Abedian says goodbye to Afro-pessimism

Though perceptions still mattered to investors, pessimism about Africa was no longer a problem, Standard Bank chief economist Dr Iraj Abedian said on Tuesday.

“Perceptions are no longer Afrocentric, or Afro-pessimist,” he told the Cape Town Press Club.

“Today Euro-pessimism is as bad as Afro-pessimism, for completely different reasons.”

In April and May 2001 perceptions of developments in Zimbabwe had been the driving force in the departure of about R18-billion from South African shores, he said.

But while perceptions of South Africa had “stayed put” since then, other perceptions have changed.

“They’ve come more to our level and below our level. For example, you have a risk of Africa pessimism if you’re here, but you have a risk of Enron problem if you’re in New York.

“You can choose. You have a risk of political movements here, but hell, George Bush is not a stabilising force, nor is Tony Blair.
Nor is Chirac. Nor is his counterpart in China. Which one of them gives you the confidence that you’re happy to live there?”

“Unfortunately the denominator has changed, has become a lot lower.”

He said France was facing fiscal bankruptcy, Germany was not much better, and the United States legislated its budget deficits.

This did affect investors. In 2001, the US received a daily inflow of in excess of $1-billion a day, or $372-billion for the


Last year, because of perceptions, this shrank to less than $200-billion.

“Why? Because of the perception,” he said.

The other $170-billion was searching for a home, and crumbs of it went to coastal property in the Balkans, which boasted the highest asset appreciation in the world, or Hout Bay, which came second.

“Perceptions matter, but it’s no longer an African problem.”

He said that for the first time, there was no single safe haven for investors, a role that the US had played historically.

It had been replaced by a series of “mini-havens”, of which South Africa was one. Investors could not get better returns on their money anywhere else.

The currencies of the mini-havens that were popping up would become more stable, he said.

He also said he did not believe US Federal Reserve chairperson Alan Greenspan had any “bullets” left apart from his own credibility, and an approach to China to allow its currency to appreciate.

His comment came as US Treasury Secretary John Snow on Tuesday began a two-day visit to Beijing, which has kept the yuan within a tight dollar-linked range since 1994.

Abedian said the effectiveness of US interest rate cuts became less and less because people knew where they were headed.

If nominal interest rates went below 4% or 5%, the impact on growth diminished.

Some of Greenspan’s colleagues in government were threatening anti-deflationary measures, but the history showed these practices created more problems than they solved.

“The very act of doing it would be a sign of desperation, which would cause more havoc than good.”—Sapa

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