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Thu Sep 18 17:42:57 SAST 2014

Bands of beggars a sure sign we need change

David Shapiro | 29 January, 2013 01:01

Driving in Johannesburg is a disturbing experience. Armies of vagrants have colonised virtually every major intersection in the city.

Each time you draw up to a red light, they advance on your vehicle in attempts to garner your sympathy, some unremittingly aggressive in their demands, others more theatrical. Their persistent presence and intimidating manner bring out the worst in your character. Yet, despite your sometimes open hostility, you can't help wondering where these people sleep at night, how often they eat and what chance they have of lifting themselves out of their current jam.

The increasing population of beggars dwelling on our street corners is symptomatic of the social and economic challenges still facing this country nearly 20 years into its "new" democracy. Around 14 million citizens receive social grants from government, a number substantially higher than those who are economically active. There are millions more homeless who simply survive on their wits. Only a small number of youngsters who recently passed matric will enter university, and the balance will struggle to find employment.

The government alone cannot solve these problems, and the longer it covers its failings and pretends everything is under control, the greater the hardships this nation faces down the road.

The events of last week exposed the widening rift between government and business.

As a person with the responsibility of investing clients' money locally and abroad, I found the developments deeply troubling. Government's paranoic ranting against prominent groups like FirstRand and Anglo American were more attuned to the sinister manoeuvrings of the former Soviet Union than a country that prides itself on having the world's most progressive constitution. Dissidents in Soviet Russia were committed to asylums on the premise that anybody who could not appreciate the advantages of communism was evidently insane.

It's clear that if we want to halt the decline in our currency and avoid further rating downgrades of our sovereign debt, corporate leaders and government ministers need to convene what has been described as a Business Codesa, a reference to the negotiation process in the early 1990s at which the path for a new administration was established and an appropriate constitution drafted.

But before the nominated parties assemble at the conference table, it's important to highlight points that could sway the discussions.

Firstly, the JSE is not reflective of the success or failure of the South African economy. A vast percentage of the exchange's market capitalisation (total value of all the listed shares) comprises companies that either operate on a number of different continents or sell their product offshore to a broad base of customers in a range of countries. My guesstimate is that 70% of the JSE's earnings are dollar-(foreign) based, and the measure is growing rather than shrinking. Secondly, the majority shareholders (in value) of equities listed on the JSE reside overseas. To name a few, SAB Miller, Richemont, Anglo American, BHP Billiton, African Bank, Massmart and Shoprite have far greater foreign share registers than domestic ones.

The upshot of these arguments is that governments elected by regional communities can no longer enforce their will on multi-national groups with international constituencies.

The third, and by far the most important, point is that South Africa is not a nation of savers. We live above our means and need foreign savings to fill the void. We run a budget deficit - in other words, the money government spends on education, health, defence, salaries and social grants exceeds the revenues it collects in taxes. Loans from institutions, large portions of which are sourced abroad, satisfy the shortfall.

Government's borrowings are not confined to funding the deficit. Eskom and Transnet's huge multi-billion infrastructure programmes will be doomed without major foreign participation. Local banks and money managers simply do not have sufficient fire power to provide the necessary support.

The need for global capital extends beyond the debt markets. The costs of developing the mining ventures that are the cornerstone of the National Development Plan are wholly reliant on attracting institutional and sovereign investors outside the country.

But there are two sides to every deal. In return for providing vital finance, whether as loans or equity capital, investors require a yield in line with the risks they take. Generally these gauges are influenced by the likelihood of repayment, the chance of making good profits and surety that the law of the country will protect their assets.

So, when the various parties finally gather around the table and begin their deliberations, I suggest Trevor Manuel and Pravin Gordhan wire Gwede Mantashe's chair so that, should the need arise, they can send him a 220-volt SMS.

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Thu Sep 18 17:42:57 SAST 2014 ::