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David Mohr keeps it simpleDave Mohr saw it coming, but his public red letter-warning did not endear him to a universal audience who had an opium dream of economic Utopia.
Predicting an international recession during 2007 was hardly what the global village wanted to hear, particularly during the high summer of the residential boom and an annual South African growth rate of close to 5%.
Now, more than two years after the economic implosion, the global economic community knows it was hardly an acrimonious cry of “wolf, wolf”.
And he has received the accolades for his ingenious insightfulness and forthright economic forecasts.
Mohr, chief investment strategist of Citadel, was recently announced as Reuters Economist of the Year for 2009.
Reuters publishes an Econometer every month, which is a medium-term view of expected economic conditions in the country. It is an index of six weighted indicators that include gross domestic product, consumer price index, dollar/rand exchange rate, repo rate, producer price index and the 10-year bond rate.
Reuters asks economists to contribute their forecasts on the indicators, and collates their views to compile the index.
The Econometer has been running for more than 10 years and is a highly regarded global market indicator.
The Central Bank looks to the Econometer to gauge the overall views of analysts, and it features regularly in the Monetary Policy Committee’s statements.
Mohr’s expectations of the economic variables were closest to the actual data in 2009, which secured him the award.
He previously received the coveted Sake24 award as Economist of the Year in 1992 as well as in 1999.
Mohr, a former chief economist of Old Mutual, found himself at the epicentre of an economical hurricane in 2008.
The prelude to this “category-4 storm” was that South African interest rates increased repeatedly throughout 2007, resulting in an accrual of household debt. Few observers inquired about the adverse effect on expenditure in the future.
At the end of 2007, it became clear that because of the sharp increase in debt and interest rates, which could not be accounted for by the increases in basic salaries, had to strangle the future expenditure.
Emotional investment strategists and economists figured that because of the property boom, these levels of debt could be absorbed.
With the perfect 20/20 vision of hindsight, they were wrong, of course, and Mohr and Citadel warned of an impending recession – the first time since 1992.
“It created a storm, and we were seen as pessimistic,” said Mohr.
A pivotal factor that enabled him to be pro-active and a perennial top performer has been his ingenious grasp of how economies internationally function, a continuous assessment of the status quo, as well as a KIS (Keep It Simple) mentality.
Asked to explain the KIS mentality, Mohr said: “One must be a logical thinker at all times.
“Many observers complicate matters, and then become entangled in their own analysis.”
“One also has to be cautious not to project what occurred yesterday and today, into the future.
“One of the challenges in our industry is to convert the sea of statistics into useful information. Because you are confronted with such a variety of information, you might not be able to see the wood for the trees. You have to use logic, and do it unemotionally,” he added.
It was William Shakespeare who penned the immortal line that “some are born great, some achieve greatness and some have greatness thrust upon them.”
Whether Mohr was born with great economic insight, achieved it, or had it thrust upon him, is unclear, but that he benefited from true in-house mentoring is true in more ways than one.
One of his lecturers at the University of Stellenbosch, where he completed a master’s degree in Economics, was Professor Philip Mohr, his elder brother.
Prof. Mohr is a man with a practical mind, and his ability to convey truths in simple and logic ways for students made him an extremely popular lecturer, and one of the young Mohr’s greatest mentors.
Mohr is no devil’s advocate or pessimist. He sees a spring of hope in 2011 when others are predicting a winter of despair.
Currently, there is a mounting international debate on whether labour markets will recover, as massive percentages of joblessness were incurred during the economic recession.
Many observers claim the private sector will not invest and will not employ more labourers.
Mohr disagrees. The private sector, he said, is driven by profit margins. So if one sees profit margins improve, the probability improves that the private sector would employ more people.
The chances also increase that the private sector will aggressively invest in new projects and industries.
So, once the profit margins improve, and the state of financial health of the company improves, it makes it a more lucrative move to pursue new projects and personnel aggressively.
“The company profits have improved tremendously the past year, and the economic implications are that if there are bigger profit margins, the private sector will invest more, with resultant bigger growth,” he added.
Asked what gross domestic product growth South Africa could expect in 2011 compared to the 2.8% in 2010, Mohr claimed South Africa may experience growth of close to 4%.
“Our growth should surpass 2010. What will help us is that commodity prices are strong, interest rates have fallen to the lowest in 30 years – which alleviates the burden for consumers – while the international economy should be superior to 2010,” he said.
“We have been through the worst crisis, a bank crisis, a housing crisis and a state debt crisis in Europe. Most of these economical disasters are behind us.
“Even the Greece crisis in Europe in 2010 did not derail economic growth last year. It demonstrates the capabilities of the international economy to recover, even when a crisis is looming. The international economy enjoys vibrant health,” Mohr added.
“We have weathered the storm. And consumers in the United States have paid back more than half a trillion dollars, and they currently save 6% of their household income.
“America will record reasonably strong growth, and the emerging market might register the same growth than in 2010,” he forecast.
“Growth will be driven more by the private sector than previously. Authorities have attempted to stimulate the economy internationally, from China to America, but cannot afford to do it continuously. The private sector must take centre stage in driving it.
Mohr continued: “I am confident that the private sector could perform well because of the profit margins of the private sector internationally in 2010, and the local private sector that is improving.
“The lifeblood of the private sector is the profit margins, and if that increases, it creates the fertile breeding ground for economic growth.”
Mohr does not expect the South African consumer to play a more critical role in the country’s economy in 2011, compared to 2010.
The economic upswing in 2010 was due to improved consumer spending, he added.
“Consumers will still play a big role, but it won’t necessarily be bigger in terms of the growth rate compared to last year.
“Investments by the private sector might play a more pivotal role during the course of 2011 to the economic growth.
“Strong commodity prices could play a role as well. The growth in 2011 will be more balanced, and will rely less on consumer spending than last year,” Mohr said.
Consumer spending prospects will be enhanced by the low interest rates, while inflation will remain low – between 3.5% and 4.5% in 2011.
Salary increases will be higher than the inflation rate, which put real purchasing power within the grasp of the consumer.
“We also believe that more employments or enrolments will be at the order of the day, and there is nothing that stimulates consumer spending like when more people are been given jobs,” said Mohr.
He stated three factors that would catapult the interest rates to about 6% from the current levels of 3.5%: stronger consumer spending, the fact that the rand may be slightly less vibrant than before, as well as a slightly higher inflation rate internationally.
South Africa has a low income-tax contributing base of 5.6 million people, while 13 million South Africans are living on social grants.
Asked if this is a source of concern to the South African economy and prospects of growth, Mohr said the greatest concern is that 25% of South Africans are without jobs, while such a massive percentage of people earn such a small income that they cannot pay tax.
Poverty has been highlighted as one of the biggest reasons for deaths in the world, with almost 26 500 people dying per day because of reasons related to poverty, while 2.6 billion people internationally live on $2 or less per day. (Source: Richard Stearns, The Hole In Our Gospel)
Mohr said that to explain that phenomenon in South Africa, one would have to look at a basic diagram of the percentage of highly skilled people locally, versus partially skilled labourers and completely unskilled people.
There is a small percentage of highly skilled South Africans. These include your entrepreneurs, your innovative people who create jobs for others.
The diagram almost resembles a clock, and it is the wrong way round.
Instead of a major percentage of unskilled people, as you have in South Africa, the ideal scenario is to have a large percentage of highly skilled people at the top who could create much-needed jobs.
“What is a source of concern is that this structure, in terms of highly skilled, partially skilled and unskilled South Africans, has been in operation since the early 1970s, when Prof. Jan Sadie portrayed it to us while we were students in Economics at the University of Stellenbosch,” Mohr added.
He said the greatest challenge for the South African economy, and specifically the labour force, is that this country is part of a world economy with shrinking boundaries.
“It becomes more and more integrated: The trade between countries is increasing rapidly. If you don’t remain competitive in terms of your skills, and if you don’t deliver your skills at a competitive price, you will be left behind by the developing world. You have to test yourself against international best practice,” Mohr stated.
“Developing countries such as India and Bangladesh, with a combined population of 1.5 billion, will be competing increasingly for available jobs.
“People are competing for overseas jobs because of broadband Internet access. It is not extraordinary to see an international shares portfolio manager based in Denmark or Norway,” he added.
“Furthermore, work ethic is important. Americans, for example, work very hard and have few holidays; so if you want to beat the competition, you have to ensure your skill level and productivity are superior to theirs.
“If there is no state intervention, unskilled labourers with a poor work ethic might be left vulnerable,” Mohr warned. ▲
Fanie Heyns
