Joel Netshitenzhe

Article: Letter from Tshwane

30 June 2000

Survival in the global jungle

An evening game drive with members of the International Investment Council (IIC) at Malamala Game Reserve, and we come across a pride of 5 lions, too young to carve up their own territory and too old to remain in their original pride. They had been stalking, in fits and starts, a 300-strong herd of buffalo.

The game ranger says the lions would be left to die if they cannot make headway in their hunt. Rangers do not intervene. This is the stuff of natural selection and survival of the fittest.

In a sense, the debates about the economy among ourselves, and recently, at the Durban World Economic Forum meeting and the IIC lekgotla are about survival in a cruel environment.

In the current economic system, individuals and nations have to more rigorously identify and pursue opportunities. But like any jungle, the global market can marginalize and destroy. Contained in its wonders is what Professor Manuel Castells calls a fourth world: "black holes in informational capitalism: regions where [there is] no escape from suffering and deprivation".

With the new trade regime, the speed and size of short-term capital flows and massive trade in derivatives, systemic risk hangs like the Sword of Damocles over all economies. When massive crashes occur, they devastate even those who play by the rules.

The defining fallacy of assumptions common to South African discourse is the belief that financial markets ensure, as a rule, that price approximates intrinsic value. Perhaps this does happen in the long-run. But bubbles do feed upon themselves; "news" is not only misinterpreted – it can also be invented to improve speculators’ margins. Even if the causes of volatility are patently wrong, inertia sets in, and a stock or currency price can for months veer away from its underlying value.

"Irrational exuberance" or pessimism can become the norm, particularly among an excitable crowd in a warehouse, some trading one stock up to 50 times in a day. They deal in trillions of Dollars, with profound consequences for small open economies such as ours. Healthy fundamentals are unable to withstand the consequences of such gambling.

It is therefore not a matter of ideology to search for a system of global governance with appropriate jurisprudence to obviate this, including the possibility of a world-based system of taxation for short-term capital flows.

We also need critically to interrogate the state of our own stock market: the need to improve technical efficiency, eliminate leniency towards insider trading and improve overall governance at the JSE.

Then there is the question of how society handles "news". General negativity will naturally produce a bearish market with only spurts of bullishness. Pessimistic interpretations of developments, as happened with the $/Rand exchange rate during the upheavals in Zimbabwe, has the same impact. Unfortunately, in many instances, the judge, the juror and the executioner are all wrapped in one, with their own strong views on details of politcal policy.

This is aptly shown by what has become a trend in the analysis – leaving aside methodology – of the Business Confidence Index by the new leadership of SACOB. Be it inflation-targeting, or the nebulous "investor-friendly business climate", the monthly release of BCI has become a platform for aiming pot-shots at government.

IIC members drew attention to this negative mindset among South African colleagues and the media. On HIV/AIDS, affirmative action and other issues, they were astounded at this "perceptions deficit".

South Africa also requires boldness in examining the allocation of capital for productive purposes. Recent figures on private and public capital expenditure are not impressive at all. Incentives to investors are not much help; neither is the ratcheting of ideological positions on faster privatisation, small government and confrontational labour relations.

Large FDI will flow in, especially if South Africans show confidence in their own economy. In examining this issue, there should be no holy cows. A different attitude is required regarding credit allocation and venture capital. Many here in Tshwane believe that exploration of prescribed assets or an equivalent instrument should not be treated as taboo. The challenge is to ensure joint commitment to project identification, public-private partnerships and risk management. Further, South Africa requires focussed companies with clear competency areas rather than unwieldy conglomerates.

Back to Malamala: what is most encouraging about this engagement is the commitment of leaders with very large companies to run, to act as ambassadors for South Africa abroad.

On arrival at Waterkloof Airbase, a colleague whispers that the lions had, that morning, successfully pounced on one of the buffaloes. So they have survived another day. Perhaps they will grow, and carve up their own territory.

But the survival of any section of humanity cannot be left to chance.

Joel Netshitenzhe
CEO, Government Communications (GCIS)

Published in Independent Newspapers

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