ECONOMISTS' CALL SPARKS REAL FEAR - NOT PHOBIA

This article first appeared in the Business Times section of The Sunday Times on 22 May 2016. The Sunday Times is the biggest weekly newspaper in South Africa.

ECONOMISTS often tell us that “economic openness” - the extent to which factors of production are able to move freely between nations - plays a role in determining the growth and economic performance of a country.

In fact, my good friend and chief strategist at Citadel Wealth Management, Dr Adrian Saville, has this as one of the elements of his “six-pack” concept: six factors he found in common among countries that have consistently led economic development over three decades.

According to a paper published by Saville and his colleague at the Gordon Institute of Business Science, Dr Lyal White, titled “Ensuring that Africa Keeps Rising: TheEconomic Integration Imperative”, economic integration takes place through four main channels: goods and services in the form of international trade (T); financial integration via the movement of capital (C); knowledge and information (I); and the movement of people (P), from tourists to skilled workers.

This “TCIP framework”, developed by Indian economist Pankaj Ghemawat, demonstrates how cross-border interactions, economic openness and integration facilitate economic growth and socioeconomic

advancement.

A recent illustration of the contribution that labour mobility can make to economic advancement comes from South Korea, where, in 2001, the government created a “gold visa” to allow more foreign information technology researchers to work in the country. 

This initiative has been cited as one of the key reasons South Korea leapfrogged many advanced nations.

However, Saville and White admit that “with respect to Africa, to date researchers have largely sidestepped the key element of economic

integration. Arguably, this is because of an uneven understanding of the true role and influence that economic integration plays.”

I would further argue that the trade, capital and information elements of the TCIP framework are much better understood than the benefits of the movement of people.

This is especially true of richer nations and how they relate with people from poorer countries.

I am very aware of the realities of xenophobia and the number of times it has reared its ugly head. In my view, what we call xenophobia is not often a phobia - an overwhelming and unreasonable fear of something.

I think it’s often a reasonable fear that comes from an honest place of vulnerability and threat, which provokes anxiety. Many South Africans see the “economic openness” of our borders as a threat to their livelihoods, jobs and business opportunities.

If you sift through the noise, the so-called xenophobic attacks have

often been characterised by attacks on foreign-owned small businesses, and come from the frustration that foreigners, mainly from the rest of Africa, seem to be working longer hours for less pay, and at times at an even better output.

Here is the truth: the average South African cannot see the “enormous economic gains” of the cross-border flows of people, as touted by economists. For many, the free movement of people means an influx of foreigners into their country, and a strain on the resources that are limited enough for South Africans.

Themba, from Waterfall, called in to my radio show this week saying: “When people emigrate from places like Zimbabwe, Nigeria and Congo, that will mean our country will struggle, because our population will increase and our clinics and hospitals will be overcrowded; more people are likely to go hungry as more people living in the country will be unemployed.”

I thought about how Themba must have agonised about calling in to share what he knows would have sounded “xenophobic”.

But this is no phobia. It is not an unreasonable fear of the foreigner. It is a pure, honest, unedited and genuine fear - one that needs to be acknowledged.

POLISH YOUR SKOROKORO: THE RIDE WILL BE TOUGH

This article first appeared in the Business Times section of The Sunday Times on 29 November 2015.

In the mid-80s, ‘Skororo’ hitmaker Condry Ziqubu released another catchy tune, which I was convinced, was about ‘Mello Yellow’, the popular soft drink launched in the same era.

This week, a friend reminded me that ‘Yellow Mealie Meal’ was written to highlight the plight of Black South Africans in the aftermath of the hard-hitting droughts of 1982.

The punchy lyrics open with: “Hey look. Up there. Sun is very hot. Hey look. Up there. No thunder, no lightening. God of rain. Your children are crying, There’s no rain. Everybody’s singing this song. Yellow, yellow, yellow mealie meal”.

Last week the reserve bank governor, Lesetja Kganyago stood in front of the nation and announced the central bank’s decision on interest rates and updated its forecasts on GDP growth. A number of South Africans, whether working class professionals or entrepreneurs may not fully appreciate the impact of the current state of affairs, and how they ought to react to it.

The governor summarised matters well when he said “The key risks are a marked depreciation of the rand; worsening drought conditions and their likely impact on food prices and the possibility of additional electricity tariff adjustments. At the same time the economy remains weak.”

The comfort that rising interest rates are going to tame inflation, which is expected to breach the top end of the 3% - 6% range, have all but disappeared as the causes of real inflation have little to do with interest rates.

As the worst drought since Condry Ziqubu’s hit ravages us, we are likely to face serious headwinds on food prices in months to come. Climatologists say we should not take much comfort in the recent rains, as significant showers are only expected next March.

According to Grain SA, South Africa is expected to spend at least R2.2 billion on yellow maize imports of almost 1 million metric tons of from countries such as Argentina and Ukraine in the year through to the end of March 2016.

This week, Eskom reported interim results that showed a 13% increase in power prices, which helped its net profit climb to R11.3 billion. These were bitter-sweet news. We all want a successful Eskom who has enough to spend on maintenance to avoid further blackouts, and a constructive hamstring to the economy. But this doesn’t come for free. South Africans have no choice but to brace themselves for additional electricity tariff hikes.

Add to this mix a weakening rand, the volatility around a potential US interest rates hike, the uncertainty of wage negotiations in early 2016, and an economy that is forecasted to grow by 1,5% in 2016, you soon appreciate the tricky terrain we have to navigate in the next 12 months.

As an individual the choices are relatively easier to understand, avoid debt, especially unproductive debt. You are likely to start earning less in real terms as your employer sees lower profits in an economy that grew by only 0,7% in Q3 of 2015. Those big salary increases and fat bonuses are likely to be a fond memory. Reality check: A 6% salary increase is essentially a 0% salary increase in 2016.

Dr. Adrian Saville, Chief Strategist at Citadel Wealth Management has one piece of advice for businesses in these times. “Our estimates now is that economic growth going into 2016 could actually be sub-1%, and therefore businesses will have pressure on the top line, which means that your competitors will be trying to get at you, by eating into their own middle line. In other words, not only are your revenues going to struggle but so are your margins, leaving less to trickle into the bottom line. So what can you do? The first rule in these times is to survive. It’s the same as South Pole expeditioning. It’s not about who gets to the South Pole or top of the mountain first. It’s who gets home.” says Saville

Now is the time for resilience. The only way you can enjoy an economic recovery is to be there. It is also time for prayer. Prayer for more rain. Otherwise, we will all be singing yellow mealie meal in our skorokos for longer than we wish.