The David Gleason Column
`There are three kinds of lies,” said British prime minister Benjamin Disraeli, “lies, damned lies and statistics.” So, when the South African Statistical Service (SASS)- let it be said with the full knowledge of the Ministry of Finance and, no doubt, the Reserve Bank, too -produces an entirely revised set of economic data, the knee-jerk reaction is to be highly suspicious.
We are no longer, it seems, in recession. And we haven’t been, apparently, since the last quarter of 1998. Much to the general surprise, South Africa’s economy actually grew by 0,4% between January and March this year. If this number is annualised it implies growth over 1999 of 1,6%, rather better than the 0,4% predicted by some economists.
Statistical evidence of this kind commands a response on three levels. First there’s the matter of the quality of the information. SASS (the government department responsible for collecting and interpreting this kind of economic evidence) says it has brought South Africa in line with United Nations standards, that the information now being provided is significantly better and that improved tools are now being applied in measuring economic performance.
By and large, there’s a general view among market economists that a genuine effort has been made to introduce best international practice to a really important element of our understanding of how our country is faring. On that basis they say the statistics are “believable”.
Being a sceptic, of course, my prompt response is to ask anyone listening if this means all the economic data on which we’ve relied in the past and which formed the basis for monumental decisions about how the economy should be managed were simply a load of hogwash. I do not expect any of us will ever get an unequivocal answer to this.
The second response is that economics is often largely a matter of national and personal psychology. Figures (statistics) are important in one sense, but only to the degree they back up our real-life knowledge of what’s actually happening to us, to the businesses we work in, to the extent to which we can or cannot afford things, to the financial security we do or don’t enjoy.
So when the latest revised, massaged economic data tell us we’re out of recession we need to remember it’s by a hair’s breadth. South Africa is convalescing but is still sick. The famous “feel-good” factor remains missing. And, let’s face it, this is an economy which even the International Monetary Fund believes has the capacity to grow at between 5% and 6% a year – exactly the growth rate which is vital if the massive unemployment problem is to be remedied.
The third response is to consider how we are perceived from abroad. Ignore the hype we are fed across the local airwaves. It’s how powerful European and North American institutional investors perceive this country which matters. And the latest evidence is that they remain very wary.
Returning from a canvassing visit to the United States recently a senior broking analyst reports a high level of scepticism towards South Africa among US investors. They’ve been bitten before, principally by the erratic behaviour of our currency.
1993 was the last year foreign investors enjoyed really good dollar returns from the South African equity market – they went off with a 39% improvement. Since then, it’s been downhill all the way – they lost 18% in 1994, made 6% the next year, then plunged 15% in 1996, lost another 8% in 1997 and crumbled under a 25% negative onslaught last year.
This is not, of course, the way our stock market behaved. Foreign investors blame the disparities on the rand and then look through the currency to see what lies behind it. And what do they find? Straight off they discover the Reserve Bank is running a forward book of $22-billion, tantamount, they say, to a nest of frankly unseen liabilities.
They will only be happier if this debt is securitised – if the precise extent and terms of the lending, repayment and interest burden are made known. A forward book as secretive as South Africa’s, the maturity structure of which is unknown and which can be rolled over at the whim of the Reserve Bank, only strengthens their view that the rand is seriously overvalued.
And since it was the rand which delivered the last savage blow, they are understandably chary. International investors now take the concerted view that South Africa’s exchange controls must be removed if faith in the value of the rand is ever properly to be restored.
There’s a general view that the world growth cycle has turned positive, an assessment which encourages investment in commodities and commodity stocks. This explains to some degree the renewed interest in South African external stocks such as Anglo American and Billiton. Interestingly though, South African Breweries isn’t seen with that much favour, the perception being that since its base remains so closely tied to the domestic cycle, it is hostage to currency fluctuations when its earnings are converted into dollars.
There are some important messages in all this. Regaining domestic growth by a sliver may prompt a mild cheer but it would be a folly to read too much into it. The role of the Reserve Bank in arbitrarily fiddling with the currency’s true value needs to be reappraised urgently. International investors will remain hesitant about this country as long as uncertainty prevails about the integrity of the rand.