Economy

Pravin Gordhan’s Clarion Call

Posted on Mar 17, 2016 in Economy, Politics

Pravin Gordhan’s Clarion Call

SA Finance Minister, Pravin Gordhan, hardly a full two months in the job, stood at the Parliament on Thursday to deliver the toughest budget of the post-Apartheid era. His budget speech had one over-arching objective, and faced many challenges. The strategic imperative was to ward off the looming prospect of the country’s sovereign credit rating down-grade to the junk status. And just moments prior to his speech, Brazil had been downgraded to junk-rating. The Minister made a serious and sobering reference to this fresh development in the global capital market. Ironically, his primary target was the majority of his fellow Cabinet Ministers, the President and his party’s fellow members of the Parliament (MPs) who have proved obstinate over the past seven years – all in the face of irrefutable facts about the loss of investor confidence and evident fall in GDP growth, from the high of 4.2% in 2009 to the current estimated level of 0.5% per annum. The “statist approach” to economic policy, led by the core leadership of the SA Communist Party in the Cabinet, since the inception of the Zuma Administration in 2009 managed to sideline the private sector, capture the institutions of the state and state-owned-enterprises (SOEs), all for their self-interest and political patronage. As a result the balance sheets of the SOEs were hollowed out, their financial sustainability became dependent on the National Treasury’s bail-out, and/or rising guarantees. Consequently, the contingent liabilities of the National Treasury kept rising alongside its public debt. Despite two credit-rating downgrades during 2012 to 2105 period, the Cabinet remained defiant, and oblivious to the socio-political consequences This defiance peaked in December 2015 when the then Minister of Finance, Nhlanhla Nene, was widely reported in the media as having refused to accede to the President and his core political supporters, and he was then unceremoniously sacked and replaced by an unknown back-bencher MP, Des Van Rooyen. This blatant mid-step by the President galvanized some elements of the ruling party together with a core of the private sector business leaders, led by the banking sector chief executives. Within three days, their intervention, market reaction and the huge public outcry compelled the President to replace Mr Van Rooyen with Mr Pravin Gordhan who had established his credibility as the Finance Minister in President Zuma’s first administration during 2009 to 2014. Moreover, Mr Gordhan has an impeccable anti-Apartheid credentials, and is known for his integrity and patriotism. As the head of SA Revenue Services (SARS), from 1999 to 2009, he enjoys much credit for his turn-around of the organisation into an efficient and globally competitive revenue collection office. Against this backdrop, the Minister was resolute in rallying the country’s full capabilities to avert a junk-status downgrade. To this end, he had engaged a select group of financial sector and other CEOs to seek advice – something which had not happened for the past decade. He had also managed to form a sub-committee of sympathetic ministers, under the chairmanship of the Deputy President Ramaphosa, to manage the step-change in Cabinet approach and implementation. At the time of finalizing his Speech, although he had not managed to secure full support for his complete package of policy measures, he had received enough political backing to announce a change of course in government policy going forward. So, he re-affirmed the centrality of the National Development Plan (NDP) – a much neglected private-sector friendly policy framework adopted nearly five years ago. The ‘statist core within the Cabinet” had managed to relegate the NDP to oblivion. More expressly, the Minister re-established the pivotal role of the private sector for...

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Global Mega Trends and Africa

Posted on Jul 21, 2014 in Development, Economy, Politics

Global Mega Trends and Africa

One of the critical challenges of strategic policy making is to strike a balance between the short term issues facing the society and the long term challenges and opportunities. The former typically preoccupies the politicians who have to survive the rough and tumble of day to day politics. The electoral cycle further reinforces this tendency. The latter forces, however, are more subtle and yet as relevant for the society’s long term prosperity. But more often than not they are largely neglected in policy and public discourse. In part it is because the long term structural trends are much less visible, often appear speculative and their impacts surface over a period way beyond the terms of office of those in power! These so called mega trends ultimately shape the political economy structure within which power assumes meaning and evolves over time.   Currently, there are three major global mega trends at play, namely, the demographic factor, the environmental issues, and the changing nature of work place. Jointly, these trends are bound to reshape the national socio-political structures the world over and exert substantial influence on the international geo-political configuration. The medium to long term success of countries would much depend on the degree to which their public policies are alive to the impact of such forces.   The demographic mega trend is possibly most subtle and potentially disruptive insofar as it exerts influence on many fronts including the inter-generational dynamics within the societies, and the issues of diversity management across nations. Political and business organizations are affected by this mega trend in many diverse ways. The power base of the political organizations and the market structure of business corporations are profoundly shaped by this mega trend. The spatial configuration of the global population also affects the international geo-politics.   The environmental mega trend is most visible, and increasingly recognized as a force that requires much higher degrees of international coordination than countries are used to thus far. The threats emanating from this mega trend transcend the defence capabilities of all the nations, weak and strong alike! Not only the submerging of some island states in the Pacific Ocean, but also recent weather-induced events in New York, USA, in Australia, in China, in Philippine and in Europe are but examples of the damage that environmental forces can exact on any country. More subtle and no less destructive effects of the environmental mega trend may be seen in prolonged draughts and sustained flooding of various regions- which in turn affect land fertility and crop production worldwide.   Possibly the least talked-about mega trend is the changing nature of the workplace and its potential consequences for social welfare. The fact is that the digital technologies have gradually but irreversibly changed the nature of the workplace. Over time the workplace has become much more skills and systems intensive. Whilst the labour-intensity of business operations has declined steadily, the production process has become a great deal more automated and spatially segregated. Historically labour-intensive activities such as farming and mining operations have been particularly affected by these trends. Mechanized fruit picking and sorting, as well as crop spraying via drones are becoming common place in many commercial farms across the world. Likewise in the mining sector technologies exist that can obviate the use of unskilled labour almost altogether.  The effects of technological and digital changes in the services sector are equally profound. The spatial fragmentation of the workplace and the production processes is under way.  In effect, the workplace is evolving rapidly with material impact on social welfare. In particular, if the education systems, or more...

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The World’s Emerging Political Economy Risks

Posted on Jul 21, 2014 in Development, Economy, Featured, Politics

The World’s Emerging Political Economy Risks

As the world economy is recovering from the prolonged recessionary consequences of the 2008 “great recession” new geopolitical risks have surfaced rapidly, and somewhat unexpectedly. The military developments in Syria-Iraq in the form of the rise of ISIS militia, the instability and social issues growing in Nigeria, the widening reach of Al’Shabab in East Africa, the continued instability in Ukraine, and ongoing tension in the Middle East, together with territorial disputes between China and some other countries of the South East Asia region are the key and high profile sources of risk and instability in the world economy. Alongside these visible risks are the subterranean activities of cyber attacks, and other threats based on digital technology across the world.   This has thrown the world economy into a new era of rising uncertainty and potential instability. Once again the world resources are spent proportionally more on military and defence expenditure rather than on other socio-economic needs. This means limited global resources are being spent more on less productive, counter-productive and/or destructive ends. As this process takes roots, global productivity falls. The upshot of it all is a material decline in the world potential GDP.   At the same time, the rise in military and defence expenditure leads to a worsening of the quality of public services as public resources for such socio-economic programmes typically contract. At the end of the day, the poor suffer because the poor are more reliant on public services. In the face of an already high disparity of wealth and income within the world economy, and within most societies, the new trends are likely to worsen the relative position of the poor within the society. There are clear and predictable socio-political consequences for this trend.   For Africa, in particular, these new global developments have far-reaching consequences. It is critical that Africa’s growth and development remain on sustainable path. Yet the rising level of insurgency and military actions on the continent is bound to divert the resources from socio-economic ends towards military hardware. In this manner, the continent’s resources and surpluses are channeled to the armament manufacturing countries in the east and in the west. In the process, the inaction by the African Union structures is highly problematic. The ineptitude of the AU with regard to safety and security remains the most obvious fault-line of the organization.   A similar fault-line is evident at the UN structures. The existing global safety and security infrastructure is woefully inadequate and inappropriate for today’s world circumstances. Much has changed since 1945, and yet the UN system has remained largely intact. More importantly, the nature of international threats has evolved considerably. The emergence of global terrorist groups spanning different territories and regions of the world has made the old style inter-state hostilities less of a threat. The regional and global multilateral organisations, therefore, need to respond to the changing circumstances. For such responses to be effective, national leaders ought to reconsider some of the age-old notions of “self-interest” and “national interest”.  In such re-definitions, new realities of limits to national actions towards safety and security need to be recognized. At the same time the very notions of ‘safety and security” need serious re-definition.   Optimum and cost-effective measures of safety and security in today’s world call for a considerable re-think of the trade-offs between national and regional/international structures. As the nature of global risks changes, effective responses require creative and new measures of regional and global coordination. Unless the new risks are effectively mitigated, the world economy will remain vulnerable to underperformance. This is not good news for...

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Social Capital: The Critical Factor for Developmental Success

Posted on Jun 9, 2014 in Development, Economy, Featured, Infrastructure

Social Capital: The Critical Factor for Developmental Success

Developmental success of nations, broadly speaking, depends on two forms of capital. One is the natural and inherited capital, the other ‘made-capital” accumulated over time.   As important as the natural resources are the human-made resources and capabilities too collectively constitute a critical and dynamic ingredient of the nations’ success. In econometric literature this is often referred to as the “made-capital” of a nation, in contrast with the natural endowment of the country. For each generation, then, the national resource (or capital) endowment is made of the natural endowment plus the inherited “made-capital”.   In this regard each generation’s heritage subsumes vital components such as culture, knowledge, socio-economic and political institutions, logistical infrastructure, and the effective governing legal paradigm. It may be argued that without this mad-capital, the development process is doomed to dawdle or even fail.  Social capital is a critical component of made-capital.   Much like the other forms of capital, social capital is subject to a dynamic evolutionary process, and over time it may be augmented or destroyed, depending on the choices that a given nation makes. More specifically, each generation’s political economy and ethical choices either builds upon the historic stock of social capital or dilutes it to the detriment of the developmental process.   The reality of the social structure and its evolution over time is that both benefits and costs of political economy decisions are, more often than not, externalised. This means, neither the full benefits nor the entire costs of a given generation’s decisions are born by it or by its members. Thus, the substance of sustainable development and intergenerational equity is complex, and its operational requirements are made of both tangibles and intangibles. Importantly, the implications are not merely theoretical and academic: the future trajectory of the society’s developmental path is largely defined by an appropriate mix of the two forms of capital. Therefore, sustained commitment to the augmentation of social capital is indispensable.   Prosperity of nations thus requires a blend of pecuniary and non-pecuniary            variables. Important as the pecuniary variables are, so too are the                                 non-pecuniary investments for the sustainable of development and prosperity. At one end non-pecuniary variables pertain to foundational institutions of               the socio-political and economic institutions, and at the other end, they relate   to the significance of promoting social and personal value systemsthat help lay      the ground for defining the nation, its  social culture, its  internalised moral and ethical codes,  and its national welfare objectives.   Through the interplay of these two sub-systems of the non-pecuniary network of variables, social capital, may be created or destroyed. Contemporary research has underscored the importance of social capital as a critical ingredient of a sustainable political economy framework. The promotion of trust among diverse stakeholders is a key ingredient in the process of social capital formation. This is particularly so in heterogeneous societies where religious, tribal, cultural and racial differences abound. The accumulation of social trust augments intergenerational social capital via an array of interrelated processes that, inter alia, include trans-generational conversations within the family structures, the workplace, the community initiatives and not-for-profit enterprises. The promotion of reciprocity for the common good is a vital element of intra-generational and intergenerational social capital accumulation.   A significant contributor with long term impact on sustainability of social development and human prosperity is the embedded value system that prevails within society’s operations. Such values and codes of conduct need not be legislated or somewhat formalised; rather they need to be internalized within the society’s political economy organs.  With the help of such values, social trust is engendered and over time social capital...

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South Africa’s Evolving Democracy: Beyond Elections May 2014

Posted on Jun 9, 2014 in Economy, Ethics, Featured, Infrastructure, Politics

South Africa’s Evolving Democracy: Beyond Elections May 2014

SA national elections on May 7th 2014 marked the 20th anniversary of the country’s constitutional democracy. Whilst the ANC maintained its control over the national government with a 62% majority, it had much to worry when examining the details of voting patterns across the 9 provinces and the major metropolitan centres. Nationally, the ANC lost just over 3% of the votes compared with the previous elections five years ago. The party also maintained control of 8 of the 9 provinces, albeit with a declining majority in every single one of them. More revealing was the fact that the ANC’s majority in the Gauteng Province was reduced to 53% of the votes. This was the shocking revelation for the ANC.   The significance of Gauteng is three folds. Firstly, it is SA’s most populated province, it contributes over 1/3 of the country’s GDP and as the country’s only metropolis region, it has by all measures the most informed and diverse population. ANC’s loss of considerable support in Gauteng almost overshadows the party’s continued success nationally. Overall, ANC is shown to have lost much support amongst the middle class in the country.   A number of factors have led to this outcome. Most detrimental has been ANC’s own organizational in-fighting and precipitous moral decay. Continuous allegations and revelations of corruptions and misuse of public resources have tarnished the image of the party, and its top leadership. The party leaders at local, provincial and national levels appear oblivious to the damage that their misconduct and abuse of public resources are bound to raise the ire of the citizens. Given the rapid rate of urbanization, and accessibility to real time information amongst the citizens, gone are the days that the political leaders and their administrative stooges, could obfuscate their abuses of power or extraction of public resources. Yet, the ANC leaders over the past five years appeared determined to swim against the tide!   Both on the right and on the left of the political spectrum, the ANC found itself under pressure. The emergence of Economic Freedom Fighters (EFF), led by the ANC’s previous youth league leader, Julius Malema, was a game-changing phenomenon during the 2014 elections. The EFF is the political voice of nearly 4 million youths in the country. The bitter reality is that ANC’s education policy failures since 1994 have left the youths unemployed, unemployable, marginalized and radicalized. This lethal cocktail compounds the structural and widespread poverty left behind by Aparthied twenty years ago. Although EFF managed to garner only 6% of the votes in the 2014 elections, this understates the party’s inherent appeal and widespread political support. If properly resourced and appropriately structured, the EFF could well increase its actual voter support by a factor of 3 to 4 in the next election cycle. For as long as unemployment rate of over 25% persists, the EFF has a fertile ground for consolidating its power base.   From the viewpoint of economic policy, the ANC has made considerable errors of judgment over the past few years. Nearly five years have been squandered in dabbling in contradictory and counter-productive policy positions within the government. Under the rubric of “developmental state’, the government policy has become a great deal more interventionist, at times contradictory, and by extension operationally ineffective. Ministerial involvements in corporate operations, supply chain management, and organizational issues have risen sharply. State-owned enterprises have lost much of their technocratic capabilities and have been reduced to proxy political agencies for supporting crony capitalism and political agendas. Enterprises such as Eskom, the Industrial Development Corporation (IDC), and The Development Bank of Southern...

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Dr. Iraj Abedian Appears on the “First Name Basis” Talk Show

Posted on Jun 9, 2014 in Economy, Infrastructure

Dr. Iraj Abedian Appears on the “First Name Basis” Talk Show

To view the full episode and interview with Dr. Abedian on the economics based internet talk show “First Name Basis”, please click the link below. http://www.youtube.com/watch?v=n3yVoT0VBiE&list=PLAGrZXEKYsaa-IBsJgF374fqmJ919jrlK&feature=share&index=2

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