Thursday, June 5, 2014

Welcome the "R" Word

I’m usually a pretty optimistic person, and I don’t have a lot of patience with (usually white) people in South Africa who have nothing good to say about the country and the government.  But over the last few weeks – starting with the disappointing endorsement of more of the same at the election – I’ve started to feel the way Jeff feels about Greece: more in sorrow than in anger.

And yet I still find myself ambivalent about many issues.  Seeing both points of view of an issue can be a curse if you want to get something done.  On the other hand, I’m not going to change anything anyway, so I suppose ambivalence is okay.  While much of the rest of the world is showing signs of recovery and renewed growth – albeit pretty shaky – South Africa has the distinction of moving into a recession.  The economy shrank in the first quarter; the last two months did the same.  Unless something dramatic and unexpected happens this month, it’s the “R” word for us.  Economists here call it a “self-imposed” recession.  I didn’t understand that, but I started thinking about it.

This is the sixth month of the strike at the platinum mines in the North West providence.  That must be some sort of record.  Surprisingly, the platinum price has not moved up, yet South Africa is by far the world’s largest producer of the platinum group metals.  I suppose that’s recognition that sooner or later, one way or another, the strike has to end.  To give the new minister of mines full credit, he used his first week in office to mediate.  But why wait till now?  Why after twenty-five weeks?  Was the previous minister incompetent (likely) or is the new one brilliant (perhaps)?  In the meanwhile, the industry has practically ground to a halt and the mines have been selling off stockpiles.  If a deal is done this week, it will be because those stockpiles are starting to run low.  And because miners and their wives and children are hungry. I can’t imagine how these people have been living with no real income for nearly six months.  Both sides have been at fault - the miners with unrealistic demands and the mine managers with their truculent culture.  If agreement is reached, the union will declare a famous victory and the mines will start to move to the mechanized mining that is long overdue.  On the one hand, workers will start to earn realistic wages, on the other the unemployment situation will deteriorate still further.

Another issue that makes little sense to me is fracking.  South Africa is rich in a variety of natural resources but oil isn’t one of them.  A local geologist once famously promised to drink the first cup of oil produced on mainland South Africa.  So far he’s been able to stick to wine.  We have plenty of polluting coal and a useful offshore gas field, but it seems that the Karoo is rich in shale gaswhole resource for an ill-defined price at an unspecified time in the future.  It’s hardly a surprise that they aren’t getting any takers.
deposits.  Well, maybe.  Now is fracking a good thing?  I don’t know.  I think it may be many years before we know the answer to that.  In the meanwhile it offers an energy source for the country and a new industry to generate jobs.  The government’s reaction has been, shall we say, peculiar.  It has infuriated environmentalists by deciding that the resource should be exploited, but the model they have chosen is unworkable.  Companies are welcome.  They must accept that the state has a free carry of 20% (as well as royalties), which is not unreasonable, but also that the government will have the option to acquire the

Karoo Landscape
Beyond the big issues, the economy is mired in arcane regulations.  At home, black economic empowerment is the name of most games.  A good thing in principal, it has much too often been a get rich quick scheme for people well connected with the ruling elite – children, nephews, nieces, friends and so on.  The regulations are extremely complex and make it very hard for small businesses to operate efficiently.  Abroad, we have a rigid system to prevent…  Well, actually I can’t think what it’s designed to prevent.  But let me just give one example.  Today I received a circular at the University, announcing with excitement that the Reserve Bank (which governs these currency flow issues) has granted an exemption to universities to transfer copyright of academic papers to publishing journals.  Before that, it seems, you had to apply to the Reserve Bank to transfer the copyright because it was a South African asset being transferred out of the country.  As a friend of mine would say, the inmates have taken over the asylum.

Maybe I don’t understand these things because I’m not an economist.  Maybe I should just welcome the recession as a new phase of life.

Michael – Thursday.

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