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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.
I am sure no-one has failed to notice the flood of South African high achievers passing through the United Kingdom over the last week or so.
A golfer was there recently, some swimmers, a group of cricketers … and, oh yes, Julius Malema.
Julius told BBC and Sky News that he was in London working hard and meeting investors behind closed doors – to explain the ‘economic freedom campaign’ – and to give nuances on the nationalisation call.
He – charmingly – defended the racial make-up of the South African Olympic team: “we are proud of our athletes”, he said; and he came clean on his support for Kgalema Motlanthe to succeed Jacob Zuma at Mangaung in December.
This is his Mangaung prediction:
“I am coming back to the ANC in December; once we have removed president Jacob Zuma – because we are going to remove him successfully in December … and then I will walk into that conference, shake his hand and proceed to occupy my rightful seat.” (Catch that BBC clip here.)
It is difficult not to admire the audacity … and delight in the anxiety that those who conducted the Polokwane Putsch must be feeling.
But to my mind things swerve away from the comic and towards the dark when I think about this a little more.
It is a series of small things that worry me.
He pitched up at the Chingford Rugby Club and joined a group of Zimbabweans for a braai – and was apparently welcomed with open arms. He dined with Lenox Lewis
and spoke to a group called the Pan African Congress (not our PAC – but it has some similarities) and was covered in a spooky online journal called The Zimdiaspora under the headline “We are inspired by Mugabe – Malema” as follows:
Turning to … Zimbabwe and its politics of land and mineral wealth redistribution, Malema had glowing praise for the president of Zimbabwe Robert Gabriel Mugabe for confiscating land from the whites and giving it to blacks. He stated they found inspiration from the actions of Mugabe as an African leader and were grateful to see him standing up against whites and their economic enslavement of blacks.
Glowing praise for president of Zimbabwe Robert Gabriel Mugabe? Sounds like a writer constrained by the diktats of belonging to a government department, something like, say … hmm … the Zimbabwe Central Intelligence Organisation?
What would covert aspects of the Zimbabwean state get from promoting the increasingly virulently, anti-Zuma Malema in London ? (I am not unaware that there is a wild leap in that last sentence … but still am going to just take it and move along.)
It’s a tenuous link but my nose is twitching: Zanu-PF’s preparation to hold off the MDC challenge is multifaceted and very sophisticated. A significant part of the pressure on Zanu-PF to meet its obligations under the Global Political Agreement and move towards democratic elections is coming from the SADC facilitation under the leadership of Jacob Zuma.
The next Zimbabwean election is going to be won or lost on the precise wording of the laws and constitution that set the conditions for elections – including how the security apparatuses will be controlled.
That wording is being finalised as I write this …. as Julius Malema takes his campaign against Zuma to the world stage, during the Olympics … no expenses spared.
I realise I have to be cautious; it is not as if the Malema ANC Youth League faction is not brilliant at self-promotion and has an almost preternatural ability to play into the current media obsessions.
Malema was quoted in the Zimbabwe Sunday Mail in June saying that Jacob Zuma was not the right person to be the SADC mediator in Zimbabwe because ‘he hates Robert Mugabe.’
I think that the possibility that Malema is acting as an asset for a (partially) hostile foreign power will play against him in the ANC’s internecine strife … or at least his enemies will try and make that case to his detriment. (Note added on 03/08/2012: I am not suggesting that there is necessarily any intention on Malema’s part … the point is rather that in effect he might be fulfilling Bob’s/Zanu-PF’s agenda as opposed to ‘the national interest’ as embodied – supposedly – by the South African president … or even more narrowly that the possibility of this being true will probably been used against Malema by the incumbents he is campaigning against.)
We must guard against paranoia and the instinct to see everything we can’t quite explain as evidence of the hidden hand of spies, aliens or the Elders of Zion – but equally we would have to be very naive to believe that the hundreds of billions of real dollars spent each years on espionage and dirty tricks just disappears into the ether, leaving no imprint on the world.