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31 May 2022
Sanlam's Sydney Mbhele delivers keynote address at 6th Annual Archbishop Thabo Makgoba Development Trust Lecture Series
Lecture delivered by
Sydney Mbhele, Chief Executive: Brand at Sanlam
“Economic recovery, equality and growth: What is needed for South Africa to recover from the devastating effects of the Covid-19 pandemic”
It is an honour to address you under the auspices of two respected institutions that play a meaningful role in our society as we transition to a post-Covid-19 future.
I would like to thank the Archbishop Thabo Makgoba Development Trust, and the Faculty of Economic and Management Sciences at this University, especially Professor Michelle Esau, for the invitation to deliver this evening’s lecture, which highlights an important issue that deserves constant attention and action.
Sydney Mbhele delivered the keynote address at the 6th Annual
Archbishop Thabo Makgoba Development Trust Lecture Series

As Sanlam, we appreciate the work of The Trust which has served as a steadfast and exemplary public benefit organization devoted to developing communities for the public good through public dialogue such as today’s occasion, as well as economic and educational enterprise.
Equally important I need to say, in line with its stated mission, this University is a national asset that is cognisant of its African and international context, while striving to be a place of quality, and a place to grow, from hope to action through knowledge.
At Sanlam, we endeavour to play our part as a responsible corporate citizen working with various stakeholders, including the University of the Western Cape. And through our association with the University, we have started a partnership called Women in Tech whereby the University and Sanlam offer support to final year students. This support includes guidance, advice and mentoring to prepare them for the world of work.
We believe that such initiatives enable an easy transition into the world of work, where the next generation has the confidence and insights to succeed in the globalized workplace.
The Women in Tech initiative is one such example of the actions Sanlam is prepared to take and commit to – to tackle socio-economic challenges flowing from, among others, Covid-19.
I will highlight other actions and initiatives later in my remarks, all of which serve as testimony to our origins and ethos of more than 100 years as an organisation, whereby we have been ready to help our clients and stakeholders in their moments of need.
So, let me say a little bit about Sanlam. We are a diversified financial services company founded in South Africa, and our purpose is to empower generations to be financially confident, secure, and prosperous. We do this by making ourselves accessible, promoting financial education, financial inclusion and providing superior financial advice to protect and grow wealth.
We strive to financially empower people across our footprint in 33 countries on the African continent as well as in India, Malaysia and selected developed markets such as the United Kingdom.
Various initiatives that demonstrate our commitment to promoting a shared prosperity include (in the area of financial inclusion):
  • Affordable solutions such as investments with no minimum requirements through EasyEquities, a platform accessible to the ordinary person to trade shares on local and international stock markets. This platform has been able to remove the barriers to entry for such financial participation. Online video tutorials, blogs and podcasts ensure that new investors have resources and tools to improve their financial literacy.
  • Wider availability of insurance and investment products through mobile telephony and fintech, in partnership with the MTN Group for people who currently do not have access to financial services.
  • We also support financial inclusion through the Sanlam Foundation’s financial education programmes, which are important for managing information asymmetry that exists, especially in the lower ends of the market.

I turn to Covid-19 Support.

As we recognise the human and financial impact of Covid-19, we stand with our clients to rebuild our countries, our communities and individual people’s balance sheets.
Sanlam has contributed over R5 billion to relief efforts to revive African economies during the Covid-19 crisis.
Covid-19 support also included PPE donations to the value of R9,5 million targeting education, health, unions and federations, universities, municipalities, and more.
Together with the Motsepe Family and in partnership with other companies and organisations that the Motsepe Family is associated with, Sanlam contributed to the R1billion to respond to the Covid-19 pandemic and its related challenges. As you would recall, this initiative was part of the Solidarity Fund, the business forum coordinating the public, civil society, as well as the private and public effort to fund various humanitarian and health relief projects.
Sanlam also contributed R45 million to the African Union in response to Covid-19 relief efforts on the continent.
We have also supported the government’s vaccination roll-out programme and we have partnered with Afrocentric to create six vaccination centres at our premises in Cape Town and Johannesburg. We have pushed to protect our staff through continued vaccination services. Their wellbeing is our priority.
Now ladies and gentlemen… these actions I have highlighted, demonstrate the shared value through nonfinancial performance activities that play a key role in uplifting the quality of lives of people where we operate. It also reflects our commitment to the Sustainable Development Goals (SDGs), economic growth and social investment activities and practices.
What success and prosperity look like beyond Covid-19 remains a moving target. The pandemic has amplified the socio-economic challenges of poverty, unemployment, and inequality in South Africa and eradicating them will take time.
Research undertaken by the way, by the World Bank in 2018 provides distressing insights:
[Research title of the World Bank report: Overcoming Poverty and Inequality in South Africa: An Assessment of Drivers, Constraints and Opportunities]
First, by any measure, South Africa is one of the most unequal countries in the world. Inequality is high, persistent, and has continually increased since 1994.
Second, although South Africa has made progress in reducing poverty since 1994, the trajectory of poverty reduction reversed between 2011 and 2015, threatening to erode the gains made since 1994.
Poverty is consistently highest among black South Africans, the less educated, the unemployed, female-headed households, large families, and children.
Third, high levels of income polarisation are manifested in remarkably elevated levels of chronic poverty, a few high-income earners, and a small middle class.
Here is another nugget:
Fourth, the role of skills and labour market factors have grown in importance in explaining poverty and inequality while the role of gender and race, though still important, has declined, presenting an opportunity for policy to influence poverty and inequality outcomes.
The research states social protection remains important in reducing extreme poverty, but the fiscal space for further expansion is limited. Low growth perspectives in the coming years suggest poor prospects of eliminating poverty by 2030 as envisaged in the National Development Plan.
Looking ahead, accelerating poverty and inequality reduction will require a combination of policies that seek to unlock the full potential of labour markets and promote inclusive growth through skilled job creation, as the World Bank research concludes.
Having outlined the main insights from the World Bank report and examples of Sanlam’s commitment to the planet, people, and prosperity, let me take you through how we believe these vexing issues should be tackled collaboratively by key sectors in our society, namely government, labour, business, and civil society.

The role of government, labour, and business as we transition to post the Covid-19 world

Addressing the socio-economic challenges emanating from Covid-19 cannot be tackled by a single institution or sector. Proposed solutions must be collaborative. Government, trade unions, business, and civil society all have a role to play to advance a shared prosperity for the equitable progress of society.
I will begin with what we believe government could do. Since the global financial crisis in 2008, the government has absorbed a high share of South Africa’s savings to fund the country’s consumption.
Following an effective period of fiscal consolidation in the decade leading up to the global financial crisis, the deterioration in South Africa’s sovereign debt rating is reflected in an increasing sovereign risk spread, which has raised the cost of borrowing.
In the current fiscal year, close to 19% of government’s revenue (or 4.5% of GDP, which is around R300 billion) will be spent on servicing government debt. This is directing resources away from much needed government spending elsewhere, including healthcare and education, which is critical for sustaining a productive workforce. For long-term skills development, which would also promote inclusive growth, it is important to begin with primary education.
Essentially, high government debt issuance and high borrowing costs have crowded out private sector investment.
The main objective of fiscal policy must therefore be to improve the sovereign debt rating by curbing consumption and implementing reforms to grow the economy and government revenue faster. Fiscal policy should also aim to lower borrowing costs and create space for private sector borrowing and investment.
Returning the government’s finances to a sustainable position should reduce concerns about possible changes in the tax regime. This is an important consideration in business decision-making.
In the context of infrastructure, road and railway bottlenecks, for example, are a material constraint to growth. This is why President Ramaphosa plans to rejuvenate the economy focusing foremost on energy. For instance, “unbundling” Eskom, increasing embedded generation and focusing on renewables.
Other key areas that government should focus on include:
  • Transport which provides access to freight rail for the private sector and corporatisation of ports;
  • Artificial intelligence and the new economy (for example, spectrum auction enabling telecommunications companies to deliver communications and digital products and services efficiently); and
  • Water involving appropriate licensing and pricing for relevant industry to access and use responsibly.
Additionally, improving the ease of doing business is a priority, plus reforms aimed at supporting industries in which SA has an advantage (for example, e-visas for tourism). I must indicate here that this reform process has already started, which is commendable.
Further, an overhaul of the tax system is required. The tax regime should be aligned with the growth objective to reflect a relative shift away from taxing income – which disincentivises work, savings, and investment - towards indirect taxation. South Africa’s overly complex tax legislation (and legislation more broadly) should also be simplified.
Moreover, the government should avoid implementing different policies with conflicting objectives. For example, some fiscal policy measures which aim to promote savings (tax breaks on pension contributions) alongside policies which are a disincentive to saving (increased dividends tax). On the latter, wealth is nothing other than accumulated savings. And so, tax on dividends reduces the return on savings and long-term wealth creation.
Next, I want comment on what business could do. Currently, trends indicate an increasing level of foreign direct investment abroad by South African companies, such as technology start-ups. However, policy uncertainty and inadequate infrastructure have also curbed direct investment locally.
Looking forward, an element of risk-taking is necessary. As South Africa’s reform agenda takes shape, it should underpin improved business confidence. This assumes policy uncertainty recedes too. Improved business confidence should translate into more investment spending; assuming the absence of sufficient foreign savings inflows at first, fiscal consolidation will free up savings for private sector investment.
The current environment presents a unique opportunity, given the bounce in business profits – the first in many years.
At the same time, a concentrated economy [by big businesses] is detrimental to long-term innovation, productivity, and growth.
Small Micro Medium Enterprises are the best avenue to drive inclusive growth. This implies an effective competition policy is essential. Along with this, we require more effective avenues of funding entrepreneurs as well as the development of suitable markets for small business products and the removal of barriers to entry.
As example of our support in promoting entrepreneurship, is the Sanlam Enterprise and Supplier Development Programme whereby in 2020, we approved R2.1 million to assist SMMEs and their beneficiaries with cash flow analysis and support, funding relief and PPE during the pandemic.
In addition, the Group’s asset management business Sanlam Investments has been supporting the recovery of South African companies, from small enterprises to corporates that employ large numbers of people through the Investor’s Legacy range.
R2.25 billion of Sanlam Investment’s capital has been used to seed three impact funds that will back companies negatively affected by Covid-19, which have a strong likelihood of producing sustainable cash flows after the pandemic should they receive the required financial support. Each fund focuses on a different part of the market – SMEs, mid-market, and large corporates – and provides financing in the most appropriate form, whether it be in the form of loans or equity investment.
It is another area in which Sanlam has played a role is tackling unemployment and promoting skills development among the youth, who need experience to secure employment or start a business.
Sanlam has been a supporter of the business driven YES initiative, which aims to contribute toward youth development and job creation. The project provided Sanlam with the opportunity to collaborate with government and labour to stimulate job creation through the placement of unemployed black youth into 12-month work experiences and training.
Sanlam remains proud to partner on the initiative to provide this meaningful experience to the youth of our country. Our support has contributed to uplifting the lives of unemployed youth by providing meaningful work experiences. The YES initiative ran successfully for two years, with 300+ youth attending the programme. The contracts of 147 learners at Sanlam expired in September 2020. Due to Covid-19, the continuity of the programme is being assessed going forward.
South Africa’s unequal income structure is highly detrimental to growth. The reasons for this are historical as well as contemporary. An increased number of employed citizens are finding themselves in part-time, uncertain jobs with fewer working hours, which reduces the scope for funding education and skills development, let alone long-term planning and saving.
Further, both the Labour Force Survey, as well as the Employment Statistics Survey (which measures formal, non-agricultural jobs only), show that employment remains well below the pre-pandemic level despite the bounce in profits. Understandably, employment usually picks up with a lag to the cycle. But, if there is no improvement in the year ahead, it would lead to an untenable situation.
Meanwhile, South Africa’s insurance industry appears mature with an extraordinarily high level of gross insurance premiums relative to GDP (amongst the highest in the world, including developed economies), even though we have a low level of GDP per capita. This implies insurance premiums are likely to grow in line with nominal GDP at best over the long-term from here.
Although the high level of premiums partly reflects private healthcare insurance, it must also reflect the extraordinary skewness of the distribution of income. The key to stronger growth in the industry, therefore, lies in lifting South Africa’s potential growth rate while reducing inequality.
On the infrastructure development front, Sanlam has played a role by investing through private equity, typically financed with a blend of equity and debt. As we can all appreciate, infrastructure plays a crucial part in the economy, providing the backbone through which large business and entrepreneurs operate and thrive.
One notable example is the Renewable Independent Power Producer Programme (REIPPP) which aims to bring additional megawatts onto the country's electricity system through private sector investment in wind, biomass, and small hydro, among others. Through industry collaboration, Sanlam has contributed to the provision of the initial debt financing for the REIPPP.
Sanlam has also supported South Africa's largest renewable energy project, the Redstone Concentrated Solar Power project. The R11.6 billion Redstone project aims to power 200,000 households upon completion. Commercial operation is scheduled to start in Q4 of 2023.
Next, I will suggest what labour could do. It is worthwhile to say from the onset that Labour is well within its rights to demand positive real wage growth if it is matched by productivity. Consideration should be given to linking wage growth with productivity growth. To facilitate this, it is worth considering labour representation at the Board level of companies [This is standard practice in European economies like Denmark, Germany, and France].
Also, skills development, which improves productivity, should result in higher real wage growth per worker. But, given the dearth of resources available to workers, skills development will require government and business participation. In this regard, succession planning and the accompanying mentorship programmes must be in place.
Workers should also be open to global comparison of remuneration structures, including highly paid, skilled workers.
We should all be accepting of the immigration of skilled workers to SA. One engineer is likely to create several jobs.
At the same time, in an era where the new economy is driving out the old economy, it is not feasible to continuously adapt policy to protect jobs. However, it is vital that we do protect workers through re-skilling and re-deployment.
Next and certainly not least, I will suggest what civil society could do. Civil society plays multiple roles. They are an important source of information for both citizens and government. They monitor government policies and actions and hold government accountable. They engage in advocacy and offer alternative policies for government, the private sector, and other institutions. They deliver services, especially to the poor and underserved. They defend citizen rights and work to change and uphold social norms and behaviours.
We live in a world of major geopolitical shifts and life-changing technological innovations. Then, it is reasonable to wonder what our biggest hopes are for society in the coming decades. According to every measure of human well-being, the world has become a better place. Yet there is a need to acknowledge new and looming challenges. From the rise of nationalism, to increased demands for privacy, following widespread data leaks; from balancing growing human needs with planetary and environmental limits, to the impacts of sophisticated automation on people’s lives.
The list is long and there is undoubtedly space for all stakeholders – policymakers, civil society, corporations, media, academia – to take responsible action that brings about a stable, sustainable, and peaceful world.
In this context, the work of civil society has become of even greater importance. An exciting space where we should anticipate the continued dynamism of civil society is at the intersection of technology and civic duty. The era of social media, big data, analytics, and artificial intelligence is likely to give a further spur to groups and organisations that campaign on issues like civil liberties, better education systems, and combat climate change or raise money to fight diseases.
The ability to raise concerns, influence government policy and create meaningful dialogue between policymakers and the public will not be relinquished lightly. Thanks to technology, more of us than ever before can inform our governments about what we think is wrong with the world - and what is right.
South Africa has a long and storied tradition of civil society upholding social justice and delivering positive change. Their role remains crucial in maintaining this tradition.
Through the Sanlam Foundation, we are proud to have a long tradition of working together with civil society to make the world a better place.
We have invested R630 million in the last 10 years through the Foundation and continue to strengthen our efforts to facilitate financial inclusion and access to financial services across all demographics.

Ukraine Crisis and its impact on Emerging Markets (including South Africa)

The ideas I have just shared on how we may transition from Covid-19 are of course, not exempt from geopolitical events with wide-ranging impact on world trade. As we are all aware, the Ukraine crisis is a current and topical issue that continues to capture global news headlines quite profoundly and extensively.
We have witnessed the negative economic impact on Russia due to the crisis. The countries trading with or those financially connected to Russia have also been impacted. At Sanlam, we see interesting dynamics playing out as the crisis unfolds.
Our chief economist Arthur Kamp believes the global gross domestic product (GDP) will be revised downward due to the direct impact of this conflict on the world’s economies. Russia accounts for 3% of global GDP, with Ukraine making up less than 0.5%.
Trade between Russia and most African economies is limited. A more important channel through which the conflict impacts countries on the African continent is commodity price increases.
First, commodity prices affect the terms of trade of countries. Although some oil producers have limited surplus capacity (for example, in Angola where current oil fields are maturing), they are benefiting from high oil prices.
The favourable price impact is not limited to oil producers. Other resource intensive countries are benefiting too. Indeed, the terms of trade have recorded robust increases in South Africa, Botswana, and Ghana, while remaining elevated in Namibia. And, in Zambia, the terms of trade have been improving since 2019, due to high copper prices.
Mostly, the commodity producers in Southern Africa, excluding South Africa and Botswana, delivered modest growth only in 2021.
The bounce in commodity prices has, however, improved the near-term growth outlook for these countries. In addition, efforts by European countries to diversify where they source oil, may favour Nigeria, Mozambique, and Tanzania, which have proven natural gas reserves.
In theory, the income gains from commodity export price increases should be temporary, implying economic agents would merely save the additional income, while investment spending remains unchanged.
However, the longer the duration of the commodity boom, the more likely it is that the windfall will be spent. Typically, consumption will pick up first. Production then responds to the increase in demand, businesses will then invest and employment needs increase. These developments are likely to be accompanied by a lift in economies borrowing more credit to fund their policies and activities.
Another impact flowing from the crisis is rising inflation. Due to the large weighting in basic foods such as wheat [which is a key staple food], increases in food and energy prices are having strong influence in African economies.
Around 85% of Sub Sahara Africa's wheat requirement is imported. The Internal Monetary Fund calculates the direct pass-through costs to food prices exceed 30%. In addition, the indirect pass through from global oil prices to food is significant, especially in oil importing countries, including South Africa.
Therefore, the main risk for oil importing economies such as South Africa is that the sustained significant increase in oil prices since last year may lead to significant second round inflation effects over and above the initial direct impact.

Impact of domestic economic developments

On the home front, we have witnessed equally important developments bearing on the South African economy in the short term.
  • Ratings agency Standard & Poor Global has revised South Africa's credit rating outlook from stable to positive. The agency also affirmed the long term foreign and local currency debt ratings at BB- and BB, respectively. According to the rating agency, recent favourable terms of trade in South Africa have improved the external and fiscal trajectory.
  • Although the rating announcement is a positive development, economic challenges remain. As we have seen in the news, the South African Reserve Bank announced a 50-basis-points interest rate hike, taking the repo rate to 4.75% and the prime lending rate to 8.25%. This is the largest increase since 2016.
According to the Reserve Bank, the hike was informed by revised growth forecasts for the South African economy. The Reserve Bank governor said the South African economy is expected to grow by 1.7% this year, revised down from 2%. This is due to a combination of short-term factors, including the flooding in KwaZulu-Natal and the continued electricity supply constraints. Further, the trend of rising global producer prices and food price inflation in recent months is expected to continue due to the Russia-Ukraine war, which is likely to persist for the rest of 2022.
All told, high food and energy prices are likely to place pressure on budgets as governments partially subsidise and/or compensate households for the implied decrease in real incomes.


To conclude, I would humbly suggest that we should embrace the proposed ideas shared in this lecture as part of an ongoing conversation and collective effort that seeks to make our society more equitable and to prosper.
There is much work that needs to be done for the world to return to a pre-Covid-19 environment. Nonetheless, it is possible to build further on the achievements realised during the height of the pandemic. And we can do so collectively and collaboratively.
In the words of our inspirational and first president of a democratic South Africa: “Poverty is not natural. It is man-made, and it can be overcome and eradicated by the actions of human beings.”
To take Tata Mandela’s wisdom to heart, let us remember that we have always been rooted in community and ubuntu. Let us work together to empower each other to be secure and prosperous.
Our challenge is to instil shared value and prosperity wider for the benefit of people and planet, especially for the next generation and our sustainable future.