Category Economy
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It is the politics, stupid…

18 August 2021 Gareth Stokes

It is refreshing when an economist acknowledges the problems facing a struggling economy, and even more impressive when the glaring issues are exposed in the title of his presentation, without fear or favour. Dawie Roodt, economist at the Efficient Group, was not mincing words when he presented an economic overview to the Financial Planning Institute of South Africa (FPI) Retirement and Investment seminar. “The biggest economic discovery of all times was the concept of private property rights; and the second biggest was the fair exchange of these property rights, in a process we refer to as trade,” he mused, setting the context for his analysis titled: ‘The SA economy: Can we survive the ANC government?’.

Land is a primary resource

There are big changes afoot on the global economic stage. “The nature of global economies are changing from being dominated by agriculture and mining, to being focused on manufacturing, to the current focus on service,” said Roodt. This shift from primary to tertiary industries makes sense, because service industries are easier to digitise. In order to survive, traditional industries such as agriculture and mining must innovate beyond their ‘sow and reap’ or ‘tunnel and extract’ mindsets, which often requires the injection of additional capital. “South Africa’s politicians are wrong in their belief that value lies in the land,” opined Roodt. “Land is a primary resource; the value-add derives from what you do with that land”. 

At the same time as economic activity is moving from primary to tertiary industries, economic and monetary policymakers are caught in a type of no-mans-land where neither Keynesian theory nor monetarism apply. Keynesianism, which would see governments spend more during times of economic crisis and reduce that spending during periods of recovery,  is broken. “Governments are no longer applying these rules … Western politicians, especially in the US, are spending money as if there were no tomorrow, creating huge government debt,”  said Roodt. Monetarism, which would see central banks cut interest rates when necessary and do the opposite when an economy accelerates, has failed too… “Instead we have bastardised this approach, with central banks doing strange things like zero interest policies, quantitative easing and yield curve control,” he said. The result is record levels of liquidity, financial markets running “red hot” and global debt levels going up. 

The new world economy

The experts have rebranded the current fiscal and monetary policy interventions as Modern Monetary Theory; but the reality is that most economies are experimenting with hybrid mixes of Keynesianism and monetarism… Under this emerging economic construct, developed market interest rates will stay lower for longer;  new nationalism will gain momentum, as exhibited by Brexit; and the Chinese economy will continue to outperform. Roodt said that China’s GDP growth would be supported by productivity gains on the back of continuing urbanisation and the resultant shift from primary to tertiary industries. After China, India may emerge as the next big economy… 

The final topic, before some much-needed South African introspection, was whether the record injection of pandemic bailout money in US households would result in global inflation. There are two schools of thought at present, with one saying that hyper-inflation beckons while the other suggest the high inflation numbers seen year-to-date from the US will be temporary. Roodt, who is squarely in the ‘inflation is temporary’ camp, said “we should see inflation falling globally, with most economies ending up in a similar position to what the Japanese are currently experiencing”. He also commented that the pandemic had played into the hands of governments, allowing them to become more powerful than ever. This is something ‘top of mind’ in many European countries as evidenced by growing demonstrations against governments’ pandemic-related interventions. Many are unhappy with the way lockdowns are being handled and even more incensed by the introduction of vaccine passports for day-to-day activities. 

Where to, South Africa?

We wondered whether the FPI executive had sleepless nights following Roodt’s South Africa overview, as he tore into the “evil triplet” of the African National Congress (ANC), Congress of South African Trade Unions (Cosatu) and South African Communist Party (SACP). “We give the tripartite alliance too much credit,” he said. “They use ideology to sell themselves politically but are [little more than] a patronage network that feeds off the state”. Those praising the ANC’s current leadership for positive interventions such as the Zondo Commission and Zuma’s arrest were reminded that the free press and relatively free judiciary deserved the credit. “Zuma is in jail, not because of a good government, but because the courts still function … pressure was brought to bear on the minister of police, and he was forced at the last hour to go and take Zuma to prison,” he said. 

According to Roodt, many ill-thought policies will go ahead in coming years: Expropriation without compensation (EWC) is going to happen as an ideological imperative; the unaffordable National Health Insurance (NHI) will be pushed through, causing tremendous damage; and prescribed assets will eventually happen by stealth. Sadly, these initiatives will do little to undo the lasting damage caused to local authorities, provinces and state-owned enterprises following decades of ANC misrule. The consequences of this “destructive force” include falling per capita incomes, massive levels of unemployment and rising poverty and inequality. “A look at South Africa’s per capita GDP shows that we are significantly worse off today than a decade ago,” said Roodt. “And it cannot be blamed on Covid-19”. 

Thirty million sucking on the hind teat

The South Africa Inc that we conduct our businesses in consists of 14 million employed persons (including 2 million state civil servants) and 18 million grant recipients… And, under special dispensation until March 2022, the state will pay R350 per month to another 10 million or so unemployed. This leaves almost 30 million people on the state’s teat, funded out of tax revenue. Is South Africa still the place to be? Roodt offered a qualified “yes” before concluding: To succeed, you must “be informed; know what is ging on around you; identify and manage your risks; diversify your portfolio; and join pressure groups to make real change”. 

Writer’s thoughts:
Although we agree with most of Dawie Roodt’s observations re our current crop of political elite, we were taken aback by the frankness of certain of his observations, especially given he was presenting on a Financial Planning Institute (FPI) platform… Do you believe economic commentators should “call things as they see them” or is there a need for a more cautious approach, especially at industry events? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].


Added by LeeO, 26 Aug 2021
Absolutely things should be called as they are seen! The time for cautiously approaching anything is way past - equally the time for moaning is way past - as DR said, time to join pressure groups to effect change.
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Added by Cynical Simon, 18 Aug 2021
It is high time that the public, but particularly the Industry wake up to the dire straits they find themselves in. I am shocked that the editor even ventured to question this frankness.
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Added by Keith Morrison, 18 Aug 2021
YES, I believe economic commentators must "call things as they see them".
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