South Africa’s power infrastructure is one such trajectory. But unlike the previous decade, this one holds feasible solutions to our energy crisis and the private sector is invited to participate.
Good article, probing read, sponsored by Investec. 4 min read
South Africa is pursuing major gas deal — and Russia wants in
Gazprombank, owned by Russia’s state-owned gas supplier, confirms it is considering a bid for what is potentially a multibillion-rand contract — which, if awarded, would raise questions on whether South Africa’s stance on Ukraine is being influenced by its thirst for gas.
Amid a war in Ukraine and soaring gas prices, South Africa wants to urgently secure access to vast amounts of natural gas.
The Central Energy Fund (CEF) released a tender last month, looking for a gas aggregator to help secure liquified natural gas (LNG) for various gas-to-power projects planned for the Coega special economic zone in the Eastern Cape.
A gas aggregator is a wholesaler that imports LNG in bulk and sells it to smaller customers.
Informative article, useful in understanding the alternative energy and government's plans. 4min 30 sec read.
Separating fact from fiction – Why EVs are still much greener than gas guzzlers
And are emissions from wind and solar resources, including construction emissions, lower than emissions from fossil generation? Emissions from battery production are significant, but when EVs get their energy from clean sources like wind and solar their overall life cycle emissions’ consequences will be lower than fossil fuel-powered vehicles. And while there is no disputing that EV vehicle and battery production have issues to overcome, the internal combustion engine can’t in any way compare to the reduction in total impact on our planet in terms of the environment and pollution provided by electrification and EVs.
As the power grid moves towards cleaner sources like wind and solar, life-cycle emissions of electric vehicles improve.
4 min read
Landmark move as South Africa gets more private electricity to take on Eskom
The National Energy Regulator of South Africa has awarded a private electricity trading licence for the first time in over 12 years, as the country looks to move away from Eskom’s power monopoly.
The license enables Enpower Trading to source competitively-priced, predominantly renewable power from multiple independent power producers (IPPs) and small-scale generators, transport or ‘wheel’ this energy across the national and municipal grid networks, and sell it to customers at a discount to prevailing electricity tariffs.
Encouraging 3 min read.
About you
10 Uncomfortable Deeds That Will Pay Off Forever
T.S. Eliot was clearly onto something when he asked, “If you aren’t in over your head, how do you know how tall you are?” The very act of stepping outside of your comfort zone is critical to your success and well-being.
Our brains are wired such that it’s difficult to take action until we feel at least some stress and discomfort. In fact, performance peaks when we’re well out of our comfort zone. If you’re too comfortable your performance suffers from inaction, and if you move too far outside of your comfort zone you melt down from stress.
This is an article which speaks directly to you as a high achiever. How much stress is enough? Do you have comfort zones - I know I do and have to move out of them to grow. 5 min read
10 Bad Habits You Must Eliminate from Your Daily Routine
You are the sum of your habits. When you allow bad habits to take over, they dramatically impede your path to success. The challenge is bad habits are insidious, creeping up on you slowly until you don’t even notice the damage they’re causing.
“Chains of habit are too light to be felt until they are too heavy to be broken.” – Warren Buffett
Breaking bad habits requires self-control—and lots of it. Research indicates that it’s worth the effort, as self-control has huge implications for success.
You're going to love this one. They quote a longitudinal study on the impact of self control on GPA! Saying "I will stop studying now and take a break" is also self control. A 5 min read
Reduce stress at work and prevent burnout – a psychologist explains how
Stress, and more chronic exhaustion such as burnout, is commonplace within the modern workplace. People are sinking under the pressure of an attendance culture that glorifies being present at work at the expense of their health. But why exactly does this happen and what can you do to prevent it?
An informative article, written before lockdown 2020 and focussing on the workplace. However, the principles apply to you as a student. Students are more likely to experience burnout than working people, particularly high achievers like actuarial science students. More senior students particularly may see themselves as being in the workplace already with the constant pressure of understanding and delivering at what feels like top speed! Make sure that you get this message before you enter the workplace. Available below in .pdf.