Important forecasts for 2021

Important forecasts for 2021

Important Forecasts For 2021

It’s time to pack the year away and make space for everything 2021 has to offer. The past year has shown us that forecasting can sometimes be closer aligned to fortunetelling than the actual practice of analysing statistics to extrapolate possible trends and trajectories.

Nevertheless, it’s in our nature to analyse and assess risk, outcomes and progression for the future. So let’s see what the big minds of our time are predicting for 2021.

Emerging markets to lead economic growth

It’s not a trend we see often, but wealth and investment management firm Morgan Stanley believes that we’re likely to see strong global GDP growth in 2021, and that this growth will be led by emerging markets.

Some analysts argue that emerging markets who rely on first world economies and their trade will suffer as these nations focus on their internal growth and recovery, but Morgan Stanley’s Chief Economist Chetan Ahya states that the opposite is likely true.

The firm argues that most emerging markets are better geared to face economic catastrophe and more capable of adapting their businesses and way of life to operate within their means. Conversely, the impact of the pandemic on more advanced nations could be more stark as people and businesses who have not faced such adversities before adapt to a new way of life. Current research also indicates that citizens from many emerging economies have been more cooperative in facing the trials of Covid-19 and less aggressive in seeking bailouts—whether this is because they’re used to not receiving help or know that communities need to assist each other, the motivation behind this is up for debate. 

Morgan Stanley did reiterate that this trend will probably not be a long-term one, as Europe and the USA are bound to catch up. This does not include all of Europe though. Given the impact of Covid-19 and reliance on tourism, Spain, Italy and the UK are projected to maintain low growth.

An interesting anomaly is Brazil. This emerging nation has historically outpaced other nations in this band, but a combination of political scandal, horrendous Covid-19 intervention and controversial policy changes has plunged the country into a recession and the nation is bound to remain in this tight spot for the foreseeable future. Indeed, though South Africa’s economic contraction exceeds Brazil’s for 2020 (8% contraction for SA v 5.8% for Brazil according to the WHO), our estimated recovery in 2021 outpaces Brazil’s, and Bloomberg data indicates that South Africa’s bond yields have overtaken Brazil’s. Brazil’s debt to GDP is estimated to reach anything from 100% to 140% by 130.

Online work and learning to become the norm

An interesting positive knock-on of 2020 is companies and educational institutions embracing a shift to online systems.

It’s something many students and employees have requested for years, but many business and institutional heads kicked back against this idea. The rationale behind this resistance was a combination of several concerns, including that:

  • individuals don’t have the self-discipline to operate without direct management
  • systems and processes weren’t optimised for online or remote learning and working and the risk outweighs the cost
  • monitoring and coordinating remote quality, quantity of work or education would be unfeasible
  • the cost of technological provision—whether devices or connectivity—would be too high for the end-user

It’s unlikely that the above-mentioned factors will probably not have been addressed had it not been for the global pandemic. The cost implications in particular will have prevented widespread implementation of remote working, lockdown provided no option but instant adaptation. The cost of technology for the end-user will also have been far more relevant without a pandemic. In 2020, however, the public and private sector had joined forces to provide low or zero-rated internet and websites, and institutions implemented various innovations to ensure access for all.

As for self-discipline and monitoring participation and output—the concerns had mostly been based on personal opinion and anecdotal evidence. In fact, many companies have indicated that they’re seeing higher participation and greater personal accountability. The same is true for educational institutions.

In one of our previous articles we shared the surprise of the South African universities at the remarkable performance of students. Educational institutions had anticipated an enormous drop in participation, lower marks and higher drop-out rates. The results were quite the contrary. Less students have dropped out of varsity, more students seem to be participating in online learning, and average marks have improved drastically.

The Department of Education is so impressed by these results that they are urging all South African universities and colleges to provide online learning opportunities. This will open up many doors for South Africans as most universities do not offer any remote or online learning, which greatly limits options for those who cannot attend class in person.

South Africa’s economy – the rollercoaster continues

When it comes to SA’s economy, the unfortunate news is that we’re not likely to get off this rollercoaster soon. The trend, whose rhythm we’ve gotten used to in the past few years, is bound to continue.

Not only are there widely divergent forecasts from different factions, but many analysts believe that there are too many hurdles to overcome, irrespective of possible growth.

As an emerging nation, South Africa has thus far fared relatively well compared to other nations with regards to our Pandemic response. Epidemiologists have studied trends and drawn comparisons which account for disparities in reporting, treatment, age, income group and other factors. Even after comparing similar income groups with equal access to healthcare, similar age, race, gender and comorbidities, South Africa is fairing far better than many first-world nations. Though no specific conclusions can be drawn as yet, the assumptions are that:

  • Despite far lower quality in healthcare in general, South Africa was better geared to respond swiftly to the pandemic and set up field hospitals and treatment centres because we’ve had to do this before.
  • Given migration, immigration and ubiquity of illnesses and viruses which aren’t prevalent elsewhere, our citizens have received immunizations not widely used in other countries, though the exact vaccines have not been identified (anti-malaria, tuberculosis, antiretrovirals and yellow fever vaccination are all being studied in this regard)
  • In line with the above, many people may have built up natural immunity to certain viral diseases and bacteria due to inadvertent infection. Close proximity, limited sanitation, dietary shortcomings and other health drawbacks have made individuals more vulnerable to disease, and infection has provided a certain level of immunity.
  • Most emerging nations don’t have the same level of industrial and agricultural intervention and processing of foodstuffs as the developed world. With many people receiving and consuming food from small-scale farmers, incapable of properly sanitising foodstuffs and not able to afford processed foods, the hypothesis is that we have better gut-health and are more resistant to bacteria and viruses. Vitamin B12, an essential immune booster which can only be consumed naturally through eating unwashed produce, would also be higher for developed nations, which could be a factor.
  • Although we have the same inherent problems as other nations—the polar views on the virus, fake news, radical outrage and non-compliance—South Africans are far more willing to comply and cooperate for the greater good of all. This may not be as visible when listening to mainstream media, but researchers have found that people generally act less entitled and more socially conscious in the developing world.

But our pandemic response has come at a cost which we can’t quite afford. South Africa has implemented one of the largest pandemic response programmes in terms of monetary value to GDP and though president Ramaphosa and Tito Mboweni had been applauded by many at first, the fractures in leadership and general disorderly running of the ship has come under fire.

Not only have The President and Minister of Finance drifted apart in the past few months, but the government’s power struggle around lockdown legislation, seesawing on SOE restructure and addressing widespread Covid-19 fund misappropriation and corruption. Amid all the hubbub, new legislation and regulations have also been snuck into parliament and ratified without much consultation with the public. Among these, of course, is the 3-year pension freeze for emigrants. It’s no surprise that South Africans and foreign investors are concerned.

The IMF and World Bank who’d further financial support for South Africa unless they commit to SOE reformation had made concessions during Covid-19, but it’s noteworthy that South Africa swiftly backtracked on SAA and other restructures once the funds were securely in our pockets. Of course we cannot assume that this was a deliberate move, nor did these institutions place sanctions on funding applicable to SOE administration. But it is a bit of a slap in the face, irrespective of the terms of the official handshake.

It’s no surprise that the forecasts for South Africa’s coming year are quite divergent. As noted earlier, the WHO places South Africa’s economic contraction for 2020 at 8%, but what do other analysts, organisations and investors see for our future?

Below a snapshot of forecasts. Unfortunately most bodies and analysts don’t use the same algorithms, criteria and baselines for forecasts, so drawing comparisons can be rather tricky when such details aren’t disclosed:

  • Annual GDP for 2020: -7,84 % (IMF, ZA Treasury, IMF, OED, World Bank)
  • Inflation 2021: 4,35% (Trading Economics, ZA Treasury, IMF, OECD)
  • Debt to GDP 2019: 63,3% (Actual)
  • Debt to GDP 2020: 81,3% (ZA Treasury, World Bank)
  • Debt to GDP 2021: 83,55% (Trading Economics, ZA Treasury, IMF, World Bank)
  • Unemployment rate 2020: +5,6% (ZA Treasury, OECD)
  • International Poverty rate 2019: 19,7% (Actual)
  • International Poverty rate 2020: 21,9% (World Bank)
  • International Poverty rate 2021: 21,6% (World Bank)

South Africa’s is estimated to recover from the economic knock of 2020 anything from 2024 to 2030. It’s hard to grasp what the future holds exactly, and coming months will be telling.

Complete overhaul of insurance industry

One industry which has faced a massive knock this year is the insurance industry. Not only have insurers been forced to pay out far more than previous years, but many have been taken to court and lost after refusing to pay for Covid-19 losses.

Insurance which has been impacted most during this time is business insurance and unemployment insurance which can be taken out as a standalone policy or form part of credit life insurance policies. Though the latter doesn’t generally pay out when individuals are fired from their roles, many do cater for retrenchment and cover down payments on credit cards, retail accounts, home loans, vehicle finance, short term loans and revolving credit facilities.

When it comes to health insurance, many private health insurers have been prompted to include Covid-19 testing and treatment as a prescribed minimum benefit for all medical aid plans without adjusting monthly levies. Though it has been said that part of the Covid-19 testing and treatment for medical aids is supplemented by governments and organisations like the WHO, it is not clear what percentage is covered and this is bound to be limited for private medical aids.

Using Discovery Health as an example:

  • Discovery has 6 million clients
  • South Africa’s test per million is 98 234, cases per million is 14 435, with an estimated 15% of patients requiring oxygen therapy (2 165 per million) and an additional 5% requiring mechanical ventilation (108 of 2 165 per million)
  • Discovery covers 2 tests during the pandemic at R850 per test, has been paying an estimated R85 000 per client requiring hospitalisation (oxygen therapy) and R340 747 for those requiring advanced ventilation.

Determining multipliers:

  • 98 234 x 6 = 589 404 tests
  • 14 435 x 6 = 86 610 positive cases
  • 15% of 86 610 = 12 992 cases requiring hospitalisation
  • 5% of 12 992 = 1 949 cases requiring advanced ventilation
  • 12 992 – 1 949 = 11 043 case at lower hospitalisation cost estimate

Using the numbers above:

  • Overall cost of testing: 589 404 x R850 = R500 993 400
  • Cases requiring hospitalisation (non-ventilator): 11 043 x R85 000 = R938 655 000
  • Hospitalised cases requiring advanced ventilation: 1 949 x R340 747 = R664 115 903
  • Total cost: R2 103 764 303

Of course this is not exactly how budgeting and cost estimates work as all Discovery clients would not be tested and treated and individuals on private medical aid are hypothetically at lower risk of infection. The prevalence would be far higher for South Africa in general than it would be for a high-end medical aid. If we cut this number down to an arbitrary third, this brings us to R701 254 768.

Consider, also, that prominent health insurers provide additional mental health cover and services, pre-screening GP visits and facilities, cover the cost of additional tests should they bee mandated by medical professionals or if the person being tested is a medical professional, and a company like Discovery also offers 60% payment for accommodation to those individuals who have to self-isolate at designated hotels, motels or other isolation locations. 

Discovery further noted that they have seen a massive reduction in preventative care and screening tests for non-Covid-related illnesses and lifestyle diseases which is a worrying sign. Many medical aids offer risk assessments and incentivised wellness products since this has proven to drastically reduce claims for existing chronic care and hospitalisation as well as new applications for chronic care. Though the trend is attributed to clients avoiding public areas, there is every likelihood that clients suffering from lifestyle and chronic illnesses or those who may have forestalled such illnesses will need to seek medical care in the near future in increasing rates. 

If we add business insurance and life insurance claims to this pile, it’s quite obvious that insurers are facing a gloomy year. 

Among those local insurers who have lost court cases for refusing business insurance claims under Covid-19 are Old Mutual, Guardrisk (a subsidiary of Momentum Metropolitan) and Santam. Given that these institutions have been ordered to pay both the claims and legal costs, it’s unlikely that they will risk further legal battles and are therefore bound to pay claims.

Liberty Holdings has warned that the implications of this can lead to bankruptcy of the very insurers who insure bankruptcy and financial losses for others. The group had set aside a pre-tax pandemic reserve of R3 billion, and yet they’d seen an increase of 5,1% on death and disability payments (R5,3 billion) and 6,1% increase in annuity payments (R4,1 billion) during the pandemic. The group did not specify whether this was an increase year-on-year or an increase above the estimated claims for the pandemic period, but alarm bells are nevertheless ringing all over.

The knock-on effect of such losses is that these companies are bound to lose investors and will need to consider restructure and retrenchment which will reduce their workforce capacity.

Noting just these two companies (Discovery and Liberty), it is easy to see how such anecdotal cost and loss estimates will impact the rest of the country, continent and world as a whole.

Accelerated emigration and immigration

Many analysts believe that we will see a drastic increase in worldwide migration in 2021 for various reasons.

Firstly, with borders closed worldwide many people have had to put their existing emigration plans on hold during 2020. Once borders start opening up in 2021, we’ll therefore not only see new immigration applications, but the past year’s quota will also be added to this.

A second factor cited by psychologists and human resource specialists is that the global lockdown has forced many people to reconsider their lifestyles and life goals. Not only are people eager to get out and about, but they are more open to the idea of change. Psychologists who have worked with many people during lockdown have also pointed towards the possibility of big lifestyle changes and a search for adventure which may have previously seemed too risky.

They noted that it’s an intersection of drivers which motivate this trend. Having been stuck at home (mostly) for the greater part of 2020, the existing home as sanctuary is no longer such a prominent factor in keeping people rooted, and clients have even noted that they would prefer to be stuck in a new location should another pandemic strike. Additionally, with many people losing their work or realising that they can work remotely they are either compelled to consider new careers or aware that they are no longer bound to traditional modes of operation.

Another factor which motivates this forecast is the sudden spike in global cooperation and connectedness on social media. Being barred from interacting with loved ones in person and unable to participate in common activities and hobbies, people flocked online the world over, and this created a myriad of new global social media interactions. While most people had used social media traditionally to connect with known friends and family, Covid-19 had seen a massive surge in the creation and joining of international groups. Many of these groups have been focused on users sharing information about their homes, and these interactions have led many to consider visiting or moving to places they’d never considered before.

Lastly, with many countries struggling with economic contraction, there’s every likelihood that they would be looking to draw new global interest and reconsider existing restrictions on immigration. While the past few years have seen many countries tighten their policies in this regard, 2020 may be a catalyst to reverse this trend and encourage easing during 2021 to encourage investment, attract international talent and boost entrepreneurship.

Increasing income disparity

In South Africa alone, unemployment and loss of income has had a massive impact on the middle and lower class, with the middle class taking the brunt of it. Of the estimated 54% of households who are estimated to be pushed into informal trade, 62,96% of these will be households who are eliminated from the middle class.

BankservAfrica estimated the average take-home income in the private sector to be R14 197 per month while the National Credit Regulator places this number at R20 000, while Business Insider places the average income for those in the informal sector at R6 000 per month. If we only consider the impact on the middle class, this presents a loss of income of 58,55% to 70% for those individuals moving from the middle middle class private sector to the informal sector.  Of course, it is not yet known what percentage of the middle class will merely move to the lower income bracket in the private sector and what percentage will move directly to the informal sector. As such, one cannot quantify loss of income for the middle class or as a whole as yet.

But another worrying trend noted by Paul Slot from the Debt Counseling Association stated that an estimated 10 million South Africans have bad debt and an estimated 63% of South Africans with bad debt spend 63% of their after-tax income on repayments.

Another number to consider is the word-wrangling that Statistics South Africa—or at least the governmental bodies who provide classifications for demographics and targeted groups—has used to misrepresent unemployment statistics. We noted in previous articles how the Trump administration claimed to have reduced job losses by eliminating the number of individuals who had fallen out of the job market entirely, and it seems SA has followed suit.

In its findings published in September 2020, Statistics South Africa state that the number of employed persons decreased by 2,2 million to 14,1 million in the second quarter of 2020 compared to the first quarter. It seeks a silver lining in this regard by noting that although this has been the largest quarterly decline since the survey began in 2008, the number of unemployed persons declined by 2,8 million to 4,3 million in the second quarter compared to the first quarter of 2020. Another supposed silver lining it presents is to state that the number of discouraged work-seekers such as those not seeking employment has decreased by 447 000. And then, it states that the majority of those who moved out of these three categories moved into the category of not economically active, which increased by 5,6 million between the two quarters.

This is a worrying jumble of words and classifications which are blatantly misrepresented. Reclassifying unemployed persons as not economically active and using a quarterly decline which seeks to mitigate the loss of employment by fallaciously contrasting the highest quarterly loss in 12 years against the subsequent quarter is absurd and foolish. Though this misrepresentation will not fool any statisticians or analysts, it should be noted that most laymen don’t read far further than headlines or quick scans and the message on the street may not communicate the gravity of the situation.

To add insult to injury, the upper and highest income groups seem to be mostly flourishing in this climate as they are harnessing the opportunities at their disposal. Our most affluent international moguls are bloating their wealth with each second of 2020. Jeff Bezos (Amazon founder) saw his wealth increase from $74 billion to $189,3 billion in the first two quarters of 2020. Elon Musk increased his wealth by $47 billion in the same period while Mark Zuckerberg gained $15 billion.

Though most of these individuals are simply capitalising on gains on existing products and services, many people in the upper income market have seen opportunities to offer low-interest loans, financing and bail-outs to business partners, companies and individuals. Though they certainly face risk through these loans, they are guaranteed a passive income on the loans which are honoured, and may gain additional benefits such as shares, patents, royalties or other interests in these investments.

As a rudimentary example, if Jeff Bezos sets aside $10% of his wealth and offers credit at half the lowest interest rate in the US at 1% while reinvesting the income generated from these loans, you can see how lucrative such a scheme may be. And of course, the chance is fairly slim that such a person or business would ask a mere 1% interest, forego administrative and risk or insurance costs, or not harness additional benefits mentioned above. Additionally, chances are high that the income generated from such loans or incentives would be reinvested at rates which offer far higher returns than the 1% interest levied from debtors.

The future of travel

In line with the increase in immigration there is an enormous interest in travel around the globe. Although many households have suffered financial knocks, those individuals or families who take frequent trips will not have spent all funds reserved for such trips and will also be eager to engage in leisure activities.

The travel and tourism industry is also bound to offer incentives to get the industry back on its feet.

While travel will see an influx of interest, travel experts have stated that 2021 will see great changes to the type and mode of travel, including:

  • An increase in regional and domestic travel and tours: this will be especially prevalent in the first quarter of 2021 as many countries may experience second or third waves of infection and new lockdown restrictions.
  • A preference for outdoor activities and less interest in traditional, crowded tourist areas.
  • Greater interest in small and private group travel as opposed to mass tours, cruises and excursions, but less single travel excursions as individuals seek company of at least one other person they know and feel comfortable with
  • Increased interest in health and wellness travel such as to spiritual retreats, spas and health packages.
  • More interest in all-inclusive ‘home away from home’ offers which allow families to enjoy private holidays which offer a range of amenities and access to on-site services
  • Greater interest in educational or skill-boosting excursions where travel can be combined with learning crafts, languages, outdoor, gardening or cultural skills.
  • Greater interest in meeting and staying with foreigners met online.
  • Greater interest in travel to remote regions and countries which don’t usually get such high traction.
  • Heightened focus on sustainable and philanthropic travel activities including volunteering in rural areas, especially among the Millenial group.

In addition to these predictions, we’re also bound to see various advancements which facilitate:

  • smart travel applications, venue amenities and transport
  • no-contact booking, ordering and check-in
  • novel health and travel insurance packages
  • health and wellness kits
  • greater focus on local delivery, health, transportation and shopping services

Future of business – thinking smaller but broader

With so many businesses struggling under the pandemic, business analysts foresee that we’ll be seeing many businesses scaling down drastically with regards to services, products and staff compliment while simultaneously considering ways to cooperate over a greater territory.

This is said to be particularly relevant to the services industry as businesses seek collaboration with limited overheads—something which is best achieved through digital and remote cooperation as this limits travel, insurance, logistics and operational costs.

In the agricultural and manufacturing industries we have already been seeing a massive recalibration of sorts, with many micro-operations popping up across the world which provide focused regional production and delivery. Small-scale and community gardening and handmade craft services are booming. Interestingly, many people and businesses who have entered this arena will not have existed without the pandemic as catalyst. Desperation has prompted many to take risks and apply themselves in ways they will not have considered previously, so the unexpected upside of 2020 is that many people are now engaged in small-scale projects which may be more rewarding in the long run than the positions they’d previously filled.

Many new online financial, educational and collaboration services are also bound to pop up during 2021 as tech companies consider novel risks and trajectories for worldwide digital, AI and VR advancement.

Reinventing financial services

As noted above, financial services is likely to see a rapid increase in online and remote offerings and products.

But this is not the only change envisioned for 2021 and beyond. Global citizens are not only bound to see new products and services, but also a massive easing of administrative and policy restrictions.

As with the corporate world and other industries, financial services providers will need to reconsider non-essential restrictions and red tape which prohibit access due to bureaucratic, authentication or hard-copy/in-person authorisation restrictions.

In South Africa, for instance, many financial services institutions and credit providers require paperwork, authorisation and proof of income, proof of address or other administration which is not mandated by the government. In fact, though the South African government and legislative bodies do require some of these details, they aren’t hardly as restrictive as to the way in which such details are captured, recorded or authenticated that some companies insist on. Digital authentication is not prohibited by South African legislation, nor official certification or affidavits for many of these stipulations.

As household income and expenditure are also taking massive knocks, financial services providers will need to tap into new markets which facilitate the type of business and interaction occurring at ground level. Bartering of services, skills and products has increased in the past year as are community saving schemes like stokvels. Those who are ahead of the pack will consider how they can quantify, monetise and tap into these markets to provide novel credit, insurance, investment and transacting services.

Hope for the new year

Some of these forecasts are worrying while others provide hope for an exciting new year filled with new adventures and opportunities.

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