Muted effects from demutualisations
DEMUTUALISATION will probably not provide the spur to economic growth in 1998 that has been forecast.
Research by HSBC Simpson Mckie shows the economy will be lifted by a meagre 0.1 percentage points this year by the demutualisation of Sanlam and the real effect on growth will be felt only at the end of 1999 when Old Mutual's listing fills the pockets of millions of policyholders.
The key question is how quickly that money burns a hole in the pockets of consumers who suddenly find themselves able to buy that new fridge, or place a deposit on a new car.
The Sanlam windfall should provide R25-billion and Old Mutual R75-billion. About 55% is expected to go to individual policyholders.
If the experience of the recent spate of UK demutualisations is anything to go by, about 35% of shares will be sold quickly, and just under half spent on consumption, 6% on debt reduction and the balance on saving.
For Sanlam, that means an almost immediate spending boost of about R2.26-billion and for Old Mutual about R6.79-billion.
Further share sales and spending by the funds will filter through later - depending to some extent on the share price performance.
The effect on interest rates of the Sanlam listing is expected to be muted due largely to the stage of the business cycle in which it occurs, but the Old Mutual float may have a much greater effect because it comes when the economy should already be growing.
The report sees fourth-quarter 1999 growth of 5.0% in the wake of the Old Mutual listing and this could spark an upward reversal of at least one percentage point in the prime overdraft rate. A prime rate cut of between one and two percentage points is still expected this year.
Expenditure is likely to be on durable and semi-durable goods, with furniture and hi-tech goods proving popular. Services may also get a boost from holiday spending, while non-durable goods are likely to be unaffected.