Let’s face it, being an emerging market has its ups and downsComment on this story
My brother has just returned to South Africa after living in Geneva for 14 years. He is going to reside in Johannesburg, work for Discovery Health and he is deliriously happy.
What is exhausting, though, is the question (accompanied by a look of near disbelief) asked by almost every South African, from the travel agent to his friends to the real estate agent and the car salesman and so on: “Why are you coming back? Especially now?”
What is it about us South Africans that makes us believe that we are “die vark in die verhaal” (“the pig in the tale”) in every story? Whether it is the economy, politics, the currency, corruption, you name it – we seem to believe that South Africa is the only country in the world with problems and that anything that goes wrong is directly self-inflicted.
A few points are worth noting.
First, most of the pain we are feeling economically is being felt more or less similarly across all emerging markets (EMs). Very simply, it’s our turn.
For the first three years after the global financial collapse, former US Federal Reserve chairman Ben Bernanke plumped up the global economy with billions of dollars and EMs were a happy beneficiary of this liquidity. South Africans looked on in amazement as the developed world came close to collapse, companies slashed their workforces and these developed economies ground to a halt.
Meanwhile, life in South Africa was good – we were still growing, retrenchments were there (but not widespread) and the sun was shining.
Inevitably and eventually, the developed world started healing. Today the US economy is recovering, economic numbers are improving and it is fast becoming energy neutral. Producing its own oil and gas will make the US more competitive, improve its deficit and reduce its debt.
On the other hand, the European recovery – while nowhere near the recovery of the US – seems intact, and while EU economies are hardly growing, they are no longer shrinking. Their risk is deflation, although data has been encouraging and any signs of deflation will be doused quickly enough through monetary methods. Britain is almost booming, with growth forecasts for 2014 being raised from 1.5 percent a year ago, to the current predictions from the Bank of England of over 3 percent.
So with all the good news coming out of the developed world, the quantitative easing drip is slowly being removed. Global investors, seeing the recovery, also decided they could generate decent returns closer to home.
Suddenly the rug was pulled out from underneath the feet of the EM currencies and stock markets. What was described in general economic parlance as the Brics (Brazil, Russia, India, China and South Africa; a grouping to which we as South Africans felt unworthy, but delighted to be part of) quickly became referred to by many pundits as a Bloody Ridiculous Investment Concept.
From Argentina to Indonesia, via Turkey, economies are slowing, unemployment is growing and currencies have been smashed. But the time for the EMs is not over. Many are in far better shape than in 1998 and, in many cases, are in better shape than the developed world. They have lower debt to gross domestic product ratios, more reserves, better demographics, higher growth prospects, and are generally more resilient.
As members of this club known as emerging markets, we benefit when times are good, but similarly we suffer when sentiment towards EMs sours.
As South Africans, we sometimes delude ourselves that we are “First World”, yet like it or not, we are just another EM. Interestingly, there was a time we experienced contagion as a result of our proximity to Zimbabwe and the rest of Africa. Today, South Africa will lift from its current growth impasse due to its preferred EM status. Preferred, ironically, due to our proximity to the rampant growth economies of Africa.
The South African economy is not alone in facing tough times. The Brazilian and Indian economies have also slowed significantly, as has foreign investment into these markets. Their currencies are at record lows and their deficits and unemployment levels are high. In fact, most EM economies have slowed considerably.
Key to psychological survival is being able to see us the way foreign investors do, and comparing us to the countries against which we compete for investment flows. Nobody asks whether they should invest in London or South Africa, New York or South Africa. What they do say, however, is should they invest in South Africa or rather invest in South America, the rest of Africa or Asia? Against those countries or continents we stack up (reasonably) well.
The rand isn’t being punished because of our politics or strikes. Despite ourselves, the rand has been punished along with most EM currencies, because massive inflows suddenly became massive outflows as sentiment towards EMs deteriorated.
We have enormous youth unemployment, but the levels are not dissimilar to that of many other EMs, or even European countries that have similar levels.
We grumble about our politics, but politicians across the world behave badly. “Gravy” is not unique to South Africa; after all, was it not expedient politicians feeding tax breaks to voters in exchange for votes that led to the European collapse (and in many cases debt levels that will take generations to repay)? The French president’s approval rating is below 20 percent, less than half the level of our president.
From a corruption perspective we have much work to do, but we are by no means worse than other emerging markets. In fact, we are better than (or equal to) the majority of South America, the rest of Africa and most of Asia, according to Transparency International’s 2013 Corruption Perceptions Index. On the list of 177 countries, we rank 72nd.
We have to continue to jealously guard our press freedom, for which the country has fought so hard. We also have to appreciate that we currently have one of the freest press in the world. According to the World Press Freedom Index for 2014, we are in line with the UK and the US and once again freer than the majority of South America, the rest of Africa and Asia.
In short, we are not nearly as fascinating to the rest of the world as we think we are. Very simply, we are part of a grouping known as EMs, and when they are in vogue, so are we, and the reverse applies when they are not.
As I have argued earlier, what we are going through at the moment will pass. Almost like winter eventually becomes spring and then summer, so too will the sun return to the emerging markets and, indeed, to South Africa.
Then this phase will be forgotten, and my brother – along with the 359 000 other skilled South Africans who (according to Adcorp) have returned home since 2008 – will stop being asked why they came home.
* Jeremy Gardiner is a director at Investec Asset Management.