Changing the economic narrative

Putting events and indicators into fuller context.
A better understanding of influencing factors could help the economic discussion shift the way the bigger conversation did with the Rugby World Cup win, writes the author. Image: GCIS

There has 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 R700 billion in 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 Medium-Term Budget Policy Statement (MTBPS).

The conversation shifted when we won the Rugby World Cup. We all felt in some measure what the country is capable of by sharing a common goal, which UK Guardian sportswriter Andy Bull described as “driven by a strain of desire few others can comprehend”. More important 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 former president Jacob Zuma fired then 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, and when it was sold, and at what price the transactions were done. 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’?

Complexity in context

Capital markets, the core of rating agency scares, are particularly complex and mostly need contextualising. So when economist Mike Schüssler posted a chart on social media showing the yield gap between the US 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 is truth to that, but it omits the context of declining interest rates in most developed countries, including the US 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’s, to the point that investors are willing to pay interest to the borrower. South African bonds have benefitted in some measure from the 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 Schüssler 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 among 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, it is 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 US at 106%, the UK at 81%, and Singapore at 112%.

We should be as concerned, if not more, about the looming global bond bubble burst.

Ultimately the issue is not the level of debt, 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 infrastructure, and one could logically include education in that.

Blatant paradox

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 MTBPS 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 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. 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 UK and across South America – the most pronounced of which have been the riots in Chile. Anti-austerity has been fuelled by global inequality, and Mboweni is going to have his work cut out for him in keeping his budget out of that arena.

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 – whether it was not understated by between 10% and 15% – was posed.

If that was remotely so, and it has been challenged by Statistics SA, then all the formulae we use, such as the debt-to-GDP ratio, are themselves nonsense.

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 Rugby World Cup tournaments.




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IF YOU WANT TO GAIN BUSINESS AND BUSINESS INTERESTS, cut taxes !! I HEARD THERE IS A 43% DUTY ON ELECTRIC CARS??????????? Cut the onerous business regulations and let Capitalism run!! Use the Donald Trump methodology. Look at the economic successes he is having. But being a Socialist country S A refuses to understand and grow. All at the while as the economy goes into ruin, the government says they are helping the poor.So 3rd world.

That duty is to save Eskom further embarrasment.

While the idea seems plausible, I don’t think that liberalising the economy further and cutting taxes would be applicable to South Africa. The US guarantees the demand for dollars through its political and military operations in the Middle East, thereby ensuring that global commodities such as oil are denominated in US dollars. This gives it unprecedented powers to print money and shape its domestic economy as it pleases. Meanwhile, SA economy exports are based on primary commodities, which are denominated in dollars, even though it may be the biggest platinum producer for example.

As a nation, we should a SWOT analysis.

Strength: We have 80% of the world’s platinum and we have Master Drilling, the most innovative drilling company in the world. We have an independent Reserve Bank with the best Governor in the world. Our banking and financial system is the strongest in the world.

Weakness: Our GDP growth disappeared because we implemented socialist policies and the labour unions rule the country. We have a lame and clueless political party in charge of economic policy.

Opportunity: We can back our currency with platinum, thereby creating the most trustworthy currency on earth. Make the rand a crypto-currency directly convertible into platinum. We can move towards free-market capitalism and extract the enormous potential that is locked up in the economy and the people.

Threats: We face hyperinflation and major anarchy if GDP growth does not increase to above 5%.

Solution: Combine Strenght and Opportunities to overcome Weakness and Threats.

The Reserve Bank prints money to buy platinum. They then back the currency with platinum and control the supply of platinum. Then they create a crypto-currency, called the Springbok, convertible into rands on a 1:1 ratio. Our banking and financial system facilitates international trading in the Springbok.

The money will rush into the country. Inflation will disappear. Liquidity will increase and businesses will have access to ample credit. Unemployment will decrease to below 2%. The GDP growth will increase to 10% annually and our average living standard will rise. The yachts in Monaco will move down to Cape Town and Trump will implement tariffs against us.

You see, there is always a way out of any situation, no matter how bad it may seem.


Your SWOT analysis fails to mention out-of-control population growth.See the well known SA Population 1910-2016 chart on Google.

And that chart is RAPIDLY getting much worse – SA now 58M.

All the troubles SA is experiencing are DIRECT outcomes of that SINGLE root cause.

Have to start with root cause. Rest afterwards. Not other way round.

The best change to the economic narrative is to see real action from the ANC in stopping corruption and retrieval of the stolen monies and prosecution of those involved.

Plus anybody who uses the word narrative should be banned to the workers paradise of Cuba.

Corruption is bad enough but leveraged corruption is what we have.

We can, and we should learn lessons from the game of rugby and the circumstances that enabled the Springboks to triumph on the world stage. This joyous moment of national glory and unity flows from a certain set of enabling circumstances. Luckily for the Springboks, we have these enabling factors in international rugby, but sadly, we have abandoned these enabling factors in the more important game of the local political economy.

All the players from all the competing nations play according to the same set of rules. The referee can only apply the rules. The referee is not allowed to use his position of power arbitrarily for personal gain. The referee is judged on his ability to apply the rules in an independent and just manner. This fair system enables the players who have the skills to work hard, learn more, support each other and to overcome injuries, to win. Players are willing to prepare for years, to be ready for the world cup, because they trust the rules will give them a fair chance.

The players in our economy are from the same demographic group that won the world cup. Our players(citizens) do have what it takes to win at the game of economics. Why are we losing this game of competitive international economics when we have the intellectual capacity, management skills, huge resource wealth and an untapped labour force? With this set of assets, we should be able to win the World Cup in Economics, measured in terms of GDP. Our players are losing the economic game because we abandoned the rulebook.

The referee, called Luthuli House, makes arbitrary decisions for his private gain. When one skilled player scores a try, Luthuli House transfers the points to a BEE player. When one player works harder than the rest and he scores many points, the referee taxes his score and redistributes his score to some players on the bench who did not come for training. This arbitrary and unjust system demotivates the best players and motivates other players to sleep in, and to not pitch for training.

Our economy and employment figures are in tatters, our GDP is at zero because our socialist government abandoned the rule of law to make arbitrary rules for personal gain. We abandoned the rules of the sport when we adopted the Mining Charter. That is why our best players go overseas and no international player wants to play with us. The solution is at hand.

Moodys: “Well done ANC-regime. We will not downgrade SA to junk, as you’ve shown the courage to “change your economic narrative.”

SA: “Phew! That was really easy, wasn’t it. I knew we could just SAY the right things, without doing anything” 😉

(After the Feb budget speech, vehicle-SA’s airbags will be deployed as it slowly proceeds along its crash sequence. The air in the airbag, will consist of our R6-trillion retirement savings pot….)

Danger – waffle artist deployed!

Mr. Shuitema, when you have a flat tyre you probably see that only the bottom of the tyre is flat. Wat ‘n pot snot.

Schuitema’s criticism of Schüssler is wrong.

Schüssler correctly diagnoses SA’s growing junk status, which without question is the result of Corruptheid and ideological and union-sweetheart driven decisions.

The reason for high interest rates, weakening currency, rising sovereign (and SOE) debt and perception of investment risk are Corruptheid and ideological and union-sweetheart driven decisions.

Further, Corruptheid and ideological and union-sweetheart driven decisions are also the cause of the failing GDP and rising unemployment.

Some comments on what Mike said. Firstly, a lot of people don’t realise that the differential in interest rates (i) is really a proxy for the future exchange rate. In fact this is the only exchange rate one can guarantee n periods in the future. (R/$)n = (R/$)0 * (1+iR/1+I$)^n

The gap is there is simply because rand investors need to be compensated for the risk or investing in South Africa and the expected Rand depreciation. If the gap is becoming wider then these factors are becoming exacerbated either SA more risky/ USA less risky OR USA less inflation/ SA more inflation or both.

I have said many times before that it is not the level of debt/GDP that is important but rather the marginal productivity of debt. If you add R2 GDP for every R1 debt, then bring it on. It is good debt. If you add <R1 GDP for every R1 debt (as South Africa does) you are consuming your capital for current expenditure. Eating your seed corn. Borrowing money to pay teenagers to procreate would be one such manifestation of this folly, an ANC speciality.

Let us talk interest rates. Interest rates are a market phenomenon. One cannot divorce interest rates from the above mentioned differential that Mike discussed. Contrary to popular belief, a well run central bank does arbitrarily change interest rates to stimulate the economy. These are failed Keynesian theories. Economic voodoo, if you like. As if debasing your currency ever make you an economic powerhouse. The US$ exchange rate has gone from US1.30 to US$0.07 in 50 years but the RSA is on their knees economically. SA inc. could never contain the rise in prices the debasement wrought. If the central bank buys bonds, it has no control over where the newly created money flows (the US Fed's biggest learning experience from QExx). This may create inflation if the money goes into the commodity market or create deflation if it goes back into the bond market as it did in QE. In South Africa the most effective way of reducing interest rates would be reducing risk. Get the foreign investment flowing in, the currency strengthening and entrepreneurs investing. This, by the regime, would involve adopting responsible not populist policies which the ANC has proven it cannot do. Why, one may ask? Simply because maintaining a grip on power is far more important than the long term welfare of the country.

End of comments.



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