Thoughts on a South African recovery

When the end of lockdown approaches (whenever that may be) South Africa will be looking at a tornado ready to hit. We will be heading into the eye of the storm. But it is important to remember that this thing will pass. Yes, it will.

The question then is, what’s next? How will life change for us here in SA after the storm? A few thoughts to give a South African perspective – all based on this American blog’s vision for the USA:

A Slice of South Africa Will Ignore It Completely

While the Big Red Car focuses on the young and invulnerable moving on quickly in America due to their ‘joie-de-vivre‘, in South Africa (and Africa more broadly) once COVID 19 moves on, there are very pressing issues to distract the population from whatever disaster just finished up. For example the longer term health issues of HIV and Tuberculosis will pick up where Corona left off. The economy, massive unemployment issues and general poverty will push vast swathes of the population to move on quickly in search of their next meal.

South Africa is young in terms of demographics and as a Republic. It’s probably true that many South Africans will remember this as a bad flu affecting only older folks. But when South Africa is finally clear of COVID 19, instead of a great celebration and party, there will be a quick moving on simply in order to deal with what’s next, because in Africa there is always something next. It will likely be a case of desperate, hungry African youth – rather than dumb, ignorant American youth – ignoring the impact of COVID 19 in search of a Rand.

Business will come back with a vengeance

I think Big Red Car’s prediction will apply partly to SA too – in SA there will be hand sanitisers popping up all over the place, marginal businesses will not survive, and the economy will crawl, walk, run to its recovery. But I don’t know if SA will do any business ‘with a vengeance’. That will rely on leadership and politics getting out of the way.

In South Africa the proportion of businesses that are marginal, non-resilient, and informal is huge. Combine this with the lower level of COVID 19 government assistance received compared to USA and this disease will knock many of the smaller, less stable businesses out. The bigger, more resilient businesses will crawl and walk far longer than the USA equivalents will. Whether or not the economy ever gets running again will rely on leadership taking some bold decisions. Decisions needed include those relating to healthcare, its trading partners (ahem…choose Kenya), local Black empowerment legislation and the power of the unions.

So less running, and more crawling in SA businesses than in USA.

Employees

Again USA’s situation only partly applies – I think that Big Red Car can apply his prediction to SA in that SA businesses will also be surprised to learn during COVID 19 just how little some of its employees contribute. However, the huge political clout of the unions and the constant need for the ANC to consolidate its voter base will push many unproductive people back into the workplace quicker than should be.

Hopefully some employees have figured out during the lockdown and the COVID days that they can work for themselves. Perhaps the internet has woken some South Africans up to their own strengths and some ventures will start. Some new business to employ others would be a nice outcome.

Work From Home

Surely this will grow in SA too? Why wouldn’t it? We have fibre internet, we have plenty of time now during the lockdown to get used to the concept. I think this will become more and more normalised in SA. Similarly, meetings will be put off for Skype/Zoom/Hangout calls and this will be a great thing.

Obviously this depends on what industry you are in. Mining is hard to do from home. Mining is also a major factor in SA’s potential economic recovery. Further, the average South African worker probably doesn’t have fibre internet. So the weighting of people working from home will be far less in SA than in USA due to the type of work on offer/industry weightings, and due to wealth/access to the required tech too. For those of us in the professional services industry though, this WFH trend will be a real shift in the right direction i think. Less meetings please, more autonomy. I need more art for the home office.

Social urges will counter this trend throughout the world though – perhaps those who are not married or who are reliant on work for their socialising will choose to stay at the office. This is a complex trend, but the concept of WFH will be far more normalised than it was.

Education

This will be fascinating. I love Big Red Car’s thoughts on this, and I think that education ‘could’ change dramatically here in SA. However, there is still a huge emphasis here on ‘the badge’ that you receive from the very old institutions (universities, high schools) and this prestige is further tied up with post-apartheid freedoms – denied access to education is one of the worst offences committed by the apartheid governments on the black populations here in SA. Therefore, any efforts to reform or dramatically change the hard won access to education institutions will be resisted locally even if this change is an improvement. I’d love to be proved wrong and, anecdotally, the schools have been the most desperate of messengers, money requesters and appear uncertain in this lockdown environment. The old model simply doesn’t fit the new reality. How much this continues post-COVID will be interesting indeed. I predict a return to the old ways pretty quickly though. If any – biggest changes to occur at University level through remote learning.

Medicine

The trends mentioned by Big Red Car and a “sprint toward telemedicine” will again be tied up with politics in South Africa. On of the ANC’s key projects is universal health care in South Africa. Whether or not the political leadership is there to use cell phone technology to its advantage remains to be seen.

South Africa has a fine Medical history and tradition. Hopefully this continues through high-tech interventions amid the push to give access to millions of South Africans. I am doubtful it will. But I would also have been doubtful of heart transplants originating here in SA, so there is always a chance.

Supply Chain

We work in procurement and supply chains here in SA. I am doubtful of a rapid move away from Chinese suppliers compared to the stance Big Red Car takes in USA. I know that South Africa is relying heavily on China for masks, and more and more Africans are tied up in the Chinese supply chain than ever.

Part of the problem is a lack of affordable options. If Europe and America can grow its own capabilities and offerings to Africa that would only be a good thing.

China

South Africa and Africa general’s stance on China will be fascinating to watch. In case you missed it, The Big Red Car is virulently anti-China:

Not Made In China will become a thing.

Look, China is not our friend. They are liars. They are our rivals, so let’s “Game On” them and compete.

https://themusingsofthebigredcar.com/the-post-covid19-world-will-be-different/#more-8993

South Africa cannot really compete with China in most industries and is too heavily reliant on China to treat them as a rival.

However, more looking West and North for assistance to counter Chinese influence throughout Africa would be a good thing to come out of this pandemic.

South Africa First Nationalism

Of all the countries in Africa, South Africa is most able to look after itself and embrace Nationalism. The legacy of apartheid is a powerful foundation for nationalism. SA has food, energy, military capability, industry, manufacturing ready to be woken up – However, this would be a reversion to Apartheid policies and thus will never happen at the scale Big Red Car is suggesting will happen in USA. It will be interesting to see if there is any backlash to Chinese goods and influence in particular.

Politics

The ANC will likely tout their swift implementation of lockdown measures as a life saver. The severe impacts on the economy may be pointed out by the opposition.

While I’m pondering this – What if this virus becomes a platform for a new political movement in SA? A new party heavily focused on health care? I think there is room for that in SA with the massive problems faced across the nation, the country’s medical legacy, the expectations of universal care, versus the reality of pandemics and lack of access.

Must put that idea down for reference. Oh…I just did. 🙂

Economic Recovery

At the onset of this pandemic, SA was deemed junk status by all the ratings agencies.

Any real recovery will be slow and require massive changes to existing systemic issues.

The National Debt

This will balloooon! Social programs will escalate in response to the impacts of the pandemic and this will likely be funded by issuance of debt.

Hopefully Eskom and SAA are taken off the government paycheck in the next few years. This pandemic might force the government to rationalise its spending on state-owned entities. Pigs could fly.

Financial Reworking

I like the Big Red Car’s ideas on this. I have not much to add and think this will be adopted here in SA too:

Tenants, landlords, mortgage lenders, pension funds, REITs are going to get a damn good lesson in reworking real estate obligations.

If you have a five year lease with two years run and you are in default (couldn’t make your rent payment), then you and the landlord will sit down, extend the lease, maybe decrease the rent, and end up with fairly equivalent cash flows using a Net Present Value Approach.

Same idea, but substitute landlords and mortgage lenders. Terms get extended, payments missed get folded back into the principal, and NPV is the rule of the land.

This happens all the time in Bankruptcy Court. It is a known skill.

Sophisticated lenders will figure this out in a NY Minute — why? They don’t want to take back this real estate. They have huge numbers of problem mortgages.

It may take a push from the FED or President Trump, but this is what is going to happen in Rework City.

Cities

South Africa’s cities are not so much planned and thought out as they are in USA. There are few subways save the Gautrain in Joburg, However – the taxi system might be impacted – hand sanitiser all year round?

Eventually, people need jobs and they need to get to the jobs using the old methods. This need will override any novel city planning ideas for the vast majority of SA cities and towns.

Attic Stock and the Strategic National Reserve

I dont know if South Africa has any such reserves – perhaps the more prominent reporting of this will be a good place to start in response to the pandemic here in SA.

Sports

Public workout facilities will be slow to recover because of their diverse customer base.

High school and intercollegiate sports will be negatively impacted. If more schooling is done remotely, sports will have a funny feel.

https://themusingsofthebigredcar.com/the-post-covid19-world-will-be-different/#more-8993

Bottom Line It, Chimpwithcans

OK, here is the bottom line as viewed from a home office in Cape Town:

South Africa is not ready for this virus.

Once this eventually passes, I hope it will put things in perspective. I hope it will push politics away from its ridiculous nature. Push Africa away from its reliance on China. Away from unsustainable social programs and rising debt. But I doubt it really will.

Instead, I see this as potentially accelerating the long term shift of South Africa moving from a pretty well developed African state, to a developing country economy along with the likes of Kenya.

The everyday common man in the townships and streets of SA will have to quickly move on as a matter of necessity. The myriad of other challenges facing Africa and South Africa mean that there will be little time, money, or planning compared to USA in responding to this pandemic.

South African national anthem

I have a confession. After over 9 years living in SA, and after many more years owning a South African passport, I still do not know the words to this anthem by heart. In my defence it has 5 languages and multiple tunes all stitched together. Here it is, along with the different languages:

Nkosi Sikelel’ iAfrika
(God Bless Africa)
Maluphakanyisw’ uphondo lwayo,
(Raise high Her glory)
Yizwa imithandazo yethu,
(Hear our Prayers)
Nkosi sikelela, thina lusapho lwayo
(God bless us, we her children)
isiXhosa and isiZulu
Morena boloka setjhaba sa heso,
(God protect our nation)
O fedise dintwa le matshwenyeho,
(End all wars and tribulations)
O se boloke, O se boloke setjhaba sa heso,
(Protect us, protect our nation)
Setjhaba sa South Afrika – South Afrika.
(Our nation South Africa – South Africa)
Sesotho
Uit die blou van onse hemel,
(Ringing out from our blue heavens)
Uit die diepte van ons see,
(From the depth of our seas)
Oor ons ewige gebergtes,
(Over our everlasting mountains)
Waar die kranse antwoord gee,
(Where the echoing crags resound)
Afrikaans
Sounds the call to come together,
And united we shall stand,
Let us live and strive for freedom,
In South Africa our land.
English
SA National Anthem

This inevitably reminds me of watching rugby. Once pay-TV reached Kenya, my family growing up would watch any rugby they could get their hands on. My mum is an ardent Springboks supporter and I followed suit, mumbling the words at the start of each match until the English bit, which I could sing with gusto.

More recently my children are learning the anthem in school here in SA. They have taught me how to sing the opening verse (even if i didn’t know what it meant until today!)

South Africa has been through an unprecedented lockdown to contain the Corona virus. This has been successful in stemming the spread of the virus. It has bought the government time to make some plans, and it has shown us a new way to live. However, the great economic cost means that we have to end the lockdown sooner or later. When the lockdown ends, it is likely that the virus will sweep through the country. A rather terrifying thought given the meagre medical and hospital systems we have here. There are just too many people.

For now, we do what we can each and every day to stay sane and stay safe.

Spare a thought for South Africa when lockdown ends.

Happy Tuesday, chimps.

Covid 19 Video Calls

A four way video call with some old friends last night means I have some homework to do. I was recommended two books to read.

In my quest to connect South African and Kenyan businesses they seem quite relevant, so I bought them on amazon while i was still chatting on the call:

The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (Grove Art)

and

It’s Our Turn to Eat
Follow the links for Kindle editions of the books

One thing this Covid 19 virus has shown us is how useful virtual meetings can be. The various services available (Skype, Hangouts, Zoom etc.) have experienced a massive surge in demand and use over lockdown periods around the world. Zoom in particular has become very popular and very varied in its use cases. Security issues are popping up due to the scale and choices they made with their software. Still, it’s changing the options for work and socialising – all due to a lockdown.

Last night we swayed between a Whatsapp chat group and a Google Hangouts chat. Hangouts was clearer and easier through the laptop compared to Whatsapp.

Our call was full of stories about Kenya days growing up, nostalgia, catching up on news. I really enjoyed it and can’t wait to read the books I was recommended. The call was cut short by my friend who needed to join another Zoom call straight afterwards. A sign of the times.

Those times are changing fast. Stay safe and keep in touch out there! Chats like this are golden and good for the soul.

Happy Thursday Chimps.

Kenya vs SA – Resilience

The FM Global Resilience Index is an effort to show resilience at a national level (although it sometimes splits a country up into regions such as USA – coasts are vulnerable to flooding compared to mainland USA).

The results from 2019 are interesting – Kenya ranks 99th (just dropping into the 4th quartile) vs South Africa’s 47th (hitting the middle of the world rankings after some poor performance leading up to the rankings themselves).

From my experience this difference makes sense. Infrastructure is one of the most obvious difference in the two countries for me (SA scores 59 vs Kenya’s 39) – a factor with direct impacts on resilience. For 30 years or so, Kenyan governments almost refused to invest in infrastructure. For a variety of reasons, roads went to pot(holes) and electricity became a punchline. This can’t be good for a country’s resilience and as a boy arriving in SA I would be astounded at the smooth highways, the lack of power cuts. It bears mentioning that SA is heading down the same path. Watch this space.

In 2019, South Africa fell eight places in the overall Index (from 39th to 47th), in part due to its 20-place drop in the corporate governance ranking (from 14th to 34th). Those state capture cases are biting the country hard. Kenya is hardly able to gloat on this though – fraud and corruption has blighted the East African country for decades.

So the obvious test of these rankings is now upon us. Which country can respond better to the COVID 19 pandemic? There’s a positive spin on things – let’s see this damned virus as a “test of resilience”. I hope both these beloved countries can make it through relatively unscathed. I fear for the worst though.

To all in SA and Kenya – Keep healthy and well – then let’s rise up the ranks.

Smell the bilateral roses.

The post-war push for integration and globalisation led to the creation of many (MANY!) supranational organisations. Chief among them the UN (1945), World Bank (1944), the IMF (1945), and the WTO (which in 1995 replaced the General Agreement on Tariffs and Trade from 1948).

These organisations have set out to integrate the global economy like never before. We are all, in a sense, still recovering from horror scenes in places like Nagasaki, Hiroshima, Normandy and Stalingrad. From the awful promise mutually assured destruction.

Mostly and until recently, these supranational organisations have been successful. Conflict is down, wealth and health are up. Trade has trumped conflict and the globe has become a lot smaller. For example, the WTO touts statistics that in the post-war era as a whole, trade grew at one-and-a-half times the rate of expansion in global GDP; in the two decades running up to the financial crisis of 2008, it expanded at fully double the rate of world growth.

However, cracks have started to appear. What seems to be an inability of organisations such as the WTO to keep up with the times has led to parties like America becoming disenfranchised with new powers (China) being treated as a ‘developing’ country, and Britain feeling stuck in its ties to the sluggish economies of the EU.

Today’s more skeptical attitude can also be felt in developing cities like Nairobi. Kenya is a centre for the UN in Africa, and anecdotally I have witnessed the ridicule of vehicles baring UN number plates. The story goes that these UN minions are out of touch, keeping to themselves in barricaded communities, spending enormous amounts on foreign goods and high salaries for foreign workers who don’t actually do very much to help Africa or the world.

At a macro economic level, the new attitude towards these supra-nationals means that when trade is liberalised, it is through bespoke arrangements between willing partners—not by across-the-board multilateral negotiations. In this new world, it could soon become hard to remember what the point of the WTO is. As stated in this excellent article:

“Even with the best will in the world, a technocratic body like the WTO is always going to struggle to deal with brute political power play. And right now, it is operating in anything but a good-will environment. The many useful things that this inherently feeble body can usefully achieve are slipping beyond its reach—because it is as strong or as frail as its most powerful members, above all America, want it to be.”

https://www.prospectmagazine.co.uk/magazine/worryingly-troubled-organisation-why-the-wto-is-in-serious-peril

With this global backdrop, Kenya and South Africa are commonly involved in their own fair share of supra-national organisations:

South Africa and Kenya are both members of the World Trade Organisation (WTO); African Union (AU) which is in the process of negotiating a continental free trade area (CFTA) as well as members of the tripartite free trade agreement (TFTA) comprising of members of the Common Market for East and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC), … but there has been no bilateral trade agreement between the two countries….

https://www.tralac.org/resources/our-resources/12248-south-africa-s-trade-with-kenya.html

Trump would probably argue that these supranational organisations are getting in the way of a fruitful bilateral agreement.

I would probably agree.

Tusker vs. Castle. Remembering a beer war.

In 1998 I was a 16 year old just starting to drink alcohol in Nairobi. I remember clearly the arrival of South African beers (Castle lager) in the bars as an alternative to Tusker, the king of Kenyan beer. Castle came in cans, and until then it had all been glass Tusker bottles. Tusker soon started to can their beer to keep up, which I always nostalgically thought was a pity.

What I didn’t understand was the turbulent backdrop to these shiny cans and bottles sitting on the shelves in all the pubs. A corporate war was started when SA Breweries landed in Nairobi and invested in a plant in Thika. SAB entered East Africa’s largest economy through a business partnership with local brewer East Africa Breweries Ltd, maker of Tusker.

Lucrative markets and very similar products meant that it was a race to the bottom for both parties to keep or gain market share. After much drama (accusations of sabotage, protectionism, underhanded tactics by both parties), a price war benefiting consumers and a huge influx of different brands of beer into the market, the deal soon fell apart, forcing SABMiller to shut down its Thika plant and exit Kenya in 2002.

So what? Why does this matter? To me this is an important example of the SA vs Kenya dynamic. Synergies and opportunities are spotted, but what could have been an opportunity for strengthened bonds and cultures turned into a one-on-one brawl. Perhaps this is due to the nature of the product itself. Highly commoditized, all that was left was grabbing market share by any means. Prices dropped, tactics by all accounts got dirtier.

If South Africa and Kenya are to trade successfully, then perhaps the product traded needs to contain a little more differentiation, a little more art. It must demonstrate clearly its addition and novelty to the local market. Ideally there is no local equivalent to protect, because neither country wants to let the other one in if they feel the market already exists. Both are proud of their status as African giants. As an example, South Africa won’t allow Tusker to be sold in SA. A trademark technicality has kept it out for decades.

Recently SABMiller is back in the Kenya market but is only importing beers into the market. A more cautious approach is probably wise considering the first foray.

If I was going to trade goods into Kenya, I would try to find something that is just not available yet, and introduce it carefully with local partners. This was done with cell phones, pay tv and many other goods which didn’t trigger a price war. I’m sure there will be more to come.

Anyways. Happy Sunday chimps!

SA v Kenya: Ease of doing business and GDP

Kenya has a positive story to tell potential investors: In the past 5 years Kenya has risen 80 places in the World Bank’s Ease of Doing Business Index, from 136th to 56th. 80 places??!!! That is a large chunk of the table right there. I would liken it to Usain Bolt taking the baton in the final leg of the school relay, blitzing the field from last place.

This is a clear demonstration of the Kenyan government’s commitment to attract and retain local and foreign investments in the country. It is also just a statistic which is a simplification of a far more complex reality.

Regular visits to the country in this period have shown me what this change means in real life – populations have boomed, infrastructure projects are going up all over the place, demographics are changing (Chinese takeaway anyone?) and general busy-ness (as opposed to business) and traffic in hubs such as Nairobi and Mombasa have become anything from manic to unbearable.

Contrast this to South Africa’s fortunes on the index – slipping from 43rd to 84th in the last five years. These years have been blighted by massive corruption scandals, theft, crime, strong and irrational unions, and macro economic factors conspiring against the growth in SA. Labelling as junk status was inevitable. Check the below charts for GDP per capita growth over the years in the 2 countries:

SA GDP / Capita

And here is Kenya’s:

https://www.statista.com/statistics/451113/gross-domestic-product-gdp-per-capita-in-kenya/

You can see from the charts that South Africa is still a far richer place. In practice this means that life here is closer to a western standard of living. It is far less chaotic and ‘Jua Kali’ as it is in Kenya. Roads are smooth, phones and power lines are (largely) unbroken. Shops have everything you could desire. You could argue strongly that life is easier here.

Probably the biggest factor working against ease of doing business here in SA is government policy and the legacy of apartheid. It still looms so heavily over every government decision. Contrast this to Kenya where independence and colonial legacy is becoming less and less of an issue. Power lies with the local elites. Tribal politics trumps racial issues.