Policy, civic pride & perception

Let's give Europe a breather and, for today at least, consider our financial exposure in the South African dynamic.That has me thinking about civic pride; the South African government, it's policies and investor perception as a whole.

At the macro level, civic pride plays a key role in predictable economic expansion. Short-sighted strategic planning with 'nation-building' as justification in preference to civic pride misinterprets the sustainability of the project. To clarify: - 'nation-building' as a concept, is a State imposition ie: big brother knows best whilst civic pride is more reliably 'we-the-people-get-what-we-need'. The push / pull forces are very different. Civic pride is commensurate with a mature society. Imposition at its core is not sustainable. Giving people what they need rather than what you think they need addresses civic pride and is, by definition, more sustainable. A nationally-recognised vested interest in an asset and or a project promotes longevity. It's arguable that South Africa's young democracy has not matured sufficiently to nurture civic pride and therein lies the problem. Assets in the hands of the private sector, particularly the mining sector, are perceived, generally, by many South Africans, to be an injustice. There is therefore very little civic pride in the current mining infrastructure. As a consequence this sector faces a possible / probable legislative, judicial and or administrative threat to its longevity, certainly in its current form. Political preservation disguised as policy discussion on nationalisation and or the recently proposed 2nd-transition is evidence enough of this phenomenon. 

What's worse for the mining sector as a whole, in the South African context, is the tangible dislike local communities display, often violently, against these mines. Employment, as opposed to inclusion, is not seen as justification for the nurturing of civic pride. Until that changes, mining productivity, asset security and staffing will remain an issue. It is, in fact, the key risk variable most analysts build into mining-sector risk-models. 

International investors, as a whole, either directly or indirectly, justify risk by examining longevity. In the South African context sustainability is perceived, by both foreign and local investors alike, to be questionable and it's for that reason only that companies, either locally domicile or wholly invested here, particularly in the mining sector, will continue to underperform their peers.

The Nation's in a state.

Dear Mr President

Satirists have sketched you in the shower. The 1st-Lady is just one of five. You've jiggled & jived with the maidens of the Reed. Your views on personal hygiene have amused, then shamed us. Much has been said about your lack of formal education. None of these things are important. What you do as a human being and as a man is your business and a right entrenched within our laws. We know the press lives for drama and sensationalism sells the news.

The term Your Excellency and the respect South Africans have for the highest office of the land is not a confirmation of your coronation. You are not our king and you are not a god but you are, in fact and like it or not, the duly elected highest official of this land. The burden of that office lies with you. Why have you forsaken your responsibilities?

Deafening silence..

Protection of State Information Bill - in favour 229; 107 against... 

I suppose we all thought the government would do its duty. In these impure, politically-bereft and often emotionally draining times, nepotistic leaders (sic) callously impugn the dignity of the people. Described as a vote of tactical defiance or partisan politics for the sake of defiance, South Africa's government took its first steps down the constitutionally slippery slope reminiscent of the draconian heavy-handedness employed by the apartheid-masters against which, perversely, many of the aye-vote STRUGGLED against.

A shining African light for democracy no more.

Wolf on the spit..

We sympathise with Occupy Wall Street (OWS), the self-styled people's-power movement fighting against, in their own words 'the corrosive power of major banks & multinational companies'. Even so, you could in fact argue that the banks & multinational companies had the latitude to act contrary to the spirit of the law on lax, negligent and in some cases, blatantly incompetent REGULATORY supervision.

You would be hard-pressed to understand why the Johannesburg Stock Exchange (JSE) would insist on high moral and ethical standards at community level without aggressively insisting on the same code of conduct internally. Trade-execution procedures for personal accounts, specifically applied to its executive, are seemingly easily transgressed. 

Whilst details on Allan Thompson's dismissal are sketchy you would be forgiven for thinking that, in this case at least, the wolves have been put in charge of the lambs...

Red-herrings & a hot potato

It might be prudent, for the time-being, to relegate the public indiscretions and or financial inconsistencies of the ANCYL's Malema and focus instead on more pressing issues which will, in time, become defining.

Faced with a contradiction in terms and based on the premise that all South Africans are free, the idea that economic emancipation or economic freedom, if you like, should, by definition, follow is inherently flawed. In fact, perversely, history often confirms the opposite.

Has the African National Congress (ANC)- government failed its people? Yes; mostly... but it's hardly surprising and that's not a reflection on the competencies within the ANC but rather on the system itself. Yes, some officials have been incompetent and yes some are corrupt. Even so, it would be ridiculous to suggest that South Africa's economic woes are commensurate with the ANC and by extrapolation any different from other developing countries.

Service-delivery promises, often the only tangible way for ordinary people to measure the success of their vote, have fallen short. Poverty is rife. 25% of the workforce remains unemployed. Schools, hospitals and other basic infrastructural necessities are either in a state of decay, disrepair or are inadequate. So where to from here?

Traditionally there are three basic economic strategies to uplift the poor. One - grants, subsidies, welfare & charity. Two - artificial wealth redistribution and Three - Education and access to funding. Most countries prefer a combination of the three with an emphasis on one or the other. The permutations are many... In South Africa we employ a combination of the three with an emphasis on welfare. Black Economic Empowerment (BEE) is our preferred version of artificial wealth redistribution and we have legislation compelling banks to lend money favourably to the poor. Now, if the ANCYL has its way it will nationalise the mines. That's tolerable if the mines are well-managed and draw on skills from within the private sector and the proceeds spent on higher education and infrastructure investment. If the emphasis is on education everything else takes care of itself. If however, as most suspect, the ANCYL plans to nationalise the mines to give the money to the poor, that would be finite, unsustainable and inefficient. Worst of all, if the ANCYL nationalises the mines for the sake of taking from one ethnic group to give to another then that would be counterproductive, demotivating and in short nothing short of disastrous.

So, if we are serious about this country's future let's not begrudge a politician his time in the limelight for that's what he is, a politician. Notwithstanding, ignoring the plight of the poor and the associated socio-economic issues as the ignorant rantings of a fool is economic suicide.

The ghost of Africa past..

The notion that Africa will position itself as an economic superpower somewhere in the not-too-distant-future falls a yard or two short of reality. Where violent tribal enmities are a common thread and with her demographically segmented peoples, flawed long-term economic strategies and burgeoning poverty it's not difficult to be dismissive of Africa's prospects.

In a new development, the European legacies of the past, largely exploitative and still entrenched in Africa's beggared psyche, have been rekindled, unnoticed it seems, in the boardrooms of China. China's resource ambitions are unfettered and often environmentally disastrous and yet African governments smarting from Western betrayal, perceived or otherwise, have little option but to look to the East. China's propensity to lull the uninitiated by conjuring up poorly constructed, inferior quality infrastructure in return for what can only be described as economic exploitation, imperils Africa. 

In countries where retained power is often pillared on ethnic subjugation and even genocidal sacrifice, the elected officials and or self-styled political leaders continuously flout the best interests of her peoples. Under this guise Africa's leaders, lulled into a Ray-Ban-tinted sense of self-worth and where the rule of law is an ephemeral notion at best, seemingly lack the experience or courage to resist this trickery, exchanging precious non-renewable resources for cheap trinkets. 

In a leadership vacuum African Ubuntu (pride) has a fragility reminiscent of the distant past. South Africa is no different. 

Rand-hedge equity is an oxymoron

The ONLY way to hedge your equity portfolio against a declining rand and it's on the cards by the way, is to buy a currency hedge of some sort or by buying an equity collar. It is grossly incorrect to assume that a favourably weighted rand-hedge (companies with earnings positively impacted by a weaker rand vs the US dollar; usually) portfolio provides positive returns when the rand deteriorates against the cross.

Neither should you underestimate the impact on local equity prices by foreign funds or traders in a declining rand environment given their real losses in their own currencies on repatriation. PE-ratings fall dramatically regardless of the perceived 'increase' in earnings expressed in ZAR. It would be prudent to remember that share prices stagnate or fall when currencies become unstable.

There is NO predictable protection, absolute or otherwise, against a falling rand by weighting an equity portfolio in favour of companies with currency-enhanced earnings in a deteriorating rand environment. Given the JSE's reliance on and its index weighting in commodity stocks and the prevalence of foreign shareholders in these companies the opposite is usually true.