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A guest post from my friend and colleague Sandra Gordon. Sandra is a respected financial market economist and we increasingly present work as a team in what is often called “a dog and pony show” … although in our case there is some disagreement over who will be the dog and who will be the pony. Sandra is an excellent market commentator and I have known and respected her views since she was my client on the “buy side” at Nedcor Investment Bank Asset Management (Nibam) in the mid-90s.

My friend, colleague and author of this post on the National Budget, Sandra Gordon

Over to Sandra:

If there was one message from this year’s budget it is that, despite all the hype that economic transformation has finally arrived (the dreaded “shift to the left” which tends to give the financial market types sleepless nights), it’s actually probably more of a case of business as usual.

In the wake of the global financial crisis, there was serious debate worldwide about the merits of various economic growth models. In the 2010/11 Budget, Minister Gordhan noted: “The recent crisis and its aftermath have led to a serious introspection and rethinking of what were thought to be robust and superior economic models.” With the Washington Consensus in disgrace, South Africa was able to signal its intention of shifting towards a “developmental state” (essentially a more active role for government in the economy).

So it seemed South Africa was headed for a developmental state and real economic transformation. The new model was finally outlined by the New Growth Path (NGP), which was released by Minister Patel late last year. The primary aim of the NGP was the creation of five million new jobs by 2020.

This theme was echoed in the recent State of the Nation address, in which President Zuma announced a range of measures to encourage job creation.

Yet, despite all the talk of economic transformation – and the ongoing tsunami of change in the global environment – this year’s budget is essentially unchanged from the previous. The critical issues facing our economy were again identified as the twin evils of unemployment and poverty, while the best way to address them is to focus on job creation and encouraging growth in those sectors most likely to generate employment.

Admittedly this year’s budget had a greater focus on jobs than last year – with a grocery list of programmes and measures totalling R150 billion over the next three years. A key difference was also the absence of any mention of the “developmental state” – with government’s role limited to the provision of incentives and the creation of an environment conducive to growth – such as the easing of transport and logistic bottlenecks etc. Other than that, the key measures were familiar – more social spending to support the poor, huge sums for investment in infrastructure and a focus on skills development and training.

Essentially the budget delivered on the priorities laid out by the NGP – with one glaring exception: demands for a weaker rand. Minister Gordhan neatly sidestepped this particularly contentious issue by noting that government had already responded to excessive rand strength by easing exchange controls and accelerating the accumulation of foreign exchange reserves in October last year. Beyond those measures, Treasury will be “monitoring” the measures adopted by other countries – including Brazil and Thailand – which have had similar struggles with massive capital inflows and excessive currency strength. So effectively, “we’re looking into it.”

The other political hot potato that was neatly avoided in the budget was the issue of the National Health Insurance. This year’s budget included measures which “lay the foundations” for NHI. The implementation progress is going to take time – but things are undoubtedly going to get more interesting when the debate shifts to how the NHI is to be funded. Gordhan listed a range of possible funding sources including a VAT hike, a surcharge on personal income or a payroll tax. None of those options are likely to be particularly well received.

Essentially then, Gordhan was able to address all the priorities outlined in the NGP (barring rand weakness), while maintaining an element of fiscal discipline. With the deficit remaining at 5.3% of GDP in the new fiscal year – in line with the previous fiscal year but above expectations – debt servicing is now the fastest growing spending category.

While we are in a far better position than countries like America, the UK and various European economies which are slashing government spending and raising taxes, it could well be that this is our last chance to really get the economy moving. If the measures in this year’s budget deliver growth, tax revenues will ultimately rise and fiscal discipline will be maintained.

If, however, growth stagnates – perhaps due to a deterioration in the external environment – the state may find its finances stressed, providing less scope for social spending and job creation initiatives. As one analyst put it in the press this morning, this could be “the last throw of the dice”.

And it is on this front that the news is a little less reassuring.

It is positive that – amidst the global turmoil – the centre is holding and our basic economic policies remain on course. But our key weakness has always been not our policies but our inability to implement those measures. So for all the good news in this year’s budget regarding measures to encourage job creation and infrastructure investment, there have been no developments which would lead one to think that there is going to be any significant improvement in implementation and delivery.

In an increasingly unstable global environment, it is becoming ever more important that we finally start making significant progress on reducing our unemployment rate and pervasive poverty. We have the money, for now, but the ability to implement and deliver is becoming ever more critical.

With so much at stake, it looks set to be another interesting year.

The budget is the spending, taxation and borrowing plans of government.

Don’t just think of it as a series of  hefty documents (the national budget review, the estimate of national expenditure, the appropriations bill and the division of revenue bill) – hundreds of pages and millions of calculations, graphs and tables.

It is more than just the grand plan to tax and borrow and divide the money between central , provincial government and municipal governments as well as between a thousand different priorities.

It is, in theory and in a functioning democracy at any rate, how the will of the people is exercised in the world; the full process of planning and execution by the elected government.

Obviously elected governments are not always perfect translations of “the popular will”, and “the popular will” itself is not always something more noble than a self serving and ugly little collection of prejudices, fear and greed.

But anyway, the questions I was asking of the budget were:

  • Is the Treasury still the guiding hand in macro-economic policy – in the sense that it remains able to force prudence and fiscal rectitude on the rest of government?
  • The New Growth Path calls for measures to make the currency more competitive: more restrained fiscal stance combined with more active monetary policy, accumulation of reserves, a sovereign wealth fund and possible controls on short term capital inflows. Does the Budget 2011 confirm these commitments?
  • How much money will be allocated to removing infrastructural, skills and administrative bottlenecks in the economy? Is there the promised Marshall Plan type urgency to increase the economy’s capacity for growth?
  • Are there measures to encourage domestic savings: compulsory retirement savings, discouraging high debt levels, increasing corporate savings by discouraging dividend payments and development bonds … and horror of horrors the return of a strong version of ‘directed investments’? Depending on how this is phrased it could spook investors and generally indicate hostility to open markets.
  • Were the supportive measures in the State of the Nation address (in particular the R20bn to manufacturing subsides) something new or actually measures that had been announced before?
  • Did the mention of a 9 billion rand jobs fund in the State of the National address refer to the long missing subsidy for first time youth workers? This is significant because it will show government preparedness to take on Cosatu over the labour market.
  • Shifts in the over-all allocation of state money between priority areas as different as policing, housing, water and sewerage can indicate changing strategies as well as changing prioritisation.  But in general we will be looking for the meat on the bones of the statement that government wishes to be a “developmental” not a “welfare” state.
  • How close are we to a National Health Insurance scheme and how aggressive will that scheme be to the private sector?
  • Is the allocation for the civil servants wage bill set to endlessly increase or does it look like government might, at some stage, dig in its heals and face down the public sector unions.
  • What measure are in place or likely to be put in place to control corruption and cronyism within government departments and in the allocation of state contracts?

If that was where I was looking for the signs of where we are going, my next post will look at what the budget revealed with regard to these questions.

I am clicking “Publish” in a rush … I suspect I will come to regret this later.

Anyway:

The popular mobilisations in Tunisia, Egypt and a swath of authoritarian North African and Middle Eastern states are interesting and important for more reasons than can be named, let alone examined, here.

But the aspects that have fascinated me are the over excited “I told you so!” claims of pundits, politicians and much of the Twitterati.

And not just the assertion that they had this right all along, but that they somehow understand the clattering Nasserite dominoes better than anyone and would just like to point out that it’s coming to get you. Yes, you (insert name of political opponent here), the revolution is coming for you.

There are literally hundreds of “takes on the crisis” I would like to poke fun at and take to task over this absurd conceit, but there is one I will look at (only slightly) more seriously.

Blunt Blade’s Bollocks

Blade Nzimande takes George Galloway’s excellent communist tirade in his column in the Morning Star (read it, it is also bollocks and brutal and crass but has enough thought and truth in it to warrant a second look) and turns it into the obscure and rambling  “Tunisia and Egypt: The deepening crisis of US imperialism and neo-liberalism“.

Where are the South African communists of yore who could always be relied upon to lift the veil, expose the skull beneath the skin and see the ape within the man? Oh yes, they are all dead or helping run the Department of Transport or become  bloated and insecure plutocrats … hmm, is that everyone?

Blade has it that Tunisia and Egypt are manifestations of a series of crises in capitalism “and its contemporary neo-liberal ideology”.

In short (in as far as I can understand Nzimande) the USA as the global representative of the corporate/capitalist machine has fostered dictatorships in the Arab world because they have agreed to leave the USA’s good friend Israel in peace.

So far so good, but then things start to unravel. Political upheaval in these Arab and North African countries sets back the USA’s task to reproduce the conditions of capitalist accumulation – through an amazingly complex web of dialectical causality. Thusly, the selling of upsized McDonald’s meals to the American guest workers rebuilding (if they work for Haliburton) and de/restabilising (if they work for Blackwater USA) any countries the US has recently invaded is threatened, because democratic governments are more likely to take a hard line on Israel … eh … oh goodness, there goes the thread.

You cannot successfully characterise Tunisia and Egypt as “crises of capitalism” unless you take an amazingly complex and interlinked world and reduce it to a childish little model that even the crudest Marxists would reject as ‘reductive’ and ‘over-deterministic’.

If  the term “capitalism” means the totality of international relations between states, global trade, the activities of local and international corporations and the shaping effects of culture, history and technology, then it is less than useless to characterise Tunisia and Egypt as “crises of capitalism”.

If the term “capitalism” refers (as I suspect it does, when used by Nzimande) to the secret set of rules in a secret club of greedy Americans who seek to control the world to protect and deepen their wealth, then I am sorry, but you can’t really be expected to be engaged with.

There are powerful and organised interests at play in North Africa and the Middle East and only a fool would not look to the USA for the sources of some of those forces. But there is also chaotic human activity and chance and rapidly unwinding and reforming complex systems that are part of what is happening and the blunt scalpel of Blade Nzimande’s theory takes us nowhere.

I would still recommend Galloway’s piece (as more insightful and the source of any interesting thoughts in Nzimande’s words on the subject) because part of what is happening in the Middle-East and North Africa is the unravelling of another mystifying US strategy to define, protect and advance its “national interests”.

What I wish the communists would give more attention to is not the greedy and rapacious aspects of US imperialism, but rather how it is often profoundly misconceived and poorly executed.

In my view human society should not be conceived of as “shaped” by particular forces or of being set on a certain “trajectory”. The totality of human existence is not an object (plastic and/or in motion). The totality of human existence – including the bits of it in Tunisia and Egypt – must be conceived of as a system so complex that making predictive statements is not hugely useful. Also, attempting to reduce the complexity to make it more understandable is a worthwhile endeavour only if undertaken with extreme caution and care.  Cooking it up as proof that your side is winning adds no real value.

In as far as the statement: “what is happening in the Arab world is a failure of US imperialism” is true, I suspect the reason is that successive US administrations have misconceived both the nature of history (as has Nzimande) and the nature of their own interests – not an error Nzimande appears obviously to have made.

‘Not as bad as I feared; perhaps even better than I hoped’ – is my reply to the question implicit in the title.

I have been flat-out covering the event for paying clients and I was at parliament in the gracious hands of the lovely people from Radio 2000 – where I commented for about an hour. Hence me only scribbling these short notes at this late stage in proceedings.

View from before

This is what I had to say before the event:

It is a ceremonial occasion; Jacob Zuma is there in his capacity as Head of State (not only head of government); it’s a joint sitting of the National Assembly and the National Council of Provinces; the Executive, the Legislature and the Judiciary is in formal attendance; there’s a red carpet, a twenty-one gun salute and a public gallery packed with ordinary people, senior representatives of the governing alliance and foreign and local dignitaries … this is just not a place where policy decisions, especially the various nettles Jacob Zuma will be required to grasp, could be spoken of in the clear and forthright terms that will, ultimately, be required.

View from the moment

I was initially very positive.

After a ten minute glance at the document I said to Reuters:

With surprising fluency Jacob Zuma managed to sound like a head of state dealing with an emergency – the crisis of unemployment.  He didn’t  grasp the nettle of the regulations that are strangling the labour market, but he placed more emphasis than expected on the private sector – especially manufacturing. There was also more detail than expected – and a confirmation that the interventionist aspects of the NGP will be issues to be dealt with this year.

I was impressed by the details namely:

  • The nugget at the core of the speech: the proposed R20 billion in tax breaks for manufacturing investments above R200 million for new projects and R30 million for expansions and upgrades – I do not expect the ANC’s trade union allies to be charmed by this idea (money in the hands of the bosses!) even if they will be amongst the ultimate beneficiaries.
  • Significant (and part of the New Growth Path’s underlying strategy of fiscal constraint and monetary easing) he foregrounded the statement that: “The Budget deficit is set to decline from the current 6.7% to between 3 and 4% by 2013. Concerns about the exchange rate have been taken to heart”.
  • The R9 billion by 2013 “jobs fund” – what is interesting about this is apparently Helen Zille interpreted this on an SAFM interview as the long-lost subsidy for first time youth workers … Cosatu is also going to hate that implicit segmentation of the labour market. ’

View from today?

I’m still positive. There was lots of ra! ra! in there, but that is to be expected in an election year and, quite frankly, every victory he claimed he said how far we still have to go.

He also spoke surprisingly like a statesman and he made the drive for jobs sound like a clarion call to mobilise the nation for war … which this campaign is or should be.

Finally, he mentioned that the Municipal elections will take place before the end of May. That will be enough grist for me mill … heady times to be a political analyst in this country.

Capitalism, at its most basic and unbridled, is a system that says: okay, the king is dead and therefore no longer owns all this stuff; take what you can … if you can hold onto it, it’s yours. Oh yeah, and you can pay the people who don’t manage to hang onto any stuff to work yours … because if they don’t they will starve.

On your marks, get set … go!

The system is extraordinarily productive, driven as it is by those gargantuan twin-thrust engines: human greed and human fear (you can keep what you can take/failure means death).

One of the great political achievements of the last 300 years has been the refining, softening and regulating of this system so that it maximises the good it can produce for as many as possible.

But note this: it can’t produce the same amount of good for everybody – because its fundamental driver is that it allows the hungriest, cleverest, most creative and most intelligent to keep what they can take. That’s why those people build the enterprise. So they can keep what they can get out of it. That’s the creative heart of the system.

(One of the many flaws of capitalism is it also allows those who have become powerful for reasons other than those listed in the last sentence to “keep what they can take”. Thus both Apartheid apparatchiks and New Elite cronies are (still) living high on the hog for reasons that have nothing to do with the unleashing of their creative spirit and more to do with their ability to cheat and steal. But that is another story.)

The point I wanted to make, is that in its most basic and unregulated form capitalism will allow the owner of the factory or mine to extract the last drop of blood from the worker – and the last drop of blood from his children, his old mum and his maiden aunt.  Without regulation the only thing that will stop the capitalist working the worker to death is the need to have him come to work tomorrow and for his children to come to work in ten years time. The history of capitalism has demonstrated this unfortunate truth about humans time and time again.

Thus we have labour market regulations: minimum wages, basic working conditions, rights to dignity, rights to organise and strike. These are amongst our greatest achievements – and they are all there on the law books of the new South Africa.

But there is a line over which we must not cross.

When the law, in effect, demands that the capitalist share equally the profits of the enterprise with the workers, the enterprise is over.

If local regulation means the capitalist can’t make sufficient profit here he (or she) will go elsewhere or will spend his or her time doing something else. That’s it; end of factory, end of jobs and end of story.

"Not only are the proposals contained in these draft bills a staggering contradiction of the government’s economic and social objectives with the potential to destroy hundreds of thousands of jobs, but they are also poorly drafted and difficult to interpret." Michael Spicer, CEO of Business Leadership South Africa

Michael Spicer, as CEO of Business Leadership South Africa, is the perfect person to listen to if you want to get an average signal of what South African capitalists are feeling.

His comment in today’s Business Day about the conflict between the flood of proposed changes to labour and employment equity laws and government’s job creation agenda is well worth a read. Catch it here.

It seems to me we are carelessly testing for the “tipping point”, the point beyond which the capitalists mechanise their plants or leave.

I love that scene in the Bucket List where the poor but proud Morgan Freeman character quietly points out to the rich and arrogant Jack Nicholson that the coffee he brews in a silver pot and savours from Dresden china is made from beans shat out by a lemur in South America – well that’s how I remember it, anyway.

You shouldn’t sneer at Kenny, Julius, Noleen, Hlelo, Ntando, Gayton and their 4000 best friends at the opening of the ZAR in cape town on Saturday night – after the Met, of course Darling.

Previously, under Apartheid, many of them were disadvantaged. Looking at them now, a more miraculous transformation seems impossible to imagine.

Future and ex-con Julius and Kenny having fun, fun fun ... pic from IOL

The nouveau riche always feels it has something to prove; always embarrasses itself in the eyes of its better educated children.  But South Africa’s new elite seems … almost Russian … in its consumption of the tasteless and conspicuous.

Picture the model dressed in a black S&M bikini. She is lying, anxious under the blazing lights and sweating under the make-up. Kenny Kunene’s peculiarly round head is leaning over her, his moist lips pouting in an “oh” reaching down to her belly and the rice and raw fish that is lying there, slimy as the evening drags on …

And the morally disadvantaged new elite roars its satisfied approval at this witty, sexy exercise of power – take back the night, we didn’t struggle to be poor …

Thank heavens for the increasingly twinkly and cantankerous – in equal measures –  Gwede Mantashe (and, it must be said, his ‘desperately-clinging-to-the-high-ground’ organisation).

This is what they had to say:

The ANC distances itself from owning a nightclub

31 January 2011

The African National Congress (ANC) distances itself from sentiments allegedly attributed to the ANC Youth League President, Cde Julius Malema that, “Helen Zille is trying to close all the clubs in Cape Town, but this one belongs to the ANC”, as contained in today’s (31 January 2011), media reports.

The ANC would like to state it categorically clear that it has no interest in running a nightclub or in endorsing its owners. The ANC is not into nightclubs or partying, but it is a revolutionary movement.

We furthermore reiterate our condemnation to the act of serving sushi on a woman`s body, as this act is anti-ANC and anti-revolutionary. This act is defamatory, insensitive and undermining of woman`s integrity.

We therefore appeal to all those involved in this act to immediately disengage from it.

Issued by:
Gwede Mantashe
ANC Secretary General
African National Congress

You go Gwede Mantashe, may your voice ever be raised above the grunting and bellowing around you.

I am an independent political analyst focusing on Southern Africa and I specialise in examining political and policy risks for financial markets.

A significant portion of my income is currently derived from BNP Paribas Cadiz Securities (Pty) Ltd.

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