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I am sometimes tempted to think of myself as a company analyst, with South Africa as my company, government as management and the currency and bonds as the share price
Company analysts make sell, hold or buy recommendations. Obviously a buy means the analyst believes the shares are cheap – in some difficult to determine absolute terms, but more likely in relation to appropriate peer or category comparisons.
If I was a company analyst, then what I might have been doing over the last while would have been writing a report changing my recommendation on South Africa from a hold to a sell.
Here is a bare-bones summary and ordering of that argument:
- There are two major cycles driving negative sentiment which are coinciding now (which they do every five years): the “strike season” and the lead up to the ANC’s National Conference ;
- Both these cycles are deeper and more traumatic that usual;
- The reasons the strikes are worse than usual is excellently addressed by Gavin Hartford of Esop Shop - here for a link to his paper at polity.org;
- Mangaung is “deeper” and more traumatic than Polokwane because there is more at stake (some ANC members realise that another seven years of Zuma could hurt the ANC and the country; and Zuma and his backers cannot afford to lose office, because their dealing is not yet wrapped up and because their man remains legally vulnerable to the original corruption allegations against him);
But the main reason these cycles are deeper than previously is they are meeting a structural or secular trend, which consists of (and this is very stripped down):
- Uncertain political stewardship from the top;
- Institutional weaknesses in political (and labour) organisation characterised by systemic cronyism, corruption and nepotism (which leads to violent competition for control), managerial incoherence, narrowing support base and falsely inflated membership figures;
- A significantly negative economic policy environment which might lower investment levels – e.g. fiscal uncertainty (because there is no way the ANC cannot keep increasing social grants and the public sector wage bill, which together are already more than half annual non-interest government spending) and a highly interventionist industrial policy (best exemplified in the SIMS document) which is one step away from ‘nationalisation by stealth” i.e. the effective deployment of private assets for public – or more narrowly governmental or even party – ends.
- Incompetent infrastructure build, disruptive labour relations and failed educations systems are constant, apparently irresolvable and narrowing bottlenecks in the economy;
- Institutional and administrative failures of government (in specific geographies and at specific levels of government) – with similar features to the second bullet referring to parties and labour unions;
- Failures of the collective bargaining system – and other institutions designed to manage and mediate conflicting interests in society;
- Growing social stresses around levels of inequality, unemployment, indebtedness and poverty – and unresolved racial overlays of the same.
Just listing that is faintly distressing … and you can imagine writing about it for weeks is not very uplifting.
But, I have, mid-stream, decided that I am not at all certain it is appropriate to take this relentlessly negative view.
Let’s go back to the political analyst/company analyst metaphor. Company analysts often suggest investors sell a share in a top quality, well managed and highly profitable company if it is too expensive.
They might also recommend a buy on a company in all kinds of trouble – but one that is cheap and has upside that the herd of sellers hasn’t spotted.
I cannot remember an SA political shock or flood of negative sentiment that did not represent a buying opportunity in our financial markets. Remember the sell-off of R54bn of SA resources companies after the leaking of a draft mining charter in 2002? It proposed forcing mining companies to immediately sell half their equity to black South Africans and spooked the market. The next few months was the chance of a life-time to buy excellent value company shares on the cheap.
Whether financial analysis adds real value to the investment process (or is just another bleed-off) is a matter of endless dispute. But here is why I would hesitate to call a sell on SA:
- I cannot honestly say we have more political risk than Russia and Turkey, for example;
- Where are the safe havens for investors, given the complex risks and problems in the global economy?
- I cannot be sure that the negative news flow is not already in the price – it would be a very financial-market-analyst-type error to rush around shouting sell, sell, sell just after the last savvy investor had finished selling and begun buying;
- My ‘negative secular trend’ is described as if it is inevitable – whereas there is much that can be decided and turned around by citizens, government and the ANC (despite my bleak outlook as to the likelihood of that happening, it must be in the mix as a possibility);
- The country has a number of inherent advantages: its natural resources, its growing domestic market, its proximity to the last great frontier market (Africa), its sophisticated financial system and complex infrastructure, its constitutional framework, judicial independence and stable democracy – to name just a few.
Now obviously that does not counter the negative “secular” or structural trend I describe above. But there is something of a “baking a cake” strategy about how I have motivated for the big underlying negative trend. What I mean by that is I have marshaled all (or as many as I can come up with) of the negative arguments in one place to bolster a particular conclusion: sell!
To make a cake one follows certain steps – mix ingredients, add energy and voilà: a nasty, stodgy, too sweet lump.
And that is a relatively simple object, with only a few requisite variables for its construction.
When we think about the future – especially when we write about it and propose to people how they should position themselves – the very first thing we should be is extremely tentative.
So I can’t, in good conscience, say sell South Africa.
I am unmistakably bleak about our politics and governance, but don’t take that as a signal to sell. I am quite likely being tossed on the waves of sentiment – following financial market indicators, rather than leading them.
My very negativity could as easily be the indicator to start buying; that all the bad news is already in the price.
Nedbank chairman Reuel Khoza provides the lead headline in today’s Business Day as “warning of a rogue state future for SA”.
So imagine if you could, for a moment, that you are playing a sports game.
As in a dream, you suddenly realise you don’t know the rules; you don’t know how to score, who’s on your side or what the parameters of the field are.
This could be a comical situation – and I am sure I remember boys from my school days whose mystification on the rugby, cricket or hockey fields would bring a gentle smile to our (his team mates’) faces.
But this is also the stuff of nightmares: an inscrutable world where what happens happens for reasons entirely mysterious, where people are motivated by incomprehensible impulses and the dread of the unknown builds and builds.
I am sure I am not alone in having worked in a dysfunctional institution?
I mean something worse than a j0b in which you are poorly paid and have a psychopath for a boss (entry level experience requirements for human adulthood as far as I can make out).
A dysfunctional institution is one in which the sum total of what the organisation achieves appears to be at-odds with its explicit mission.
I am suggesting something worse than an organisation that doesn’t achieve what it is designed to achieve. I am suggesting that in some instances a deeply dysfunctional organisation can, when everything is aggregated, achieve the very opposite to its stated purpose is.
Which brings me to the institutions of the South African state.
I am occasionally lucky enough to get hold of some excellent economic commentary written by Sanlam Group Economist Jac Laubscher and published on that company’s website. In his most recent contribution (which appears here) he takes some concepts from Why Nations Fail: the Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A Robinson (book I haven’t yet read, but will do so on the back of Jac’s comments) and hints at how they might be applicable to South Africa.
According to Laubscher, Acemoglu and Robinson suggest that the dominance of “inclusive institutions” over “extractive institutions” is the difference between success or failure of nations.
Inclusive institutions harness and unleash human creativity and incentivise citizens and workers to give of their best.
As Jac Laubscher summarises:
Inclusive institutions are characterised by guaranteed property rights (vital for investment and productivity growth), an impartial legal system that upholds contracts, the effective provision of public services to create a level playing field, space to create new businesses, and the freedom to choose one’s career.
“Extractive institutions” in the words of Jac Laubscher:
… are aimed at extracting income and wealth from one section of society to the benefit of another section of society, usually the elite. In fact, extractive political institutions are the means by which the elite enrich themselves and consolidate their political dominance.
It is a fairly simple matter to demonstrate that to some degree key state and semi-state institutions and processes in South Africa have become mechanisms for extracting wealth by the politically connected elite.
But a key qualifier here is “to some degree”. I don’t think the state has yet, unambiguously, become an extractive tool of the political elite. But it is obvious that at least part of the political elite is struggling mightily to shape our institutions to and for that purpose.
Yesterday I listened to Trevor Manuel deliver the National Development Plan to a joint sitting of parliament. At the same time the the Constitutional Court was hearing an application by the Treasury and Sanral to set aside the April interim interdict granted by North Gauteng High Court halting e-tolling and mandating a full review of the system.
My views on both Trevor Manuel and e-tolling are ambiguous – they both have their good and bad points – but I appreciate the subtlety and complexity of what the National Planning Commission has tried to achieve … and I celebrate the fact that we have a Constitutional Court we can trust with decisions like the one it was busy with yesterday*.
But the institutions of our society are not yet the corridors of the predators’ labyrinth – but we’d be foolish to ignore the signs.
* The Concourt matter is important for a number of reasons, but the aspect that interests me professionally, is part of what is happening is driven by the fact that the Treasury feels the need to defend its credibility as a borrower. I suspect that the rating agencies are happy that the Treasury is fighting this matter but are anxious that they might lose. The lender wants to be certain that the entity to whom it lends is properly able to make the agreement to pay the money back. The Treasury is ultimately arguing that the North Gauteng High Court ruling means no lender to the South African government can be sure that the courts might not declare, in effect, that government was legally incompetent to make the decision in the first place – significantly increasing default risk.
Think of the various interests of classes and groups in our society as constituting an ecology in which political parties and organisations find niches to graze, hunt and be sustained.
The system can change and niches shift, narrow or broaden – and in response the denizens that live in each niche must adapt or become extinct.
Alternatively, major fauna can begin to change for other systemic (or extra-systemic?) reasons and new spaces and niches close or open in response.
And a shockwave goes through the ecosystem and a number of species appear and/or rabidly (oops) rapidly evolve, while others disappear.
Like all metaphors this one is going to break down the closer it gets to the real world, but I think something like this is happening to our political ecosystem – as the ANC’s DNA drifts towards the lumbering, complacent and patronage-networked side of the spectrum.
The gaps that are opening are in the middle classes, in the cities and amongst urban professionals – niches which (that?) are being vacated by the ANC as it settles its rump into the comfort of a sort of conservative, patriarchal, kleptocratic, bureaucratic and ethnic politico-ecological pouf-cushion.
I make this observation as I watch (on eNews channel) the DA marching on Cosatu’s head-office in Johannesburg in a historical reversal of roles that I am struggling to get my head around.
I saw a Twitter post from Ranjeni Munusamy last night in which she said: “After the #DAmarch tomorrow, maybe nuclear powers will march to Greenpeace offices. Will make just as much sense”.
I get her dismay completely, but I suspect that is just my old assumptions about the shape of our political ecology dominating my brain.
Why shouldn’t the DA be going up directly against Cosatu?
They are, increasingly, competing for exactly the same constituency - the constituency recently, in effect, vacated by the ANC.
That is what all this business about Zille attempting to recruit Vavi into the DA has been about.
They have been flirting - because they feel how close they are to each other – and now they are fighting, for exactly the same reasons.
On Sunday Ferial Haffajee wrote an extremely interesting piece in her City Press, pointing out that Cosatu is increasingly dominated by public sector unions - and therefore increasingly represents “a middle”, rather than “a working” class.
The story uses this graphic:
… which I think comes from a Uasa Federation study by economist Mike Schussler that points out that the employed in south Africa enjoy relatively good living conditions with an average salary of R13 200 and further that public sector workers are significantly better off than their private sector counterparts.
Haffajee writes:
Cosatu has created a middle class where one did not exist in the 18 years of democracy. That it is funded by the public purse (funded in turn by you and I, the taxpayers) is neither here nor there. What is remarkable is how a federation that started as decidedly blue collar has altered the identity and social position of its members so quickly and so effectively that it could turn the public policy of tolling on its head.
So what is happening right now?
There is an inevitable frisson in the relationship between Cosatu and the DA.
Cosatu and the Democratic Alliance border the niches vacated by the ANC, namely the unemployed and the middle classes. (The unemployed and the middle classes, perhaps more than any other groups, have the most to lose from the ANC’s, at best squandering, at worst looting, of societal resources available for growth and relief.)
As the opposing crowds gather in the streets of Johannesburg, the blue DA marchers versus the red Cosatu defenders - those for the youth wage subsidy and those against it – we might be expected to conclude that these are bitter class enemies.
I still think not – to my eyes I cannot distinguish them ethnically or class-wise … (but I accept that I might just not have cracked those codes).
The ANC – as well as agents of the state, I think – will strive mightily to prevent Cosatu from finding the DA – and vice versa.
As romantic literature suggests, love and hate lie alongside each other like geological strata – always in the process of metamorphosing, one into the other.
(Note – I think my various metaphors here don’t adequately take account of the differences in Cosatu – and ultimately break down on that point. I do think the public sector side of the federation is more middle-class and the private sector side more radical and competitive. However it is easier for the ANC to keep the public sector unions – the DA’s natural allies in class terms – on side because, ultimately, those unions are dependent on the state budget over which the ANC has control. Obviously there is a cost involved in the ANC buying off those middle class unions, and it is a cost ultimately borne by the unemployed … but that is an argument for another post. I am not sure if the DA will be able to capitalise on this contradiction, but it is not impossible that is precisely what the party is trying to do in Johannesburg as I write this.)
Two brief thoughts – on a rainy Cape Town Sunday:
Firstly – a by-product of Malema’s (possible) retreat
I have a feeling that debates ranging from mine nationalisation, land distribution and continued white economic dominance in the South African economy have just been saved from the gangsters in the ANC Youth League who have been using these as a cover for looting.
It has been difficult not to lump every statement about ongoing race based inequality with the smokescreen slogans used by the ANC Youth League leadership – and many equally corrupt politicians.
The latest Commission of Employment Equity Annual Report says whites still occupy 73.1 percent of top management positions – and blacks 12.7, Indians 6.8 and coloureds 4.6? Yeah, well they would say that wouldn’t they – after all, that is (one of) Jimmy Manyi’s old outfits and he is the grandmaster of running racial interference for pillaging resources destined for development!
Willing-seller, willing buyer policy of land distribution responsible for only 5 percent of redistribution targets met? Yeah, well, guess who are trying to get themselves a portfolio of farms a la Zanu-PF?
Nationalise the mines? Yeah, so you can rescue your BEE backers and get a piece of the action yourself?
But that was last week.
Those issues are back on the agenda, but this time the discussion might be led by people genuinely looking to harness the country’s resources for development and transformation – not looters, corrupt tenderpreneurs and “demagogic populists” disguising their true intentions.
If anyone thought we could go on with the levels of unemployment, inequality, poverty and racially skewed distribution of ownership and control of this economy I suspect they will find they have been very much mistaken.
One of the consequences of the retreat of the Malema agenda is that we will all have to deal with the issues we have, up until now, been able to dismiss or deflect because they were ‘owned” and propagated by thugs.
Itumeleng Mahabane says it like it is
In a similar vein – and my favourite read of the week – was Itumeleng Mahabane’s column in Friday’s Business Day.
He deals with a variety of aspects of the country’s debates about development and transformation.
In tones that have been tightly stripped – of anger, I suspect – Mahabane appeals for the debate to lose the “prejudicial invectives” and that participants should “desist from creating cardboard villains”.
He makes 4 main points (actually he makes a whole lot more, and it is not impossible that I misinterpret him here – and he is certainly more subtle and nuanced than my summary below – so read the original column – the link again.)
Firstly he suggests (although in the form of a question, not the statement as I have it here) that we have to acknowledge the damage our Apartheid past has done our country, leaving “the inequity of our income distribution and the historic systematic destruction of black capability”.
Secondly he hints that the state cannot assume more economic responsibility before we have fixed accountability – and thereby arrested corruption.
Thirdly he appeals for a sophistication of our views on the labour market – I think by suggesting that a degree of duality is crucial.
But, he warns:
I do not subscribe to the simplistic and questionable idea that the inability to hire and fire people is the core cause of structural unemployment. The balanced high growth would create demand for labour, regardless of labour rigidity.
Fourthly he asked us analysts why:
we casually, without considering the social implications, vilify workers and the working class, making them useful villains for complex economic challenges? We almost never give view to the body of evidence that shows that market rigidity and anticompetitive behaviour is a significant factor in deterring investment and output and that, in fact, it contributes to SA’s excessive business and skilled-labour rents.
Those are important views – and an important corrective to aspects of our debate about development.
Cosatu has released its long awaited document in which it provides the facts (as it sees them) and theoretical underpinnings for “A Growth Path Towards Full Employment” – and in doing so attempts to align its views with those emanating from Minister Ebrahim Patel’s Department of Economic Planning (the Two Year Strategic Plan) as well as Minister Rob Davies of DTI’s (IPAP2).
Stephen Grootes at the Daily Maverick has done an exemplary quick analysis (catch that here). I am not quite certain I am as gung-ho capitalist as the guys down at the the DM are … although I am as clear as Grootes is that Cosatu’s main planks of policy would turn us into a wasteland in two flicks of a lamb’s tail – as not even my old Granny was prissy enough to say.
I saved a copy of Cosatu’s full document here and hope to give it a more thorough treatment than the cursory skim I gave it in the middle of last night. Whatever I conclude will be faithfully reported on these pages.
Here is the summary of South Africa’s performance in the Global Competitiveness Report 2010 – 2011. The highlights are mine and the seriousness of the problems is obvious..
While we quite rightly bemoan health, education and labour market failures it is interesting to note we were top ranked – in the whole world! – in two categories: in auditing and reporting standards as well as in the regulations that govern our securities (financial instruments) exchanges.
But on with the bad news: part of the process of the construction of the report involves asking the opinion of “business leaders” (see note below about methodology) about their concerns. The top four concerns they had about South Africa are not a huge surprise:
From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.
Methodology note from the press release: “The rankings are calculated from both publicly available data and the Executive Opinion Survey, comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies.”
Click here for a link to the full report.
