Embrace technology to transform our economy

Going back 10 years, one dollar bought R11 and today, that same dollar buys R18, which means South Africans are 60% poorer than we were 10 years ago, said chief global equity specialist at Sasfin Securities, David Shapiro.

Speaking at the ORT SA Biennial General Meeting on 12 September, Shapiro said the reason for this massive depreciation was that the United States (US) had made great strides in technology.

“One of the big issues is that in South Africa, with interest rates where they are, with the prime rate at 11.75%, no business can function at those kinds of levels,” he said.

Having said that, he insists that the future for South Africans is improving, but it needs a lowering of interest rates. “Every time rates come down, it’s more money in your back pocket, which you can spend. We’re going into a period which is going to be much brighter.”

Shapiro expects a cut in interest rates soon, but didn’t elaborate on how much of a drop we’ll get. “We’re going to start to get back into a period of growth, something we haven’t seen for years, but we haven’t yet felt it, and it will take time to filter down.”

He said the Johannesburg Stock Exchange (JSE) was mainly dependent on the rand hedge, an investment strategy used by investors in South Africa to reduce the effects of currency depreciation or volatility on their investment returns. To try and keep up with economies like that of the US, the JSE needed to lessen its reliance on the rand hedge.

“We have to transform this economy,” Shapiro said. “We must embrace technological change. If we don’t, we’re just going to be left behind and continue to battle.

“If you walk into the JSE, $100 is still worth $100. It hasn’t grown. But if you would have gone into the US market, that same $100 would now be worth $284 dollars,” said Shapiro.

“The US markets will continue to dominate, and the dollar will continue to rule,” he said. “The US has just wiped out its competition. If you go to the US, whether it’s Amazon, Alphabet, Meta, Tesla, you name those companies, the reason that it has grown is the advancement of technology.”

Savings in South Africa are going into pension funds, Shapiro said, that are forced to invest in the country, thereby not saving enough. The only way we can compete is to embrace technology.

Shapiro believes the US has come out of high inflation due to the COVID-19 pandemic lockdown period because of its focus on new technology.

“Initially, central bankers [in the US] thought that the rise in inflation in 2021 was transitory – meaning it would go away once we opened the harbours, started the airlines, and got back to all those things that had created life as we knew it. Even though inflation was going up, no-one took any action.

“Suddenly, at the end of 2021, they found that it wasn’t transitory, it was sticky. To curb it, they put up interest rates at a pace that we hadn’t seen before.”

Shapiro maintained that the interest rates would have continued to rise if not for the introduction of artificial intelligence (AI) and ChatGPT in November 2022.

“All of a sudden, we had this bright area of technological advancement,” he said. “Technological advancement that we’d never seen before, which is going to continue for decades to come – or certainly for another decade.

“What AI means is that you’ll teach computers, and you’ll provide the learning skills, after which it will use the skills that it requires to help you in your business. Believe me, there’s not one business we know that won’t be impacted in any way,” he said.

He explained that one of the consequences of these technological advancements in the financial sphere is that after three or four years, we’ve got to a stage where central bankers have managed to get on top of inflation and start bringing it down.

One of the crises the financial industry is trying to tackle is the fact that people are starting to live longer, Shapiro said.

Most people are expected to leave the job market at about 65, and could live well into their 90s. “Sixty-five to 90-odd is more than 25 years of retirement. That’s a long retirement. And consider that you started working properly only at about 25. So, 25 to 65 is 40 years. You’d better make sure that in those 40 or 45 years, you’ve saved enough for another 25 years. Now you do the calculation. How many people save a third of their income now or even any at all? It’s becoming an issue.”

The only way to handle this issue was to ensure that your savings maintained their purchasing power, Shapiro said. “If you could buy a box of Smarties for R1 today, you better hope that in 20 years’ time, you’ve still got the equivalent of R1 to buy a box of Smarties or more.”