In the queue on Wednesday you were probably thinking about potholes, water, and that traffic light that’s been out since March. Fair enough - that’s what a local election is about. But the decisions your municipality makes over the next five years also shape where developers build, what it costs companies to keep their doors open, and what some of the biggest names on the JSE eventually report to shareholders. There’s a simple way to see it. Next time you drive through your city, count the cranes.
When you cast your vote in a local government election, you're probably thinking about potholes, water supply, electricity, rubbish collection and that traffic light that's been out for six months.
Fair enough. But the decisions made by your local municipality could also have an impact on your investment portfolio, from the value of your property to the performance of companies listed on the JSE.
We spoke to Kyle Coertse of Cartesian Capital and Duane Gilbert of EasyRetire about the connection between local politics, economic growth and your investments, and what investors should do about it.
Kyle and his colleagues at Cartesian Capital have a simple way to gauge a city's prospects: the "cranes test". It's not exactly scientific, but it shows where developers are putting their money.
"Recently, we were at a client function at the Skybar in Sandton," says Kyle. "The view was beautiful, with jacarandas in full bloom across the city. The first thing I found myself doing, however, was counting the cranes. I counted two. On my return to Cape Town, I counted more than that on the drive from the airport into the city."
Cranes represent investment, and that decision depends, at least partly, on confidence in local government.
"Where cities are well governed, infrastructure is maintained and services are reliable, businesses have greater confidence to commit capital," Kyle explains. "When someone invests in a new development or expands a business, they are making a bet on what that city will look like in five years' time, not just today."
Imagine running a shopping centre where the water supply is unreliable, the surrounding roads are deteriorating and electricity interruptions are part of everyday life. You still pay your municipal rates and tariffs, but you also need backup power, water storage and boreholes just to keep operating.
"When basic services fail, businesses pay twice: through municipal rates and tariffs, and again through boreholes, water storage, generators and solar," says Kyle. "That is capital diverted from expansion, job creation and growth."
It's a challenge that affects some of the biggest companies on the JSE. Kyle points to listed property group Hyprop, whose latest annual report highlights unreliable water supply, poor roads and service delivery as operational challenges for its shopping centres.
These costs can affect profitability, rental growth and ultimately returns. The same applies to other businesses: when operating costs rise, companies have less to invest in growth, and shareholders feel the effects
Municipal problems don't necessarily stay within municipal boundaries. Kyle points out that weak revenue collection, poor financial management and governance challenges have left many South African municipalities struggling to meet their financial obligations.
"Municipalities collectively owe Eskom more than R120 billion, creating risks that ultimately extend to the national balance sheet and the country's cost of capital," he says.
Higher borrowing costs for the country make it more expensive for businesses to finance expansion, with knock-on effects for growth and returns.
Before you rearrange your portfolio based on the state of your local roads, there's another important consideration: the JSE isn't simply a reflection of the South African economy.
"Approximately 70% of the earnings of the JSE Top 40 are generated offshore," says Duane. "These are often global businesses whose fortunes are influenced by international markets as much as local conditions."
Duane also points out that, despite South Africa's political and economic turbulence, JSE equities have been among the world's best-performing asset classes over the past 30 years when measured in US dollars.
And moving all your money offshore doesn't make political uncertainty disappear.
"An investor moving money offshore to avoid uncertainty around South African elections must recognise that markets such as the US have their own political cycles," Duane says.
Political risk is a global reality. The trick is managing your exposure to it rather than trying to escape it.
This brings us to perhaps the most important lesson: don't let short-term political developments derail your long-term financial plans.
"Investors should recognise that political and economic developments matter, but they should not confuse short-term uncertainty with long-term investment fundamentals," says Duane.
Retirement investing typically spans 40 to 45 years. That's a lot of elections and market cycles, and reacting to every political shift can be counterproductive.
Duane believes retirement portfolios should be professionally managed, appropriately diversified across local and offshore investments and compliant with Regulation 28, where applicable.
"The objective is not to predict political outcomes, but to construct portfolios capable of delivering long-term investment outcomes across different market environments," he says.
So what should investors take away from all this?
Local government matters. The quality of municipal services, infrastructure maintenance and financial management can influence where businesses invest, where jobs are created and how property markets perform.
For investors, that means paying attention to where the companies they own operate.
But there's no need to turn every election into a portfolio reshuffle. A diversified strategy across sectors and geographies, with a focus on long-term goals, can help investors navigate political and economic uncertainty.
And next time you drive through your city, look up. How many cranes can you see? They might tell you something about where the money is going.
Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an external contributor as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice