Changing the South African narrative
Putting events and indicators into fuller context.
There’s been much talk lately about “changing the South African narrative” – helped along no doubt by our Springboks; the President’s remarks at the latest Investment summit and the R700bn investment pledges. But still, it will not be an easy task given the dismal facts and indicators about which Finance Minister Tito Mboweni did not mince his words in his Mid Term Budget Policy statement.
The conversation certainly shifted with winning the world cup Rugby tournament, where we all felt in some measure what the country is capable of by sharing a common goal and about which Guardian sportswriter, Andy Bull wrote “… driven by a strain of desire few others can comprehend.” More importantly is the extent to which many feel the need to share positive anecdotes and express goodwill towards each other. This has been shown in the explosion of followers – now approaching 1-million – of the social media page #I’m Staying.
Changing the conversation changes the mood, and changing the mood will undoubtedly change the narrative itself. News media have always had an understandable leaning towards “bad news”. It makes for better headlines and psychologists explain that this falls back onto our survival instinct of being more aware of things that could threaten us than things that don’t. But more often than not there is a wider context that can placate and reassure, while not necessarily changing the facts or their seriousness. It is often neglected, probably due to its complexity, but it can go a long way in enriching the conversation and changing perceptions.
One example still bandied about is the loss to the economy of some R500-billion when President Zuma fired Finance Minister Nhlanhla Nene in 2015. At least half of this was attributed to stock exchange losses. What is not noted is that all straight line calculations between market movements and gains and losses, are hypothetical. Real gains or losses can only be calculated on the basis of when the instrument was bought; at what price and when it was sold. Such a calculation becomes virtually impossible with the many asset-holders and the many different timings of purchases and sales. Does it make sense, for example, to say “I bought this asset for R100; sold it for R200, but made a loss of R50 because at one stage it was trading at R250?”
Capital markets, the core of rating agency scares, are particularly complex and mostly need contextualising. So when Economist Mike Schussler posted a chart on social media, showing the yield gap between the U.S. 10 year bond and the SA 10 year bond as having doubled, he attributed it to the cost of politics and corruption. Of course, there’s truth to that, but it omits the context of declining interest rates in most developed countries, including the U.S. at record lows, and many in Europe and Japan at negative yields!
The real story is that there has been a rush for “safe” sovereign bonds away from riskier assets, not only South Africa: to the point that investors are willing to pay interest to the borrower! South African bonds have benefitted in some measure from lower global interest rates of the past 20 years, (see chart here) albeit most likely to a much lesser extent than it could have without the factors Schussler mentions.
The other side to that coin is that while the world is now starkly divided between risky positive yields and safe low or even negative yields, there must be a growing hunger for good yields and South African rates are amongst the most attractive. It’s a moot point whether our yields aren’t already reflecting junk status credit ratings.
We certainly should be alarmed at our level of sovereign debt at 61% of GDP; well above the prudent limit of 40%. But that should be seen also in the context of exploding debt worldwide, where most countries have long since abandoned prudence criteria. We are in fact, better than many countries including Japan at a shocking 240%, the U.S. at 106%; U.K. at 81% and Singapore at 112%. We should be as, if not more concerned about the looming global bond bubble burst. Ultimately the level of debt is not the issue but how it is used. Rising debt levels have mostly failed to promote economic growth and have exacerbated inequalities. To be more effective as a growth stimulator, debt should be focused on capital expenditures such as infra-structure and one could logically include education in that.
And on domestic interest rates: there is the blatant paradox between calls for lower domestic rates to encourage economic growth on the one hand and the need to encourage savings to feed the capital pool of the economy on the other. Pensioners and savers are forced into foreign or riskier domestic assets, often also poorly performing such as equities and property.
The context of the Medium Term Budget Policy statement appears to have been missed by many. There seems to have been an expectation of tangible steps in cuts in government spending and revenue increases. These are issues for the main budget and Finance Minister Mboweni’s severely austere message has signalled that the February budget will certainly be highly restrictive. It could plunge the budget much deeper into political turmoil and already labour has been flexing its muscles in taking on the finance Minister.
Austerity has become highly contentious and has given rise to an anti-austerity movement with protests in many regions such as Europe, the U.K. and across South America – the most pronounced of which are the riots in Chile. Anti-austerity has been fuelled by global inequality, and Mboweni is going to have his work cut out in keeping his budget out of that arena.
And so one could go on highlighting the context behind many of our events, indicators and statistics: particularly the much vaunted GDP metric. The latter is at the centre of all assessments, interpretations and policies. Yet it is the most suspect of all. Not all that long ago, a serious question was posed whether it was not understated by between 10% and 15%. If that were remotely so (and it has been challenged by Stats SA) then all the formulae we use, such as debt to GDP, are themselves nonsense.
But the most important of all is the need to see the economy itself in a different context: from a system where each seeks maximum self-gain to a social, evolutionary process enabling each to serve the other and express the best of themselves.
That understanding is, after all, how you win world Rugby tournaments.