A
Critical Look At South Africa
Politics
And Economics ~
by Jurgen Klemann
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I worked for a business and management consulting firm in Johannesburg,
the first multi – racial election was held in South Africa. The days of
the election were proclaimed public holidays. On the first morning of the
election, as I did not have to work, I went to my favourite restaurant
in Jo’burg for an extensive breakfast. When turning around the corner,
I realized all of a sudden that the police had done a complete road block.
There was no traffic on the road at all. Instead, there were people, loads
of people, probably thousands of people, standing peacefully in line. Whites,
Blacks, Colourds, Indians, peacefully waiting, chatting with each other,
playing musical instruments….The first thought that crossed my mind was
“what the heck is that”? It then dawned on me that they were all waiting
in front of a voting station.
During these
few days the pictures were pretty much the same all over South Africa.
In front of voting stations – in run down black townships like Soweto and
Alexandria as well as in upmarket residential areas like Saxonwold and
Bryanston – there were huge lines of people waiting to vote. These lines
were sometimes four, five, six kilometers long. When I every now and then
remember these days, these huge lines of people virtually reappear in front
of my eyes. Looking at it in hindsight, living in South Africa during the
transition period had a lasting impact on me.
After the voting
finished, the counting of the votes took about a week, which is a little
long by American and European standards. An explanation that makes more
or less sense goes “TAB”. “TAB” means That’s Africa, Baby. |
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Anyway, the
second general election in South Africa took place when I lived in New
Zealand. That is the main reason why I did not watch it carefully.
Since making
a few changes in my life and shifting into college teaching in the less
developed world, I now have time for all sorts of things that attract my
interest. That includes looking at the world in general and emerging markets
in particular from the angle of contrarians like Doug Casey and Marc Faber.
Among other things, this activity has drawn my interest back to South Africa.
In April this year the next general election will take place there.
Political
Situation In South Africa
It does not
take a rocket scientist to predict the outcome of that election, at least
in broad strokes. The ruling ANC will defend its outright majority. A little
more interesting is the question whether the ANC will gain a two third
majority in parliament, which is necessary to change the constitution.
As a growing number of black South Africans appear to be getting disenchanted
with the ruling party, they may abstain from voting and thus prevent a
two third majority for the ANC in parliament.
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The
main opposition parties will be the Democratic Alliance and the Inkatha
Freedom Party. The Democratic Alliance is a liberal party supported primarily
by white South Africans and the business community. The Inkatha Freedom
Party is backed predominantly by Zulus, a tribe whose stronghold is the
province of KwaZulu Natal. As often in Africa, the issue that divides is
not a political issue. It is rather the tribal thing. The party that used
to run the show in the old days – the National Party, now revamped into
the New National Party – will lose white voters to the Democratic Alliance.
No matter what
the election result will exactly look like, there are a few issues underneath
the surface, which may be characterized as rather typical for Africa. When
Nelson Mandela was President of South Africa, he tried to make all South
Africans – no matter what their skin colour is – feel at home in South
Africa. Things have changed a little since Thabo Mbeki is President. Thabo
Mbeki rather emphasizes the concept of black nationalism, which makes the
white minority rather feel uncomfortable.
There are also
rumours that he is keen on changing the constitution to secure a third
term for him in office. In case Thabo Mbeki is going to secure a third
term in office, it is feared that he may follow the path of Robert Mugabe
in Zimbabwe or Daniel arap Moi in Kenya. Both deserve to be called bloody
disasters for their countries. Keep in mind that Sam Nujoma in Namibia
also changed the constitution to secure a third term.
Even if Thabo
Mbeki is not going to change the constitution, it remains to be seen who
will succeed him. Until recently, Jacob Zuma – the Deputy President – was
regarded to be the most likely successor. No longer, since he is accused
of corruption. Other ANC officials are also accused of sleaze. All this
reminds me a little of other African countries and they direction they
were heading for after their independence. Again, just look at Kenya and
Zimbabwe. However, it is still too early to form an opinion. Let us wait
and see some more time. |
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Land reform
is another issue that worries a bunch of white South Africans. They worry
that their property may be grabbed like white property in Zimbabwe. No
matter what the differences and similarities are between South Africa and
Zimbabwe, remarks made by Thabo Mbeki and his foreign minister display
a complete lack of wisdom.
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| Thabo
Mbeki felt called to opine that the land invasions in Zimbabwe were “perhaps
inevitable”. His foreign minister felt called to criticize critics of the
land invasions in Zimbabwe as “unrevolutionary”. No wonder that some folks
are a little worried about the future of South Africa.
The South
African Economy
The economic
situation in South Africa appears to be as ambiguous as the political situation.
Even in the old days South Africa did not enjoy a reputation for being
a country with low taxation and a truly deregulated business environment.
Things seemed to improve a little after the first democratic election.
Perhaps not very surprisingly, the ANC dumped the “n” word (nationalization)
and embarked instead on a cautious course with the “p” word (privatization).
It included a little of South African Airways here and a little more of
Telkom there.
However, during
the past few years, the trend has been gradually changing. South African
Airways is under government control again. Even though the “n” word is
nowhere explicitly mentioned, it has effectively returned. Mineral rights
and water rights have been nationalized. When nationalization is not feasible,
other sorts of control are being imposed. For example, commercial websites
are going to have to be registered. As the special edition of “The Economist”
“The World in 2004” points out, because of black empowerment the mining,
energy and financial sectors already have “charters”, which define how
much capital should go to non – whites. |
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Putting all
this into context – historically and geographically – we may be reminded
of developments in other African countries, whose economic policies led
them straight to the economic rubbish bin. It looks as if the new leadership
in South Africa may have to learn a few economic lessons the hard way.
The consequences of these trends are already unfolding. The number of stocks
on the Johannesburg Securities Exchange is tanking. Professionals continue
the “chicken run”. “Chicken run” is a term in South Africa for people who
leave the country permanently. South African corporates make an effort
to expand out of South Africa, where the business environment is less regulated.
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On
the other hand, the South African economy may at least indirectly benefit
from international economic developments. While the US dollar is cratering,
the three golds – real gold, black gold (crude oil) and protein gold (soybeans)
have been recently the best performing investments. It looks as if (real)
gold is in the process of becoming the next big investment theme, which
contrarian investment advisors have been predicting for quite some time
already. As South Africa produces a significant amount of gold, its economy
and especially the gold mining industry there may benefit from that new
investment theme.
Moreover, R.E.
McMaster notes in the lead article of “The Reaper” last November that commodity
currencies “have been the rage”. By commodity currencies he primarily means
the Canadian, Australian and New Zealand dollars. To a certain degree,
the South African Rand is also a commodity currency. However, in my humble
opinion, it is not a good idea to include the Rand into that category with
the three dollars. There are too many particularities that justify to deal
with the Rand separately. They may be summarized with “TAB”. That’s Africa,
Baby. Anyway, assuming that the gold price is indeed climbing to the stars,
South Africa’s economy may benefit from it, no matter whether or not the
Rand should be considered a commodity currency.
Opportunities
In South Africa
Looking at
this sort of balance sheet, can I imagine to live again in South Africa?
Yes, I can. But it depends on a few things. The German business community
in South Africa is very influential. Similar to my first stint there, one
option is to pull some strings with the purpose of landing a position
in business there. Considering that most people who have taken part
in the “chicken run” have been executives, professionals and other experts,
it should not be overly difficult. South Africa suffers from a brain drain,
which creates opportunities for adventuresome folks, who are fond of moving
in the opposite direction. However, my interests and priorities have shifted
a little since I left South Africa. I do have serious doubts that I would
make now the right sort of corporate suit. |
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A very attractive
option is always to set up your own outfit to run the show yourself. It
must be a dream for quite a bunch of folks to own and run a wine estate
in the Western Cape or an ostrich farm somewhere in South Africa.. Of course
this sort of venture requires a serious investment, which means that a
bundle gets tied up in South Africa. Once the bundle is tied up there,
you need some resourcefulness to get it out of the country in case you
are inclined to do something else somewhere else. The foreign exchange
controls in South Africa do not deserve to be called an incentive for foreign
direct investment. Of course there are always ways and means around the
rather strict foreign exchange controls. But they make life unnecessarily
complicated.
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the foreign exchange controls in South Africa, there is another reason
why doing this sort of thing is not really my favourite flavour of the
month. It is hardly possible to run a wine estate or ostrich farm without
staff. Dealing with staff involves every now and then having trouble, one
way or another. Even though I fancy the idea of setting up my own business
sooner or later, I would be more fond of doing it without employing staff.
It boils down to the KISS principle that I tend to apply to all sorts of
things in life: Keep It Simple and Stupid. I even preach it in my classes.
Classes, teaching at the Universities of Stellenbosch or Cape Town – it
goes without saying – would indeed be a very appealing option.
In a nutshell,
living and doing something you identify with in South Africa is still an
appealing option. Just practice some common sense and make sure that you
have some safeguards in place in case you are going to make an investment
there. It does not only apply to South Africa but to emerging markets in
general – e.g. Argentina, Brazil, Russia, Thailand. There are indeed opportunities.
But you do have some hedging to do to reduce the risk a little, which you
are exposed to.
Favourite
Places To Live In South Africa
In case you
are still fond of the idea of living in South Africa, the question also
arises where you are inclined to settle down there. In case you are going
to run a wine estate or an ostrich farm there, your options in terms of
picking the right spot may be a little limited. Doing this sort of thing
in the city center of Durban may not be feasible. However, assuming you
run your own business – ideally from home without staff – you can pick
from quite a few options. |
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The most popular
place to live in South Africa is definitely Cape Town. During the past
few years, Cape Town has attracted a whole bunch of people, who are keen
on living there. It is not difficult to imagine why. Cape Town deserves
to be called one of the most beautiful cities in the world. The city’s
flair is colonial and mellow at the same time. Unless I should ever end
up teaching at the University of Cape Town, however, I am rather disinclined
to settle down there. When every Dick and Harry wants to live there, it
is already a little too trendy to my liking.
Instead, I
would rather go for a smaller town in the Western Cape, somewhere in the
Cape Winelands – for example Stellenbosch or Paarl. The scenery of the
Cape Winelands is mind boggling. You must see it yourself to believe how
beautiful it is. The idea of living in a typical Cape Dutch house in towns
like Paarl or Stellenbosch may be a bunch more appealing to some folks
than living in overly trendy Cape Town. It is quieter and more peaceful.
Suggesting
to live somewhere in or near Johannesburg may at first glance imply that
I have lost the plot. Yes, Johannesburg is very dangerous. Yes, Jo’burg
will never win a beauty contest. But wait a moment. The city of gold is
located on a high plateau. The weather there is almost perfect. The sunset
there is amazing. It is a little similar to the sunset in Colima in winter
when the sky turns red. The red in Johannesburg is just a little stronger
than in Colima.
Of course you
have to choose the suburb – where you are going to live – very carefully.
I would go for a place in the northern suburbs of Jo’burg, Sandton or Rosebank
for example. Sandton and Rosebank are both upmarket residential areas and
business districts with loads of office space. Loads of companies have
shifted in the past ten years from the city center of Johannesburg to Sandton
and Rosebank because the northern suburbs are said to be a bunch safer
than the rest of the city of gold.
In case money
is not a serious issue and you are inclined to settle down in the northern
suburbs, do suss Sandhurst out. It is a hidden treasure and very exclusive.
Sandhurst’s roads are rather short – with lines of old trees – without
lots of traffic. The atmosphere there is serene. You can lead a discreet
and confidential executive lifestyle in Sandhurst. However, Sandhurst is
definitely no bargain.
No matter where
you are fond of living in South Africa, a gated community always deserves
to be considered, especially if complete security is important to you.
Tomorrow’s
Gold
Marc Faber
was born and raised in Switzerland. After studying economics in Switzerland
and doing a few things in the real world, he works now as a self – employed
investment consultant. Since 1973 he lives in Hong Kong. To read, study
and write Marc Faber regularly withdraws to northern Thailand. Like other
intelligent people, he is a contrarian. By not following the crowd he has
developed quite an impressive track record, as far as placing investments
is concerned. Marc Faber has also penned a book that is worth chatting
about.
The title of
the book is “Tomorrow’s Gold”. In “Tomorrow’s Gold” Marc Faber guides the
reader through the essentials and history of investment cycles. A bunch
of authors have written on the topic of investment cycles. But they often
lack hands on experience or they do not have a clue about the topic. Marc
Faber, however, knows what he writes about. He is a seasoned professional.
Marc Faber even manages to do what not a bunch of folks can do well. He
manages to tell the story of the South Sea Bubble – an investment mania
– both coherently and understandably.
In the last
chapter of “Tomorrow’s Gold” Marc Faber reveals his convictions. He is
bullish on gold and disdains central bankers. He trusts that the current
loose monetary system will be replaced with a disciplined one. Because
of his many years in Asia, Marc Faber is considered an expert on Asia,
which he expects – at least carefully selected sectors and regions there
– to have a promising future.
My humble self
does not deserve to be called an expert on Asia. The only place in Asia
I have been to so far and know very well is the airport of Hong Kong after
changing planes there in all directions across the Pacific. However, I
do have an opinion on central banks. Let us have a glance at the activities
of the Federal Reserve. Why has the Federal Reserve been slashing interest
rates again and again and again? I do not have the foggiest clue.
Instead, I
would rather drive interest rates up. The purpose of the exercise would
be to get rid of companies that are not competitive, to get rid of excess
capacity. It is significant for capitalism to get companies out of the
market that are not competitive. It is similar to pruning a tree. This
heretical view reflects of course the exact opposite of what the consensus
preaches. Let us wait and see some more time. It may be wise to shift your
focus to carefully selected emerging markets. South Africa is just one
of several interesting emerging markets.
The following
is a list of articles written by Jurgen for the magazine:
 Working
Around The Globe ~ Tips
On How To Find Work Around The Globe
Living
And Teaching In Colima, Mexico ~ A
Place To Rest
Thoughts
On South Africa And New Zealand ~ Hitchhiking
And Economics
Some
Thoughts On Literature And An International Lifestyle ~ Reading
And Living
A
Journey To Various Places In Mexico - Places
To See
Memories
Of Africa ~ Namibia,
Botswana and Zimbabwe
A
Long Way From Munster To Colima - Travel
And The Self
Some
Thoughts On Capitalism And Investing - In
2004
Canada
From Various Perspectives ~ Montreal,
Vancover And More
To contact
Jurgen Click Here
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