This week South Africa received a timely reminder of how fastidious international investors are. The country was also reminded of how the good we achieve as a country remains overshadowed by history, socio-economics and the burden of HIV/Aids.
A report prepared for the presidency by Russell 20-20, a fund managers association, paints a picture of the country that combines the delightful and the grim. The survey was conducted among fund managers controlling R47-trillion in assets.
The managers gave a thumbs-up to the country’s economic management, in particular praising Reserve Bank Governor Tito Mboweni and Minister of Finance Trevor Manuel.
The money men also said they were impressed by the country’s legal and financial system and corporate governance, which they described as ‘among the best in the emerging markets”. Actually, they are among the best in the world, and they know it.
My interest in the report is what the managers consider problematic about South Africa. They rate unemployment and uncertainty about black economic empower- ment as among the greatest threats to the country’s attractiveness as an investment destination.
The key concern about unemployment is not its relationship to crime, which is not the linear cause-and-effect relationship normally cited by critics of the government.
My fear is that crime is so woven into our social fabric that even when job opportunities become widely available, professional criminals will not take advantage of them.
For as long as the gains of crime outweigh the cost of searching for a job, alleviating unemployment will not reduce it.
Then there is the touchy issue of black economic empowerment. The report notes: ‘While investors were hopeful about the long-term prospects of black economic empowerment, they cautioned that it needed to be managed carefully.” ‘Managing carefully” apparently means placating white middle-aged men and waiting until they die or retire before moving blacks into key positions.
The truth is that black economic empowerment failed in the first instance because of the intransigence of white capital and the complicity of aspiring black capitalists who were happy to act as fronts or ‘operate without risk”, as one North American fund manager angrily described the style of Mzi Khumalo.
The current wave of empowerment is, thankfully, governed by more realism, but is still viewed as a social cost by investors and an economic imperative by intended beneficiaries.
What should happen is that it starts out as the former and evolves into the latter as black shareholders start to add value. It would be great to see black economic empowerment removed from the non-financial sustainable develop-ment section of annual reports and become part of the operational review section of annual reports and financial statements.
The Russell 20-20 report serves as a reminder that fund managers are constantly searching for a Utopia, yet persist in making strange choices. There was a time during the last quarter of 2002 when the rand was the third-best performing currency against the dollar. The two currencies ahead of it, supported by an inflow of funds, were the Argentinean peso and real of Brazil.
This was not long after Argentina’s economy had melted down and Brazil came close to defaulting on its debt.