Is foresight the key to avoid missed investment opportunities?

A spate of turbulent unrest has shaken investor confidence. But the ability to harness foresight to reimagine investment strategies and balance the gap between perceived risk and actual risk can lead to greater long-term gains, says Sandisiwe Xuba, Senior Audit Manager at BDO South Africa.

It has been predicted that the nationwide riots and looting that took place in July are likely to cost the country close to R50 billion in lost output. While the exact scale of the loss of earnings, job losses and damage to infrastructure is yet to be quantified, the rand’s drop by as much as 2% against the dollar in the wake of the destruction may leave potential investors second guessing their investment strategies.

But, as the dust begins to settle, a declinist view can have very real consequences which can impede the country’s progress. There is tangible economic opportunity in the country and although the unrest may have set the economy back, South Africa has time and time again proved resilient. According to S&P Ratings, despite the local unrest, international commodity prices have rebounded in 2021. These are supported by greater global demand, which has helped to substantially improve South Africa’s terms of trade and GDP growth. “Owing to this, and the base effects from the 2020 contraction, we currently forecast that South Africa’s economy will continue to recover and expand by 4.2% this year, before growth drops to 2.6% in 2022 and to about 1.5% on average in 2023-2024,” S&P said.

The key thing to watch is not events (sudden developments or spates of activity) but rather trends (long-term ongoing tendencies). And a look at the numbers proves that South Africa is still a positive investment space. According to Stats SA, economic activity in the finance, real estate and business services sectors increased at an annualised rate of 7,4%. The South African economy also grew by 1,1% in the first quarter of 2021 (January–March), translating into an annualised growth rate of 4,6%.

Investment is defined as the allocation of money with the expectation of a positive benefit or return in the future. Essentially the increase in the value of an asset over a long period of time. Yes, South Africa’s challenges are persistent, have history and are complex to navigate, but, the country is making progress and there are several transitions currently taking place which are highly indicative of a positive future growth path. These transitions have not happened quickly, but investment has been the catalyst for past growth and is essential if the country is to yield long-term potential.

There are many cases to support both local and international investment strategies. For example, South Africa is urbanising at a rapid pace. In 2020, it was found that over 67.35 percent of South Africa's total population live in urban areas and cities and that number will rise to 71% by 2030. Predictions are that by 2050, eight in 10 people will be living in urban areas. This urbanisation brings with it more investment opportunities as the demand for basic infrastructure requirements such as health facilities, schools, housing, transport and other utilities increases.

Another sign of the country’s potential lies in the significant advances in technology and the Fourth Industrial Revolution (4IR). These advancements represent a unique opportunity for South Africa to leapfrog development hurdles and change the sectors in which the country can become globally active. Over the last 2 decades the country has seen an explosion in mobile technology with users hurdling straight to digital services. What this has done is expedite investment opportunities in terms of digital infrastructure – the technologies that provide the foundation for information technology and operations such as connectivity towers and satellites.

The country is also a player in the renewable energy arena. Energy transitions towards the decarbonisation of energy and the use of renewables are increasingly changing the face of the energy mix. South Africa has an exponential supply of sustained sunlight hours throughout the year, lengthy coastlines and an abundance of dams – all of which offer it immense potential to expand into sustainable renewable energy production.

These are just some examples of South Africa’s future potential. But, what does this mean for the investor? It means that in the process of making good investment decisions it is foresight that counts, not the most recent scorecard. A solid understanding of the industry with a view of what drives profitability and value is crucial so that investors can step away from the ‘noise’ and see the bigger investment picture. Successful investors are all “foresight leaders” to some degree.

Foresight is not about being lucky or having mystical abilities to make the right decisions every time. It is a procedural methodology to make better sense of unfolding futures. In a nutshell it can be described as future-focused thinking for present decision-making strategies.

While not wanting to underplay the devastation cause by the civil unrest and looting, it is crucial to also see the collaboration and solidarity of South Africans that are standing together to rebuild. The construction industry will benefit by default from rebuilding and repairing destroyed and damaged buildings and structures. The current theme within the sector is on of restoration. Large organisations are remapping their operating strategies and revising the spaces in which they prefer tom operate. This entails strategies to move to less risky areas, the potential shut down of loss-making entities that were looted and working together with government to manage timeous insurance pay-outs in a bid to restructuring and get back to the business of building the economy.

With foresight, investors can consider the range of plausible futures that may emerge, and align their strategies accordingly. In times of increasingly rapid change the ability to look past the events of today with anticipatory thinking within the current context, while exploring alternative outcomes beyond actual knowledge gives investors looking to take advantage of growth opportunities a powerful edge over those who misprice risk, and in turn, miss opportunities.