China is our best china to drive economic growth
I enjoy a long, meandering run, early on Saturday mornings, through the suburbs of Sandton. It's my quiet time during which I mull over the week's events and open my mind to ideas for my column.
Foremost in my thoughts was the motivation behind Reserve Bank Governor Gill Marcus' courageous decision to lower the repo rate for the first time in almost two years, and the outcome of this act on both the country's savers and spenders.
Her evaluation of the downside risks in the global economy, deep concerns over the debt troubles in the eurozone and the spillover effects on South Africa's trade are recurrent themes at her press briefings, but the call for action was always countermanded by the challenge of irrepressible inflationary forces.
Reducing interest rates last week was a blunt admission by the Reserve Bank that the business climate is deteriorating, and unless daring choices were made to shore up economic activity, the nation could sink into an irreversible slump that could create further hardships, and possibly even trigger social unrest.
The consequences of lowering rates are twofold. Firstly, it eases the burden on indebted householders by reducing their monthly interest payments and, in so doing, puts more money in their wallets for consumption. But the move, in my view, was primarily designed to unlock the huge cash piles hoarded by individuals and businesses, too petrified to invest in the future because of the current uncertain environment. By continuing to cut rates, the hope is that a point would be reached where savers are driven to abandon safe-havens in search of higher returns in chancier but economically productive ventures.
The governor has demonstrated great skill in her attempt to address the fears and worries frustrating financial markets, and no doubt acknowledges that a mere 0.5% reduction is hardly expected to shift the needle. So don't be surprised if we witness yet another cut before the start of the holiday season.
I was equally absorbed in my thoughts by President Jacob Zuma's fund-seeking mission to China, where he publicly expressed his loathing for impecunious Western leaders who continue to treat this country like colonial lords. Bowing and scraping obediently, he paid tribute to the Chinese, the nation's vast mountains of cash and their president, who, he submitted, viewed South Africa as an equal.
For once I am in agreement with our president and am feverishly in favour of forging closer ties with China. I am a great admirer of the speed at which the country is developing, and enthusiastically suggest we launch many of the initiatives that have underpinned their remarkable progress.
First is China's one-child policy. It is illegal and punishable by heavy fines to have more than one child. Over the past few years this rule has been amended in rural areas, allowing families two children. We could adapt this arrangement for local customs by simply permitting one child per wife.
China executes more people each year than the rest of the world combined. Although official statistics are impossible to obtain, human rights bodies estimate that more than 1500 people a year are put to death for their crimes.
I am sure as the two presidents toasted their mutual admiration over a cup of Lapsang Souchong tea in the palace gardens, the Chinese leader, aware of his South African counterpart's mounting disapproval rating, offered novel pointers to deal with the Brett Murrays and Zapiros of this world.
According to a New York Times article earlier this year, in response to a last-minute change in the design of the iPhone, a Chinese factory was able to arouse 8000 workers from their dormitory and put them on the assembly line at midnight. It may well demonstrate the population's work ethic and pride, and highlight why China is such a powerful manufacturing force but, let's face it; it also underscores the benefits of subverting trade union representation.
Hitting the home stretch, my attention drifted to the major management changes at Anglo American enacted last Thursday. Once regarded as the country's equivalent of royalty, the house the Oppenheimers built is a shadow of its former greatness. For generations the group, with a wide reach of varied businesses, was considered a proxy for the South African economy. The decision to focus on its core mining competency and move its head office and primary listing to London about 15 years ago has failed to achieve its stated objectives. In terms of market capitalisation, the diversified mining group has slipped to fourth position, overtaken by British American Tobacco, BHP Billiton and SAB Miller. Dragged down by the poor performance of its platinum subsidiary, Anglo Platinum, the company now relies heavily on the fortunes of Kumba, an iron ore producer it bought on the market a few years ago.
Short of investment options on the JSE, I've maintained exposure for clients significantly underperforming the overall market over the past year. I've pinned my reputation and trust on Zuma encouraging his new best friend to open the nation's purse strings and stimulate demand for the commodities that drive South Africa's growth. After all, that's what friends are for.