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Extra Virgin - January 2010
Money
moneyIt’s a term often associated with school sports prodigies or fledgling romances – and let’s be honest, they are seldom lived up to. But now, perhaps more than ever, we live in a time of great expectations. Our Rainbow Nation has been one of the most consistently backed horses in the emerging nation’s sweepstakes for many a year now...

As this is a piece more focused on economic and financial matters, horse racing and dating prognostications will have to wait. It is worthwhile though, as we begin the year, to re-examine our reasons for elevated expectations - not just for sporting success but, more importantly, the economy and financial health of South Africa.
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The hosting of one of the largest and most televised sports events in the world is no small thing. It has provided the catalyst for innumerable public works projects, which despite the headache they currently provide, no matter where you live in the country – will enable and enhance the country’s economic capacity in time. The economy has remained more robust than many international peers, and appears to have already recovered to some degree from a calamitous 2008 and 2009. Interest and inflation rates are relatively low and stable and forecasts for 2010 expect this trend to continue.

The stock market has rallied by as much as 60% - depending on which sector you look at - from the lows of March 2009. We eagerly await a wave of tourists and business people; new sets of eyes and ears will hit our shores this year, and we hope to display our rainbow colours in all their glory. There is a general hope and consensus amongst us that this is All Good, that economic benefits must and will flow almost immediately.

History and experience will caution us to dampen our collective elevated expectations. With the exception of a few already wealthy nations, all countries that have hosted major sporting events like The Olympics or Football World Cup have endured post event financial hangovers for some time. Government finances are stretched, as stadiums and roads are paid for over a long period, and funds are thus diverted from more pressing domestic causes.

Anticipated financial windfalls don’t always materialise due to the arrival of eager and willing investors, whilst debts and overheads remain. Capital investments or extraordinary profits that do arrive may well end up being saved or used to reduce debt, rather than immediately be circulated through the economy, as the memories and lessons of ’08 and ’09 are still ringing in our ears.

The stock market is not cheap, and whilst opportunity exists, blind faith will not be rewarded in the markets this year. The Rand remains strong, possibly unreasonably so, and until the currency weakens to some degree, it will provide a headwind to economy and financial markets.

So? Are we justified in our current expectations, or are they too great? Probably a bit of both. Certainly, we can host a world class event, impress, welcome and inspire thousands of visitors and demonstrate the vibrancy, opportunity and possibility inherent in our country and economy. But expectations need to be turned from ‘great’ to ‘realistic’ on the economic dial. The benefits will take time to be realised, but make no mistake they will come, and it will have all been worth the vuvuzela’s and traffic jams.