SA Economy: politics, fake news and local influences
As is the custom for this time of year, Rand Rescue likes to take a hypothetical look into the future and imagine what the next year may have up its sleeve based on past trends and emerging events.
Here are a few possible impacts on the SA economy for the foreseeable future.
Impact of worldwide political upheaval
It is impossible to take SA’s economy in isolation without considering global trends, and with two of the greatest economies in the world facing considerate challenges in the months ahead, South Africa will not remain unaffected.
We’re talking about the USA and UK, of course, but can throw Australia and Europe in there for good measure.
The question is not whether you are pro or anti Trump, or pro or anti Johnson, of course. Even if you do reside in either of these countries as an expat, as a civilian your sentiments over these political leaders and their parties probably have little impact outside your immediate circle of family, friends and business. This is not to say that your political opinion holds no value, but merely that making financial decisions relies on an objective analysis of trends and not merely on personal preference.
The focus of our article is therefore not on our readers’ political leanings, as we remain impartial on such matters. We simply want to reiterate some of the possible effects these political moves have on South Africa’s economy.
One thing we’ve seen time and again is that market insecurity and political squabbles among the most powerful economies have little positive impact on South Africa. Indeed, these events often allude to positive outcomes for emerging markets, but in practice such outcomes rarely manifest unless the emerging economy has shown stable upwards growth and has a few bargaining chips up its sleeve. Or, in some cases, a strong affiliation with one of the economies in question could prove beneficial to an emerging economy.
The reasoning behind such rosy sentiments amid political upheaval (affecting a major world leader) is that such political strain could see these grand economies perform poorly which could consequently see stronger exchange rates for emerging economies and may in theory push investors to consider these weaker economies as possible alternatives for stowing and growing their investments. In the real world, however, this is rarely the case. In fact, in times of political uncertainty, investors are far more likely to make more conservative choices and these political powerhouses facing adversity are more likely to withhold funding and investment, increase tariffs strategically and use funds and policies to stabilise their own economies.
Even where decisions are made to boost these economies at times of stable growth, the markets often behave contrary to expectations.
In the US, for instance, the decision to lower corporate tax as well as interest was aimed at freeing up corporate funds for investment in innovation and human capital. What’s happening instead is that most corporations are utilising these incentives to buy back shares from shareholders, and many of these companies are doing so through debt which they can now incur at lower interest. In fact, Fortune reported last month that 50% of stock buy-backs by US corporations have now been financed through corporate debt, even though the tax cuts have essentially freed up double the amount of corporate cash flow year on year in the same period. This has seen the corporate debt climb to consume near 46% of the US GDP. Though the Trump administration could not have foreseen this, the unfortunate outcomes of these economic incentives are lower industrial growth, stagnating flow of investment and significant headaches for the fed which will have to make tough choices for the US economy in a precarious game of economical seesaw. And while the deficit has increased by 13% since Trump took office, corporate investment has been shrinking – from 9.1% per annum in the early 2010’s to 6.7% in 2019.
What of unemployment? Indeed, it is at its lowest rate in decades in the USA, yet a combination of budget cuts and other factors have seen a huge jump in wage push inflation – more people are employed, but people can afford less. The US Department of Trade has also indicated that a significant cut in unemployment was achieved through a false positive – much like the false positive created on the Dow through share buy-backs. Unemployment rates which measure the incidence of individuals in the job market entering the workforce does not account for the large number of poor individuals who have simply decided to exit the job market altogether. The department stated that the number of citizens no longer hoping or trying to find employment has increased drastically and thereby affected unemployment statistics whose algorithms don’t account for people who are no longer seeking employment at all. Add to this the overcorrection by credit providers to cater for lower interest rates by changing risk models – and the problem faced at ground level in the US is a sudden expansion of income gaps. The luxury property market is one of the few which has seen a major boost in the past few years, since lower interest benefits those who can afford debt. And though the ease in the trade war with China is likely to add the $50 million the Trump administration has promised, the US agricultural sector has seen a 24% increase in bankruptcy and the manufacturing sector has reached its lowest level in a decade.
Of course the US has the capacity to turn the situation around and grow its economy to be in line with Trump’s projections and the positive sentiment of his loyal following. The same can be said for the UK, whose exit from the EU will undoubtedly hold some ups and downs for the region in the years ahead. South Africa, of course, does not fare any better when one doesn’t consider numbers in isolation. Positive growth is often showcased at the expense (or by obscuring) things like debt or stagnation elsewhere. And many BRICS countries have followed suit on interest cuts much like US, something SA has not mimicked as yet.
What Rand Rescue reiterates through these stats and numbers is therefore not that one party or government is in the right or wrong, but merely that matters are far more complicated than most politicians would have laymen believe, and that each major decision has a huge knock-on effect in other industries and economies.
What we can do is make some broad assumptions for South Africa based on historical data.
What we know from the US trade war with China, for instance, is that trade wars don’t hold much benefit for SA. We simply don’t have the capacity to fill gaps in the market created by sanctions placed between and on foreign nations. International bickering has been of little use to us from a strategic point of view. Our economy is not stable enough to attract investor attention in times of global uncertainty and we rely far too much on these economic giants to assume any level of autonomy when the chips are down. We are also not playing with the same deck to give us equal weight in a battle of wills and wits, and so it’s therefore far more likely – and safer – to not resort to any hardballing in the major leagues. We saw this first hand with Agoa, and we are likely to see it again during trade negotiations. But though playing safe is a virtue, it does not give us any significant economic boosts, it is merely a safeguard.
What is also clear is that the world is becoming increasingly polarised. Centrist sentiment is shrinking as political views become increasingly radicalised towards the left or right. Even on SA soil, those parties who had previously held more moderate views are fraying at the seams and their following either jumping ship for another party or abandoning politics altogether. The DA and ANC have both lost significant footing in the past few years and the loss has been felt not only in the voices of the citizenry, but the dissent of their leaders. What emerges is a nation whose political parties may have more of an equal chance at representation and affecting policy, but the citizens are moving steadily towards the poles of the political spectrum.
This polarisation is a phenomena which is seeing global political demarcation. It is left versus right, conservative versus liberal and the pendulum is swinging with renewed vigour as the weight to either side increases systematically.
What the past has shown us about radical political economic models is that these models rarely uphold stability for long and that they see a quickening of either capitalist or marxis-like policies which often lead to mass remonstrations, civil unrest and even – in some cases – war. Research by MIT showed that nations which resort to radical capitalist-oriented systems tend to increasingly resemble emerging or third world economies. Essentially, such systems make the rich richer and the poor poorer. Furthermore, research by the American Economic Association found that the best indicator for long-term stable GDP growth was not fiscal policy but positive sentiment and amicable international relations and higher total factor productivity. The first two are of particular importance for their economic abstraction – economies and industries grow because people are positive and altruism as an economic booster expands through top-down application.
Accelerated extremism is a primary factor Stephen Hawking’s theory that humans would be our own downfall – for extreme views belie the assumption that human tendency is pro cooperation and empathy.
Though South Africa would not likely resort to such measures or completely overhaul our economic policies to reflect those of other nations, we should probably buckle up, as it is likely that these nations may approach trade deals with a significantly smaller margin for compliance error and a significantly longer list of do’s and don’ts. This will require SA to sign treaties which may not be as beneficial to us in the long run.
Fake news and its effect on the economy
In line with the worldwide political upheaval, an important point to be made is for growing a love for fact-finding and checking. And this is unfortunately the responsibility of each individual reader.
Research by the non-affiliated Brookings Institution in Washington, among others, found that Russia and Iran have released near 10 million tweets from 3 900 fake accounts in a very short period, and that one of those tweets dispelling fake news had been retweeted a total of 6 million times before the account was finally taken down. In December 2019, Facebook had to resort to the same by removing 900 fake accounts (identified through their AI-generated profile images) which had pushed fake political messages to more than 55 million Facebook users.
Such social media hacking may seem nonsensical and rather harmless to the man on the street, but given that Russia, the USA and China in particular spend millions per year on covert AI testing, the fact is clear that artificial intelligence is a remarkable tool in swaying public sentiment and moving economies.
Alarmingly, the Internet Security & Trust 2019 Social media, fake news and Algorithms Research Paper indicated that South Africa ranks 6th in the world for social media accounts being closed due to fake news and third for admitting to spreading fake news, indicating either a complete lack of understanding when it comes to vetting fake news, or a deliberate attempt at swaying the public through such news.
To balance this negative indicator, the research indicated that users from developing countries, including South Africa, are far more likely to close their social media accounts due to fake news. Furthermore, South Africans seemed far more open to entertain the idea that the news they repost may be fake or respond to compared to some developed countries.
Sadly, it’s usually those who want to oppose a divergent view who resort to scouring the internet for obscure facts when, in most cases, the facts are readily accessible. Unfortunately it’s the interpretation of facts and data which is problematic. Most citizens can readily access research papers, statistics, legal documents and policies, even from their own governments, but knowing how to account for variables to offer meaningful points in debates is quite taxing if you’re not sure what you’re looking at or not able to conduct periodic or compound comparisons and analyses. Understanding political and economic jargon is even more vexing. What happens is that individuals tend to cite isolated and often inflated or deflated numbers which suit a particular argument or debate – and so the dissemination of fake news is perpetuated time and again.
The aim, it seems, is no longer verifying fact and upholding truth, but rather a tit-for-tat war with millions of battles waged in the social media sphere which cannot be refuted or quenched. Furthermore, most individuals seem either unaware or do not care for the fact that search engines and social media algorithms presents information to them based on their existing bias. With social media platforms like Facebook slowly becoming the proxy for information searches, this means people will be presented with a more limited view the more their interests and beliefs are registered.
Research conducted by the HRV Transparency Project whose aim is Government Dissemination of Credible Aggregate Economic Data indicated that fake news has been one of the primary influencers of flawed voting and individuals voting corrupt parties into government in the past decade – the research also indicated that most people casting these votes chose candidates who dispelled their fears and upheld their beliefs, even though their legitimacy had never been personally verified. Though the long term economic impact(s) of such voting and political decision-making is not entirely up for empirical study, the research points towards devastating economic consequences for lower-income earners, sectors like the agricultural and manufacturing sectors and education. Such political choices also have long-term negative consequences for international relations globally.
In South Africa, a clear message was sent to the EFF of late after the political party tried to ban certain media houses from reporting on their assembly. In an unprecedented move, many of the media houses who had been allowed to report banded behind their banned brethren to indicate that they would not attend if the media would be censored. The unintentional back-lash saw more readers show an interest in these matters which the party had sought to obscure. And now more people are aware of how the EFF ascribes to not only a socialist, but a censored world view.
A further social media fake news blunder was created by enraged South African parents who had received news from an unreputable source that sex education would suddenly become quite controversial and invasive. Though the Government had issued clear statements to the contrary and debunked all such fake myths individually in their statement, the outrage is still palpable on ground level.
In the US, media bias checker FAIR indicated that of all news cited by two major news channels, more than 90% of people whose views were cited were caucasian, and more than 87% of these individuals were male. Though this is not an automatic qualification for bias, it should be an indicator that some further research may be required by the viewer or reader.
The question is not whether far left or right parties and industries are biased, but merely how much the media and social media houses fall under the spell of fake news.
What Rand Rescue would therefore like to reiterate in this article and all those before and after, is for our readers to do their own research where in doubt and to resort, firstly, to a logical analysis of those arguments placed before them – whether these support or oppose your world view. Furthermore, where articles or news clearly serves no purpose other than being inciteful, pushing people to name-calling and pushing for logical fallacies, it is oft best to step away and know where your voice has no value.
It is oft impossible to remove our emotions from debates, but it is possible to calculate where these emotional and passionate responses will hold value.
To build on our previous point, an old news article indicating that South African students would be allowed to pass Mathematics with a 20% mark is doing the rounds once more.
In this case, however, the news was not entirely false, but quite flawed. The flawed dissemination and clickbait headlines have not, however, raised any hopes for the state of SA education.
The 20% pass which was announced three years ago by the department was aimed at ushering learners who failed Maths to move to Maths Literacy instead. So, indeed, a 20% maths mark will not get kids enrolled in varsity for any math-oriented courses, but it does underscore the incredible failure of the South African education system.
The sad state of SA’s education has been proven time and again in year-on-year statistics and the alteration of curricula which many believe don’t benefit learners. Schools are in a state, with corrupt officials ensuring that resources never reach the institutions or learners who could benefit from such resources, and at a governmental level, little headway is made to instil trust in the system.
The problem is compounded by the government lowering university entry requirements – in particular for those who wish to study education. Individuals who therefore do not qualify for other tertiary degrees often end up teaching other learners in the system.
One of the main indicators of success for emerging economies is the progress of its educational system and the long term fruits of growing intellect and aptitude. At the eve of democracy, a lot of focus was given to instituting policy overhauls which would undo past marginalisation and rightfully correct the disadvantages imposed on the majority of South Africans. It deserves to be stated that, in policy and legislation at least, South Africa has been a world leader. The problem, however, lies in the leaders who would uphold and institute such policies to the betterment of our society.
Where giant leaps had been made in offering previously disadvantaged individuals and communities the education they’d sought for so long, once more the thorn in the side of the South African citizen has become a skewed governance whose conscience seems to have been buried among the rubble. The few do-gooders who had fought on both sides of the political spectrum to even the playing field, grown SA from a socio-economic perspective and oft went against their own kin and kind to achieve such stable and positive outcomes have been pushed to the margins.
The problem is not that the intentions of the new South Africa had been flawed – the country’s human rights and constitution underscores a mutual hope for wellbeing and growth – but those who had risen to the top to oversee positive change seem to be quite self-absorbed, underqualified and greedy.
When one discusses the matter with educators of different creeds and races on the street, a pattern emerges; those who do want to make a difference and work tirelessly to change lives do not have the means to overhaul an entire system. The leadership is to absorbed in finger-pointing that no one is stepping up to the plate to take responsibility for the future of South Africa’s people.
How do we create good leaders without good leadership to guide us?
The endless power struggle
Though we’ve reported extensively on the Eskom debacles, the parastatal seems to provide an endless thread of material to report on. There is not much new to report on in terms of financial losses or Eskom’s refusal to incorporate clean energy into the grid. Nor has the state of the ‘power’ monger done anything but prompt ratings agencies to rebuke SA and international banks to refuse further funding.
Yet, what we have seen are glimmers of silver linings hovering at the horizon. Too soon? Most probable. But what else is there to discuss which hasn’t been discussed to exhaustion?
South Africa waited with bated breath earlier in December as news broke that corrupt Eskom officials had been arrested for fraud in excess of $700 million. Though most, of course, weren’t interested in recovering the $700 million – given SA’s track record of recovering misappropriated funds – the excitement had hovered on the thought that these officials may have been currently employed by the SOE. Indeed, it seems a sad state of affairs when citizens no longer care for victories or trials for past transgressions, but for those in the know, the employment status makes all the difference.
A major problem in the ostensibly inane protraction of Eskom’s unwinding and ‘splitting’ is the sheer volume of human capital to be dealt with and diffused. For although President Ramaphosa had indicated quite some time ago that the matter would be dealt with, the enormity of the problem is quite unfathomable. Even with a prominent and mostly successful international businessman at the steer – the matter is quite intractable. Though drastic action seems the only remedy for such widespread and pervasive maladministration and corruption, drastic action would also see opposing drastic industrial action which could also massively eclipse current load-shedding woes. Perhaps in the case of SAA the government has more leeway for harsh tactics, but it’s a bit of a conundrum when the very services which would like to kick the SOE to the kerb relies on its services to function on the daily.
How does one control a state owned enterprise with an excess of 66% employees who earn approximately 50% more on average than employees in other industries and sectors, demand pay increases which laugh at inflation and whose outputs are focused on haemorrhaging millions from the SA economy every day? How does one sway a parastatal on whose services all South Africans rely, while deliberate sabotage on its part (or those of its employees) is not even a distant thought but a reality which had occurred mere weeks before this article?
One hope, it seems, is that new Eskom head, Andrew de Ruyter, can somehow make sense of the matter and do the necessary overhauls in a way which is both most efficient and less damaging to the workforce and SA homes and businesses. De Ruyter had not been the favourite among the 140 candidates to lead Eskom from the ashes, but he has served most of his career in the energy industry and has been opposed to above-inflation tariff hikes and keen for Eskom to address its inefficiencies.
Though some analysts are slightly perplexed at De Ruyter’s appointment over individuals they believe to be more qualified pundits in the field, for the moment, as we’ve done for so very long, South Africans are waiting to see what changes the new Eskom leadership holds. A change is welcome for now, and mayhaps will provide a welcome bandaid for the funds leaking from South Africa. The question, as always; “can it be worse?”. And it is one we do not wish to answer.
Is it all bad news?
It is never all bad news. Rand Rescue’s aim is mostly to address visible problems and relevant trends in South Africa’s economy and facilitate cross-border transfer of funds for those who are living outside SA borders or planning to do so in future based on factual data.
This does not mean all is doom and gloom or that we somehow have authority over worldwide opinion. We also know that many South Africans don’t have the means to move abroad as yet and that many of our readers follow us to inform their friends and family abroad of critical news and events. Ours is simply a critical view of world politics and economies which would best guide financial decisions for individuals.
In this festive season and in our outlook for the new year we truly hope that matters will look up for individuals across the globe and that each of our readers will find a measure of peace and hope to face all the challenges we will face next year and thereafter.
If you would like to send some funds abroad or repatriate your financial assets, once more you needn’t look further than Rand Rescue for swift service and better rates than the banks. If not, we still hope to engage with you in future and look at the world with a mild bias for critical analysis and a sunny outlook on positive change.
Merry Christmas to all and a Happy New Year.