State should heed threat of global crisis

REUTERS

IN THE MOMENT: Spains Iker Casillas lifts the trophy after defeating Italy to win the Euro 2012 final soccer match at the Olympic stadium in Kiev last week. The championship win is not enough to revive the economy of Spain, and the victory is cold comfort to citizens, says the writer. Picture: Reuters

Three unrelated events last week triggered some thoughts. First, a British national featured in the Wimbledon finals for the first time in 74 years.

The news of Andy Murray beating Jo-Wilfred Tsonga to play in the final against Roger Federer made international headlines and drowned out a scandalous story on the manipulation of inter-bank lending rates that had already claimed the jobs of the main protagonist, the chairman and CEO of Barclays.

The roles of central banks of Britain and the US in regulating the setting of international benchmark interest rates are already being questioned in this regard.

As for Murray’s participating in the Wimbledon finals, tennis enthusiasts remarked: “The icon and pride of the empire might finally return home.”

For tennis greenhorns like myself, this was a non-issue being made an international moment. But given the history of the tournament, its association with the British empire, and this being a jubilee year, one could understand the phenomenology of Murray, even if it meant temporary drowning out of the Barclays scandal.

The performance of the Williams sisters at this year’s tournament became a common story for the first time in years. Lewis Hamilton’s failure to win the British grand prix didn’t help the situation, despite his rehearsal pole-position finish.

In spite of these setbacks, the mood is high in London and the Olympic Games seem set to bolster the happiness index.

One might argue that the drowning out of the Barclays story is unfortunate for a number of reasons. One, the global economy continues to wallow in the doldrums. Unemployment figures remain high. Anti-poverty gains are reversing, as reported by a UK-based think-tank this week. The banking sector is struggling to extricate itself from the 2008 financial crises and all its excesses. Confidence remains far too low. Access to finance for firms wanting to invest in production remains a challenge.

The Barclays scandal broke just a few weeks after British authorities announced measures to tighten the regulation of the banking sector to eliminate excesses such as the fixing of lending rates, reckless lending and irresponsible repacking of debts.

Two, the Barclays saga is a major story for SA, given the former’s controlling stake in our largest retail bank, Absa. And so we wonder: How does this dishonour affect Absa? Were Absa executives aware and involved? Will Absa be directly or indirectly implicated, with what consequences?

Beyond the far-reaching global implications of the Barclays local subsidiary’s culpability, if the matter ever arises we cannot underestimate the impact of this scandal here at home, given continuing internal uncertainties over Absa and the general feeling that our major banks are pick-pocketing vulnerable South Africans by refusing to lower lending rates and excessive bank charges.

The South African Reserve Bank has previously warned that drastic measures are needed to make our banks growth-friendly and inclusive. We all know that Absa, just like Standard Bank, has been going through endless restructuring.

As we speak, thousands of Absa employees – from executive to bank-teller levels – are being laid off despite earlier denials from management.

Worse, there is a growing feeling that employment equity imperatives are being severely undermined as the “London boys” are being deployed by headquarters to lead critical positions in its only performing unit globally.

As such, many Absa employees might be anxiously asking themselves: Who is next? As Absa clients, we ask: Could these international experts be bringing rate-fixing expertise from HQ?

Even though it is the global clients of Barclays at the epicentre of this corporate scandal, one hopes the nefarious practices will not land on our shores.

We are trying hard to build an economy free of uncompetitive behaviour. Any such news here will stall our efforts and reverse our gains of proactive bank regulation.

The second unrelated event that I wish to reflect on is the release of the June 2012 employment creation numbers in the US. in an economy with a two-thirds labour-market participation rate 80 000 new jobs is reportedly too few.

To the extent that presidential elections are set for November, speculators suggest that this sluggish job-creation performance will dent the incumbent’s prospects of a second term. For us on the southern tip of the continent of Africa, any indication of poor rates of growth in our traditional trading partners is a cause for concern.

For it means fewer clients in North America and Europe can buy our products such as platinum, which is used to manufacture catalytic converters.

This is no welcome news for our platinum industry, which is shedding jobs owing to low global demand. Many other downstream industries are suffering as a result.

Therefore, for our increasingly globally networked economy, news of higher rates of growth in the US might as well provide a fillip to our own attempts to save existing jobs and create new ones – especially in the labour-intensive sectors of the SA economy like mining and manufacturing.

Also, reports that the US has recently absorbed a further 800 000 people in the public sector may bode well for our economy in the long term, since the opposite of employment anywhere in the developed world has direct consequences here.

The last event of equal proportion that I wish to reflect on is based on first-hand experience of recession while on a writing retreat in Spain last week.

Arriving in the Mediterranean city of Malaga a day after the Spanish team gobsmacked the Azzuri (Italy) 4-0 to retain the Euro title, one could not help but notice a dampened spirit in the eyes of the locals – a manifestation of the economic turbulence now traumatising the country.

The championship win is not enough to revive the economy of Spain.

“Eateries and hotels in Malaga are running half empty,” a tourism official observed. “People are unemployed here. Every second shop in town is closing down or already liquidated.

“Even the fishermen are struggling because there are no tourists to eat the sardines. The dolphins have moved because fewer boats are leaving our shores to scout for these beautiful creatures.

“Morocco has become further away, as fewer tourists board ferries taking people on daily return tours to the north Africa country.”

A day tour in the towns of Fuengirola and Marbella, a few miles from Malaga, elicited a disappointing picture. Indeed, there are liquidation signs on every other retail space. In Marbella, a shopping mall has closed down.

It seems the rebajas (for sale) signs aren’t enough to attract patrons, as shops stand empty.

Perhaps one should not be surprised as Spain – like its Mediterranean neighbours Portugal, Italy and Greece – has continued to experience the aftershocks of the 2008 economic tsunami.

As a result, commercial banks are being rescued by central banks.

Productivity is at its lowest. Unemployment is rising. Tourism numbers are dwindling sharply.

These, with liquidation signs across trading spaces, inevitably dampen the spirits and aspirations of the citizens.

A Malaga that looks like a country after civil war doesn’t augur well for our globally linked economy.

Signs of negative economic performance in SA tell us we cannot immediately double our growth and employment rates because, for many present and historical reasons, our economy is closely linked to that of the developed world with matured markets. Even as we increasingly “look East”, the West remains on the horizon.

Now, more than ever, we have an urgent task – and that is to deal with uncertainties confronting the global economy and excesses of capitalism.

Regulations need to be tightened, much as SA long did, to control the financial institutions and rating agencies. They are putting the savings of workers and pensioners at risk. They are denying entrepreneurs the finance necessary to start and expand job creating ventures in the name of “risk management”.

Rating agencies continue uncontrolled to advise banks in making decisions that enrich top managers at the expense of national economies.

Closer to home, signs point to the need to support efforts to stimulate the performance of the global economy.

While we work harder to integrate our economy with the rest of the continent through greater inter- and intra-Africa trade, and to stimulate trade with the Brics group of countries and other emerging markets of the south, we have yet to de-link from our traditional trading partners in the West.

Therefore, their recovery is our yearning. And we do hope soon that it will happen and thus spur our own economy.

Finally, we make these observations fully aware of ongoing discourse concerning the role of the state in the economy.

The Barclays scandal, the job-creation performance in the US as well as the recession in Europe tell us that, unless carefully managed, a critical distance between the state and the economy is undesirable and unsustainable.

Measured state interventions through greater and responsible regulation have worked for our banking sector and can work for many other sectors displaying uncompetitive practices.

The state should actively build social infrastructure to crowd in investments and improve living standards for all citizens. When the markets fail, it is the state that provides safety nets for the poor.

Economic recovery is a priority and a necessary preoccupation of the state.

n Ngcaweni is a public servant writing in his personal capacity.