It settled upon us slowly, here at Africa’s most distant limit, the sense that the world had changed.
Perhaps that’s why we are now blinking at tomorrow in a kind of stunned bewilderment, trying to understand where the old verities went. Just about everyone who can type is busily bashing out a new growth path but we have no idea of the terrain it has to cross. So it is worth looking back, however briefly, at the vanished territory that we still hold the map for.
Even at the apogee of our naivety, we knew that there was a banking crisis — after all, our September 2008 televisions showed chalk-striped men and women in severe skirts carrying boxes of personal effects out of Lehman Brothers’ Wall Street and Canary Wharf headquarters. But that was in another country, and who were we to mourn the bankers?
So we didn’t. Instead we congratulated ourselves for our sound regulatory framework and got righteously annoyed that the ‘flight to quality” was weakening the rand as investor cash departed our markets for the safe haven of United States government debt. Didn’t they know that the US’s chronic inability to live within its means was the root of the whole problem?
Just a month after Lehman collapsed, Trevor Manuel told us in his medium-term budget policy statement that South Africa was the real safe harbour, with a breakwater built over years of disciplined restraint that would allow us to ‘weather the storm”.
And we almost all reclined in self-satisfied agreement.
Within 18 months more than a million jobs had been lost, wiping out about five years of employment creation. There is a nominal R10-billion worth of holiday property up for sale between Mossel Bay and Cape St Francis, a top executive at an estate agent told me recently over drinks at a cash-strapped golf resort in the area, but you can pick your own metric.
Empty storefronts pepper even the smartest malls and the weight of the weekend property supplements has steadily dropped. Lending just about dried up in 2009. It still hasn’t come back.
A leftish ANC MP was speaking for a significant chunk of opinion when he happily told me at the time: ‘Now the Washington consensus is really dead, it is time we adopted new policies, and started stimulus spending”. He may or may not be feeling chastened by what has happened since.
This year round two of the crisis smacked us from two different directions just as global demand was getting off the canvas.
The idea that major European countries would not be able to honour their debts was a major rift in the fabric of world’s economy. In Greece ruinous public finances and bank-sponsored dishonesty were harbingers of the dreaded double-dip — call it the tztatziki effect. Governments had just bailed out the banks; who would bail out the governments? Even ‘super-sovereigns” like the IMF don’t have infinite resources.
For South Africa the most serious impact would be the massive contraction in government spending that the Greek crisis provoked across the eurozone. With the German chancellor, Angela Merkel, as the dumpy avenging angel of the North, and David Cameron as her smooth-faced spear-carrier, our biggest export markets embarked on a sustained bout of privation.
Just as bad, across the Atlantic the US’s chief of the Federal Reserve, Ben Bernanke, and the Obama administration were doing the opposite, trying to fix their debt-induced recession with the solution preferred by my friend the MP — more debt. And this time, the fresh dollars washing into the system and historically low interest rates provoked a reverse of the 2008 outflow. The rand promptly shot up and made our exports more expensive at just the wrong moment.
South Africa really is trapped now between contending global forces. You can call them China and the US for short, although it is a bit more complicated than that.
In this theory there are two sorts of countries in the world. Exporters make things, or dig them out of the ground, or both, and sell them to importers. Because they sell more than they buy, they tend to run current account surpluses, and they have strong currencies as a result.
Covering the gap
Importers buy more than they sell, so they run current account deficits. They have to borrow money to cover the gap and they rely on capital inflows — stock and bond purchases mostly — to keep the wheels turning. They tend to have weak currencies.
The US, of course, is the ultimate importer, borrowing massively from China in order to keep buying things from China, the ultimate exporter. But there is a bit of twist in the tale here. China has the resources to manage its currency float and keep the yuan relatively weak. It does so to keep the massive job creation engine of its economic boom going and to preserve ‘harmony”, or social stability.
The US, on the other hand wants a stronger yuan and a weaker dollar, because it would like to be more of an exporter. You can argue all you like about whether the Federal Reserve’s money-printing is the cause of dollar weakness — dollar weakness is what we have.
Other exporters, Australia and Brazil for example, don’t have the same capacity to fight currency wars. They have to figure how to hold on to that status, and their own harmony, as their currencies soar and their competitiveness fades, a process accelerated by a flood of American and Japanese cash into their markets, hunting for returns better than those on offer at home. The Australian dollar is now at parity with the greenback.
When elephants fight, it’s the grass that suffers, as the Financial Times columnist Martin Wolf has observed.
But South Africa’s position is worse. We are importers and run a current account deficit, mostly because we missed the commodities export boom of the past decade, and because our manufacturing sector is uncompetitive. But our government debt offers attractively high interest rates and relatively low-risk premiums, so the hot dollars are coming here in quantity. That pumps up the rand and makes it harder to become an exporter.
Structural weaknesses of our own making exacerbate the situation. We don’t have the rail lines to get enough of our commodities to market, ArcelorMittal and the Gupta family have destroyed trust in our mining regulations, high costs, oligopolies and crappy skills constrain manufacturing competitiveness.
What is to be done?
I sat for hours recently with a member of the ANC’s national executive committee at a shopping mall coffee shop, our conversation punctuated by greetings from his broad-collared, pointy-shoed admirers. He wasn’t worried about being spotted talking to a journalist — ‘They think you are a businessman looking for a BEE partner,” he said.
His diagnosis was sharper, and bleaker, than the MP’s. ‘The crash came and yet capitalism is not dead,” he said. ‘It is an absolute crisis of ideology for the ANC and the alliance. We have no answer.”
Indeed, the crisis has its roots in economics but it is fundamentally reshaping geopolitics and, for a country like ours, where ideology is still deeply entwined with identity, our sense of our place in the world.
The world was already changing around, but the financial crisis dramatically increased the speed. South Africa’s position of African and emerging-world leadership imposes increasingly complex responsibilities on us, not least because the emerging world and Africa now matter so much more, in trade, in finance, in carbon emissions, in security and in culture.
Amid all the anxiety, there is immense potential here. To identify it we need to step past the failure of political imagination that seems to grip our debate at present and look squarely at the perilous, thrilling reality that is not so distant after all. Once we know where we really are, we may be able to read the map.
Nic Dawes is the editor of the M&G