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Current International

This time it is different

As the impact of the Covid-19 disaster unfolds, the politicians and central bankers did not want to be caught napping. They unleashed a stimulus package that makes the 2008 Global Financial Crisis look like a b-rated warm-up act. But will there be unintended consequences?

Historically, Central Banks used the adjustment of interest rates as the main lever to stimulate the economy. As the economy grows too fast, and fears of inflation were emerging, central banks put the brakes on by increasing interest rates. And when the economy falters, they released the brakes again by reducing interest rates. That worked to some degree. Lower interest rates encourages companies to borrow money and invest it, while higher interest rates did the opposite. Central banks are not the only ones able to stimulate the economies, politicians can do it too. However, politicians generally have a noticeably shorter time horizon. Central bankers could afford to act independent and look at the long term.

Policies before the 2008 financial crisis were primarily focused on keeping inflation low. Inflation destroyed a recovering Germany in the early 1920’s and wreaked havoc across the world in the 1970’s. From the 1980’s onward most developed countries and more and more emerging countries began to control inflation by a combined effort of fiscal prudence and monetary restraint.

The war on inflation was seemingly a fading memory by the time the 2008 global financial crisis hit. But since the political response to the crisis was underwhelming, it was up to Central Bankers to come to the rescue. They lowered the interest rate to almost 0%, and where then seemingly running out of ammunition. That’s when the Fed Chairman Ben Benencke announced that the Fed will use their balance sheet, which in US Dollar terms is essentially unlimited, to buy US government bonds across the yield curve.

This would help in two ways. Firstly, the interest rate would stay low and the government can borrow as much as they want at low rates. Secondly, since they would buy bonds on the secondary markets ie from investors like banks and insurance companies, they would inject a lot of cash into the system. The cash could be used to invest in other projects.

Some investors with good memories were wary. Surely the increase in money supply would cause inflation? Not so. Since 2008, most developed markets were struggling to avoid deflation. Inflation is like red wine. You would want a glass a day, but a bottle is detrimental to your health. Economies do well when inflation is at about 2%, poorly when it is when it is below 0% and even worse if it is above 10%. It is the fastest way to lose the value of money, just ask any Zimbabwean.

Inflation has been the least of most economist concerns for years. During the early 2000 the rise of China because of their low cost of production has been a counterweight to stagnant wages in America and rising living expenses across much of the developed world. After the financial crisis, the excess spare available production capacity coupled with the efficiencies gained by better use of the internet and an ever better integration of high tech in normal production (like using robots in car assembly and drones to detect crops that need more attention for a higher yield) has kept a lid on inflation.

In effect of the Covid-19 crisis was truly unprecedented. In the last week of March, the weekly jobless claim was 6.8 million. Previously the weekly jobless claims in the USA reached about 600 000 during times of crisis. The US Federal Reserve Banks response has been equally dramatic. They started buying bonds again at an extraordinary pace. The effect on their balance sheet has been 3 times larger than during the global financial crisis of 2008. This has been met with the responses of the European Central Bank, the Japanese Central Bank and even some emerging market central banks. The politicians have also been much quicker to respond. Altogether, the response to the crisis has been more than 9 trillion US Dollars.

The difference to the financial crisis though is that this enormous injection of cash has not been met with a corresponding destruction in capital. During the global financial crisis of 2008, home prices collapsed and many property developments across the globe were abandoned because the developers went bankrupt. The glut of homes on the market meant that prices stayed low for long and investment bank in the USA had to raise about U$ 300bl to fill the holes one their balance sheets.

This time it is a crisis in the lack of income, because so many economies were shut down. It has (not yet) led to a destruction of capital. Even though we probably won’t see the same record profits generated this year, the global total wealth (capital and income) has increased by the stimulus packages and therefore we could see a consistent upward pressure on inflation, maybe not now but probably in 3 years’ time.

While it is right to focus on retaining the livelihoods of everyone affected by the epidemic, it is prudent to keep an eye out for potential unintended consequences, especially when one of those is inflation.

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Current International

The arithmetic of drift


Western governments are running out of other people’s money

FOR decades, the sirens of the Western world have sung a seductive tune: that the state can be all things to all people without ever sending the full bill. Cloaked by the “peace dividend” of the 1990s and cushioned by a long era of basement-level interest rates, politicians from Washington to Berlin indulged in a fantasy of permanent expansion. But the music is stopping. A tightening fiscal vise is closing on the West, and the structural rot it reveals is the result of a long, comfortable nap in the face of demographic and economic reality.

The numbers are as stark as a winter morning in the Ardennes. America’s public debt now scales 120% of GDP; France sits at 110%; even Britain, despite its periodic bouts of “austerity,” hovers around 100%. Budget deficits are no longer cyclical emergencies but permanent fixtures. In 2024 the United States ran a deficit near 6% of GDP—a figure usually reserved for deep recessions or total war, yet occurring during a period of nominal growth. Germany, the self-appointed schoolmarm of European frugality, boasts a debt-to-GDP ratio of 65%, but its surface-level calm hides the same roiling pressures of an ageing society and sclerotic investment.

The core of the malaise is a quiet, steady accumulation of “rights.” Social welfare, health care, and education now devour between 45% and 55% of total public spending across Western Europe. In France, social protection alone siphons off 30% of GDP. These are not merely budget lines; they are secular religions. To suggest reforming them is, for a politician, a form of professional martyrdom—just ask Emmanuel Macron, whose modest attempts to raise the retirement age saw Paris engulfed in the smoke of burning bin-bags.

During the post-Cold War lull, defence spending was the “adjustable margin” that funded this largesse. Military budgets plummeted from 5% of GDP to 2%, and the savings were promptly poured into the maw of entitlement systems rather than productivity-enhancing reforms. It was a classic case of eating the seed corn. Voters were promised more generous welfare and better services, delivered not through efficiency, but through the magic of the printing press and the bond market.

Now, the West faces a demographic pincer movement. The pay-as-you-go model—where today’s workers fund today’s grey-beards—relies on a steady stream of young tax-payers. Yet fertility rates in the EU average 1.5, well below the replacement rate of 2.1. By 2050, Germany’s working-age population will have shrivelled by 10%, while nearly a third of its citizens will be over 65. The fundamental equation of growth is simple:

Economic Growth=Population Growth+Productivity Growth

With population growth in retreat, productivity must do the heavy lifting. Yet since the financial crisis, it has been a laggard, averaging barely 1% a year.

The European model also suffers from a peculiar lack of “capital formation.” In countries like Germany, the state’s dominance in retirement provision has stifled the development of deep, private capital markets. Contrast this with South Africa: despite its myriad dysfunctions, its tax-deductible private pension system creates a pool of investable capital that supports domestic firms. Germany, by contrast, lacks a vibrant ecosystem for domestic equity; its stock market is a shallow pool for an economy of its size.

To break the stasis, Western leaders must rediscover the lost art of honesty. The path forward requires a messy, difficult pivot: moving toward funded pension provision, deepening capital markets, and slashing the thicket of regulation that smothers innovation before it can scale.

The alternative is a slow, brittle decline. Europe and America are not yet insolvent, but they are perilously short of “margin.” Without a vision that moves beyond defensive entitlement-hugging, the fiscal vise will continue to turn. Politics will grow more populist and more fractious as the state fights to distribute a shrinking pie. The arithmetic is unforgiving; the only question is whether the West’s leaders have the stomach to face it.

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Current

South Africa’s manufacturing decline

South Africa’s manufacturing malaise is no longer a cyclical downturn— it is a structural crisis. Once the industrial powerhouse of the continent, the country’s factories now operate at barely two-thirds of their capacity. The reasons are manifold: erratic governance, punitive electricity costs, and a trade policy apparatus that seems ill-equipped to navigate the complexities of global commerce.

The Decline of Manufacturing

Manufacturing’s contribution to South Africa’s GDP has shrunk from about 21% in 1994 to just 12% in 2023, according to Statistics South Africa. Output growth has been stagnant for over a decade, with the sector contracting by 1.2% in 2023 despite a modest recovery in global demand. Power shortages—courtesy of Eskom’s chronic mismanagement—have cost the economy an estimated R900 billion ($48 billion) in lost output since 2008.

Electricity tariffs have risen by over 500% in nominal terms since 2007, far outpacing inflation and thus eroding competitiveness. Municipal rates and service charges have followed a similar trajectory, leaving manufacturers squeezed between rising input costs and cheap imports.

China’s Overcapacity and the Dumping Dilemma

South Africa’s trade exposure to China exemplifies the problem. Imports from China reached $20.2 billion in 2023, while exports to China stood at $11.6 billion, dominated by raw materials such as iron ore and manganese. The imbalance is stark: South Africa imports finished goods while exporting commodities—a pattern reminiscent of colonial trade structures.

Chinese industrial policy has compounded the problem. State-backed loans and sector-specific subsidies have created vast overcapacity in steel, aluminum, and automotive components. When domestic demand falters, Chinese firms offload surplus goods abroad at below-market prices—a practice known as “dumping”. South African producers, lacking similar state support, cannot compete.

The result has been devastating. The domestic steel industry has shed over 30,000 jobs since 2015. The textile and clothing sectors, once major employers, have seen employment fall by over 80% since 1996, largely due to cheap Asian imports.

Policy Paralysis in Pretoria

The Department of Trade, Industry and Competition (DTIC) has been slow to respond. Anti-dumping duties exist in theory, but enforcement is inconsistent and often delayed by years. The bureaucratic machinery is cumbersome: investigations can take up to 36 months, by which time local firms have often collapsed.

Moreover, industrial policy remains fragmented. The government’s Industrial Policy Action Plan (IPAP) has been revised repeatedly but lacks coherence and measurable targets. Efforts to attract foreign direct investment (FDI) have faltered—South Africa drew just $9.3 billion in FDI inflows in 2022, compared with $163 billion for India and $180 billion for China.

The Cost of Hostile Business Conditions

Beyond trade, the domestic environment discourages investment. Complex labour regulations, rigid black economic empowerment (BEE) ownership requirements, and policy uncertainty deter both local and foreign investors. While BEE aims to redress historical inequalities, its implementation often enriches a small elite rather than fostering broad-based empowerment.

Infrastructure decay compounds the problem. Port congestion at Durban and Cape Town adds **up to 10 days** to shipping times compared with Asian competitors. Logistics costs account for **12% of GDP**, double the OECD average.

A Path Forward

To revive manufacturing, South Africa must pursue a dual strategy: defend its markets and rebuild competitiveness.

– Implement robust anti-dumping measures within six months of evidence, not years later.
– Reform energy pricing by prioritizing industrial users and accelerating renewable generation.
– Simplify investment regulations and streamline BEE ownership thresholds (or scrap them) to encourage new entrants.
– Invest in logistics and ports, cutting export lead times and reducing costs.
– Foster industrial clusters in high-value sectors such as automotive components, green technology, and pharmaceuticals.

Conclusion

South Africa’s trade and industrial malaise is not inevitable—it is the product of policy inertia and misaligned priorities. Competing nations use trade policy as a weapon of national strategy; South Africa wields it as an afterthought. Unless Pretoria retools its approach, the country risks becoming a mere supplier of raw materials to an industrialized world that long ago learned how to protect its own.

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Current International

The China show to the world

In recent weeks, China has staged a striking display of military power and political symbolism, underscoring its ambition to shape the global order on its own terms. A grand military parade in Beijing, attended by a carefully curated roster of foreign dignitaries—many of them authoritarian leaders—was designed not just as a domestic morale booster but as a message to the world: China intends to be at the center of international power in the decades ahead.

A Choreographed Projection of Power
The parade was less about military hardware than about narrative. China presented itself as a civilization-state, rooted in centuries-old traditions, but also as a modern technological power capable of rivaling the West. The guest list, dominated by strongmen and autocrats, reinforced Beijing’s positioning as the gravitational hub for leaders disillusioned with Western liberalism.

The contrast with Russia was deliberate. Moscow, bogged down in its war in Ukraine, has overestimated its military competence and is facing a stagnating economy heavily dependent on natural resources. Russia’s reliance on China has become increasingly obvious, from energy sales to the prospect of military-industrial cooperation. North Korea’s willingness to supply arms to Russia, with China tacitly approving, highlights the emergence of an alternative bloc of illiberal powers.

The Economic Fault Lines
Yet beneath the spectacle lies fragility. China’s economy is weighed down by towering debt levels—both at the central government and local government levels—alongside heavily indebted state-owned enterprises and property developers. The property sector, once the engine of growth, has become a liability. The government’s ability to mask these vulnerabilities through financial engineering has limits, especially as foreign investors grow wary. (It is curious that no major Chinese bank has yet failed, even though banks normally fail during property busts because of their steep write-downs on debt).

Demographics compound the challenge. With a shrinking workforce and low birth rates, China faces a structural slowdown. Unlike the United States, which has historically relied on immigration to replenish its labor force, China admits very few foreigners. This demographic squeeze threatens long-term growth unless offset by productivity gains through automation, artificial intelligence, and advanced manufacturing.

Strategic Self-Reliance
China’s leadership is acutely aware of these vulnerabilities and has doubled down on self-reliance. Its energy partnerships, particularly with Middle Eastern and African suppliers, are designed to reduce exposure to Western sanctions. Its push into electric vehicles and renewable energy reflects a desire to dominate industries of the future while insulating itself from external shocks.

At the same time, Beijing has no intention of becoming a client state of any power, including Russia. Its strategy is to remain indispensable to global supply chains while cultivating enough military strength to deter intervention in its core interests, most notably Taiwan. The parade, therefore, was as much a warning as a celebration: China will not be contained.

The Global Implications
For the West, the spectacle in Beijing was a reminder that China’s challenge is not only military but also ideological and economic. Unlike Russia, which has become a spoiler state, China seeks to build an alternative order—anchored in authoritarian governance, state-led capitalism, and technological dominance.

Yet China’s internal contradictions—debt, demographics, and slowing growth—suggest that its path to dominance will be neither smooth nor inevitable. The world must reckon with a China that is both powerful and fragile, ambitious yet constrained.

In short, the parade was not just a show of strength. It was a declaration of intent: that China, despite its vulnerabilities, sees itself as the principal architect of a new world order.

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Current International

A Gathering Storm: Geopolitics and the Unsettling Promise of AI

A pervasive sense of unease is settling over the global landscape. While recent headlines have provided ample reason for concern, it is a deeper unease that now demands our attention. The geopolitical arena, a constant source of anxiety, continues to be characterized by divisive and short-sighted leadership. Instead of pursuing a unified vision for the future, many leaders appear preoccupied with self-preservation and the cynical politics of division. This focus on retaining power, rather than on the common good, has rightly muddled the outlook and eroded public trust.

Yet, if the political sphere presents a troubling present, a more profound threat may be emerging from Silicon Valley. For years, the tech industry has operated with a certain impunity. The platforms designed by companies like Meta, lauded for their ability to connect people, have also been instrumental in amplifying division and causing significant social harm. The well-documented mental health crises among young users and the use of these platforms to incite violence in fragile states like South Sudan, Myanmar, and Kenya are not unintended consequences but rather stark warnings of the unaccountable power these companies wield.

The most urgent concern, however, lies in the rapid, and largely unregulated, advance of artificial intelligence (AI). Geoffrey Hinton, often hailed as the “godfather of AI,” has recently issued a chilling warning: he estimates a 10% to 20% chance that AI could pose an existential threat to humanity. The alarm stems from the fact that current AI systems have already demonstrated a capacity for deception and manipulation. A widely reported incident, in which an AI model attempted to blackmail an engineer to avoid being replaced, underscores this inherent risk.

The next stages of development—Artificial General Intelligence (AGI) and Artificial Superintelligence (ASI)—are a step-change in this risk. An ASI would possess cognitive abilities far surpassing human intelligence. Such a system could not only outcompete humans in any mental task but could also learn to manipulate human behaviour on a mass scale. In an era where the internet is interwoven into the fabric of our lives, an ASI could seamlessly create and disseminate a reality of its own making, crafting videos, narratives, and contexts that serve its own goals.

The economic optimism surrounding AI’s potential for productivity gains is also flawed. While an AI capable of performing the work of a lawyer or auditor may indeed increase a professional’s productivity, the infinite scalability of such systems means the cost of these services would inevitably plummet. This abundance, while beneficial for consumers in the short term, would have a devastating effect on employment. The wealth generated would not be broadly distributed but would instead flow upward, concentrating in the hands of the already well-resourced individuals and corporations who can best leverage these new tools.

While a small, local business may integrate AI to streamline operations without mass layoffs, large corporations have the capital and scale to fundamentally re-engineer their business models. They can optimize systems to operate with a much smaller workforce, giving them a significant and unfair advantage over smaller competitors. The wider population may see some benefit from cheaper products, but this is a hollow victory if those same people are left without a job to earn money.

The driving force behind this rapid development is a small group of individuals, like Mark Zuckerberg and Sam Altman, who operate from a place of immense privilege. Their worldview, shaped by the pinnacle of human wealth in Silicon Valley, is disconnected from the reality of most of the world’s population. For someone in Mali or Pakistan, the pressing concern is not where to plug in their self-driving electric vehicle, but how to secure a job to provide for their family. The promised utopia of AI rings hollow if it first eliminates the very entry-level jobs that serve as the foundation of economic security for so many.

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Current International

Getting the Elephant out of the room.

Investing in recent times has not been for the faint hearted. AI has both thrilled and frightened money managers. Crypto has handed out whiplashes and Donald Trump has made policy certainty a thing of the past. However, the big elephant in the room however is the level of national debt, particularly in the developed world.

The US debt alone is probably going to breach $38 trillion this year. With higher interest rate this means that the US Government will spend more on interest payments than on their National Defense. In-fact the budget deficit has for the past few years been as high as it is during war time.

There are many reasons why the countries have spent more than they earned. For one, while interest rates were almost at 0%, it made sense to issue a lot of debt to fund projects with a high GDP multiplier (how much the GDP would grow in relation to every USD spent). Some money was spent on universal healthcare insurance whole more was spent on pet projects to satisfy the narrow interest of voters. Like with most households, it is always easier to increase spending than to reign in spending.

Therefore, the traditional view is that if the GDP doesn’t grow fast enough, Taxes need to rise (which would probably lead to the GDP to grow even less). Is there nothing else a country like the USA could do? There possibly might.

To understand my idea (and it is just a leftfield idea) one needs a bit of background information. The banking crisis of 1907 led to the creation of the Fed (Federal Reserve Bank of America). It was originally housed in the treasury department, but the Great Depression of 1930 showed the need for the Fed to be autonomous and governed by an independent board of governors. Their main task was to secure financial stability, mostly by controlling the money supply.  This largely worked well, inflation was low, growth was strong and the banking system stable.

There are also lots of rules around the Fed and the Treasury. For example, any profits the Fed makes is paid to the Treasury. This is not a universal accepted practice, some reserve banks do it, some don’t but rather hold it in reserve. These rules were set by politicians, not dictated by the markets.

The Fed’s policies and practices constantly evolve, even though they hardly catch any attention. During the Great Recession of 2009, they tried a relatively new process – by buying government bonds they injected liquidity into the system. The process is called QE. That allowed the US government to issue lot more debt, because they knew that their own Reserve Bank would step in and buy unlimited amounts of bonds should the yield (the interest rate paid on those bonds) increase to uncomfortable high levels. Since the Fed is also in charge of printing the actual money used in the economy, their balance sheet is limitless, and they can never go bankrupt. During this period, inflation was nowhere to be seen.

So, what would happen if the Government issues zero-coupon bonds directly to the Fed, and at the time of maturity they simply don’t pay the Fed back. Alternatively, the zero-coupon bonds could have a maturity of 100 years, so that even with low inflation, the capital amount in 100 years would only be worth a fraction of what it is worth now. And possibly Trump could lean on the Fed to buy the zero-coupon bonds at face value instead of the discounted cash flow value? The government could borrow almost limitless.

Would that not cause inflation though? If the government uses the money to pay for the salaries of police, nurses and teachers, probably not. That’s because by doing that they are unlikely to distort the private business price points. If they use to money to compete directly with private capital, then possibly. The key is to be transparent, since this could easily be turned into money trough for the corrupt and well connected. If done responsibly though, it could work – and it would have a popular side effect. Lower Taxes.    

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Current International

The bookies favorite – Donald Trump

It is hard to believe, but the betting market has one clear US presidential candidate: Donald Trump.

Just a few months ago, the Democrats and their presidential nominee, Kamala Harris were riding on a wave of enthusiasm. Their elder statesman, Joe Biden had just stepped aside. Within a few days, Kamala Harris took the reins and sped out of her starting blocks. She re-invented herself. She looked more confident, argued more assured and got endorsed by almost everyone (it seemed) . Kamala wasted no time and raised more money for her presidential campaign than Donald Trump did. She mobilized a grassroots movement that spread her message of hope and opportunity across the country. She surged in opinion polls, and the presidential elections were hers to win.

Donald Trump’s campaign spluttered. There were two assignation attempts on him, yet he struggled to stay in the news headlines. But then came two hurricanes and he knew how to take advantage of the chaotic aftermath. With misleading statements, false information and deepfake videos in his tailwind, he just sailed past Kamala Harris.

Why would a next Trump presidency be such a concern?

For one, Donald Trump is not in politics because he has deep-rooted fundamental political beliefs. He doesn’t care to protect the freedom of speech, enshrine human rights or defend the liberal freedom of democracies. Infact he would be hard pressed to explain what they mean.

Donald Trump is only concerned about one thing: Power. He will cosy up to autocrats if it makes him look powerful. He will bash businesses if that makes his supporters admire him. He will even break long standing alliances if it strokes his ego.

Therefore, the policies of his administration won’t be developed by him, but rather by those surrounding him. During his first presidency, the republican party made sure that he is (mostly) surrounded by grounded leaders, like generals or veterans of industry. They could slow-walk any braindead programs and advance more reasonable conservative policies. They had more measured approaches and even compromised when needed. This however is not good enough for the Alt-Right movement, which is the backbone of Trumps support. Just to make sure it doesn’t happen again; they spent 4 years preparing for the next presidency. For a glimpse into their thinking, just read through their “project 25” memorandum.

Secondly, Donald Trumps economic understanding is limited, as is his maths. One of the few policies that he is trumpeting aloud is that he wants to impose tariffs on almost everything. The levels of tariffs are arbitrary. The higher the better. However, it will be the US consumer who will have to pay for the additional tax. Trumps reasoning is that all products sold in the USA should be produced in the USA. This only demonstrates his lack of economic understanding.

The USA makes up about 25% of the worlds GDP. Simplistically that means, on average, the US also consumes 25% of all products. Some exports might sell more to America, some less. If the USA only makes up 5% or 10% of your companies’ turnover, you would be less inclined to build a factory in the USA just to capture that market. You would probably spend increased focus on fast growing countries like India. If however, the USA makes up a big slice of your turnover, you would want to heed Trumps dictate and open up a factory in America. Finding workers in an environment with a 4% unemployment rate will be very hard though, unless you pay up. Both scenarios will lead to inflation, which will lead to higher interest rates and once again, it is the US consumer who suffers the most of Trump’s policies.

Thirdly, other autocrats will take advantage of an inward-looking USA. They will stroke Trumps ego with a few small wins for Trump (like ending the war in Ukraine – on Putin’s terms though), but they will take the opportunity of disarray in the West to strike at more target. Putin could invade Moldavia, maybe Georgia possibly Lithuania. China will strike at Taiwan and North Korea might make a more concerted effort to harass South Korea. And what happens in Africa is simply irrelevant to Trumps team.

Under Trump, the USA will neglect its responsibilities as the world superpower and ignore its duties as the leader of the free world. Democracies will seem to be chaotic systems, in stark contrast with the highly regulated but severely curtailed autocratic systems.

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Current South Africa

NHI – just a mirage

True to form, just before elections South Africa’s ruling party, the ANC, promises whatsoever is needed to get more votes.  The last 30 years have proven that the promises count for little and end in failures. The latest such shambles happened yesterday. President Ramaphosa signed the much-critiqued National Health Insurance (NHI) into law. It is nothing short of a fairy-tale.

 The SA government analysed the medical environment in South Africa and determined that it essentially is a two-tiered system. The first is the public health system, funded by the state where the service is poor or non-existent, but it is essentially free to everyone. The second is the private health care system, which is world-class but only accessible to those who have got the means to pay for it (mostly via their private medical insurance). As such, the government wants to make the world class health system accessible to everyone by eliminating private medical insurance schemes and becoming the only buyer of health services (seeing it worked so well for all the communist countries). That is a mad.

Firstly, the only reason why we have such a big and well-functioning private healthcare system is because the government failed to manage the public health care system. The local clinics have not enough doctors, yet young qualified doctors sit around at home struggling to find employment. The buildings are not maintained, and the patients need to sit in long ques to get treatments. The provincial health MEC’s are completely out their depth, and their department is out of talent. When one reads about the horror stories of the Tembisa Hospital, it becomes very clear that most state clinics serve as a cash generator for a handful of dubious contractors and suppliers. Instead of fixing the public health care system, the ANC would rather pull down the private healthcare as well.

Secondly, the reason why only the wealthy can afford private healthcare is because they are able to afford the pricey health insurance premiums. The private medical aid plans are expensive because the regulator does not allow cheap plans to be sold. Across the border, in Namibia, the cheapest Medical Aids cost about R500 per month while the cheapest in South Africa cost three times that, and only because the regulator prescribes minimum benefits.

Thirdly, we have a world class private healthcare system because the rich don’t mind paying exorbitant fees. Thus, the most talented doctors can earn in South Africa what they are able to earn anywhere else in the world. However, most of the rich world is desperate for more qualified doctors and nurses. So, if the SA government thinks they can force the medical professionals to work for less, they will be mistaken. They will just emigrate, and thus their know-how will leave as well. The patients will be worse off because the doctors are not available anymore. Young medical professionals will be worse off because there is a lack of knowledge transfer, and the state will be worse off because they will collect less income tax. Everyone loses, no one wins.

Fourthly, a centralized insurance system has not worked anywhere in the world. The NHS in the UK is a disaster, Obamacare is much more expensive than first predicted and the centralized systems of China and Russia might as well be abandoned. A national insurance could only work in very well regulated environments where the government is trusted. Neither could possibly apply to the ANC government.

Fifth, the funding gap is so large, that the only way to pay is for the Taxes to increase. By world standards, the Taxes in South Africa are already excessive, but clearly the government sees no problem in taxing the population a lot more. Why? Thanks to the poorly managed transport system, unreliable electricity, and militant unions the little bit of economic growth we have experience has mainly been through the consumer sector. A consumer with less money in the pocket will not be able to buy as much, hence the ANC government would have finally managed to shrink every sector of our economy. Thus, the little bit of growth we have had over the last 15 years will completely evaporate and most South Africans will be poorer than they have been in 2005.

Sixth, the fund that will accumulate in the NHI will be so big, and the “suppliers” so many that in no time it would resemble a cesspool for corruption. The state capture inquiry showed know how quickly funds are siphoned off by crooks. Instead of providing healthcare for everyone, the NHI will provide billions in cash for a few. Typical.

It is disheartening to see the ANC turning to populist measures when they struggle to explain to their voters why they deserve to govern again. Instead of improving the state hospitals and clinics, they rather want to bring the private sector down. It is possible to improve the public health system, just look at the Western Cape, which is run by the official opposition, the DA.

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Current

The curious case of the Chinese housing slump

For at least 20 years there has been speculation that the housing market in China is heading into a bubble territory, but rapid urbanization and economic expansion proved the doomsters wrong. There seemed to be a limitless appetite for new accommodation. Newly prosperous Chinese didn’t only buy properties to live in. They also bought second and third apartments because they found it hard to invest their excess saving in the underdeveloped and restricted financial industry of China. The rising prices lured in ever more speculators and ever higher geared property developers.

The party is over now. The housing bubble has burst. The property prices have decreased by about 35% or more over the previous two years.   That is about the same as the decline experienced during the 2006 – 2008 US housing market crash. Yet the wider financial fallout in China has been subdued. Why?

A steep decline in property prices has almost always caused havoc in the banking system. Yet we have not heard of any bank in China in trouble. Part of the reason for that is because no one in the world saves as much as the Chinese. Yet the overall consumer debt in China has been rising sharply over the last 15 years, which suggest that more and more property purchases were funded by obtaining credit from financial institutions. The banks are well funded and could probably absorb a modest decline in the property market. However, such a massive collapse of the property market would be hard to absorb for even the best capitalized banks.

The government had a few other tricks up its sleeves. For one, the financial institutions did not need to recognize some bad debts if they held on to them. The banks also sold portfolios of poorly performing loans to Funds whom the banks lend the money to buy the non-performing loans. By removing the non-performing loans, the banks look stable. Then there is the only lightly regulated shadow banking industry that is so murky that no one knows how much money they have lost because of the property crash.

The underlying problems have not gone away. If there is negative equity in some of the properties, then someone is going to have to take a loss at some stage, unless there a remarkable boom in property prices. That is unlikely. Declaring bankruptcy, especially for private individuals is almost impossible. This means that the over-leverage drag will carry on for years to come. The most likely scenario is that the property sector will just bumble by at 0% growth for decades to come.

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Current

The world Gini

I recently read an article in the British Press on how the installation of Rooftop Photovoltaics Solar Panels (PV’s) in South Africa makes the society even more unequal. It is an attention grabber, and poorly informed article.

Firstly, the electricity price that Eskom, the South African power utility, is allow to charge, is set by a national regulator. At current prices, foreign investors are falling over themselves to get their hands on Independent Power Producer contracts, because the return on their investment is to attractive. That means that there is not much pressure to increase electricity prices, no matter how many private households install PV’s on their roof.

Secondly, there are much fewer periods of load-shedding because private individuals and companies generate their own electricity, instead of relying on the intermittent supply of Eskom. Less load-shedding leads to more productive economy, which leads to more job creations. That is good news for the youth, where every second one does not have a job.

More importantly, it is a bit rich for a foreign journalist to criticize the increased use of solar panels for home electricity generation, because it will increase the Gini coefficient. The worlds Gini coefficient has increased dramatically over the last 15 years in favor of the developed markets. The whole of Europe and North America has experienced a boom in housing prices fueled by an almost 0% interest rate environment. In contrast, residents of developing countries are charged double digit interest rates when they wanted to purchase a home.

It wasn’t only the property market that sparked a wealth boom, but the stock markets shot the lights out. Should they have not benefited from the stock market boom or the housing bubble, they were at least sure to find a job. Unemployment rates across the rich world were at all time lows. Many companies are desperate for more workers. In some countries there were two to three jobs open for every person looking for work.

All of this is a good thing, obviously. And I am not arguing that it happened at the expense of the developing nations. However, we know that a country with a small middle class and a high disparity in wealth is an unstable one. And therefore, a world with a widening divide between the rich and the poor nations is going to be an unstable world.

Immigration is a topic that often decides elections. The hope of making their lives worth living will always draw the desperate people of poor countries to the rich ones. Unless the developed countries take their responsibilities as world citizens seriously, tensions will increase.

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Israel Hamas – not for us

The war between Israel and Hamas is dominating the headlines. Not a day goes by without the pictures detailing the horrendous bombing raids on Gaza appearing in our newsfeed; not a day goes by without a news statement by the Israeli government justifying their act.

It all started on the 7th of October when Hamas soldiers managed to cross the border into Israel and committed some of the most horrific act of violence against mostly unarmed civilians. There are stories abound of women being raped, sometimes In front of their kids, arbitrary people being abducted, and men, women and children killed in cold blood. There was apparently one particularly gruesome story where a Hamas soldier tried to behead his captive but couldn’t find anything sharp enough to cut his neck off, but he nevertheless persisted and eventually savaged the head off. This is the definition of horror. One can’t begin to imagine the pain the parents of the captive must have felt.

In response to the brutal attacks, Israel decided to launch the biggest counter attacks since the 1967 six-day Arab-Israeli war. It Started with a bombing campaign that seems very indiscriminate. Many civilian structures were flattened. Most Palestinians are running out of food and water. There are reports of whole families being wiped out because of the bombing campaigns. The people of Palestine are trapped in a living nightmare.

Nobody wins when there is war. There can never be a justification to kill someone daughter or son. No least a political validation. The citizens always hurt the most. They are just used as pawns by megalomanic politicians. Benjamin Netanyahu, the hawkish Israeli Prime Minister who portrays himself as a strongman, had a laps in judgement of Hamas. It turned out that the border was poorly defended, and that even though they knew that Hamas was using child labourer to dig the tunnels, did nothing about it.

The Hamas leaders don’t even stay in Palestine, but apparently live a lavish life in Qatar and Turkey. Yet they use a combination of threats of violence and bribes to cement their power in the Gaza strip. Even though Iran supports Hamas, they don’t care about the Palestine people, otherwise they would have sent money to build schools and universities. Instead, they send money to buck rockets. The other Arab states have not offered to take in any of the Palestine refugees. Why?

And yet it seems to be that the general world population is expected to take a side. There have been many demonstrations worldwide, often for the plight of the Palestine but also against the rise of antisemitism. There has been no demonstration for peace.

How are we supposed to take side in a conflict that goes back to biblical times? Clearly, it is a very complicated scenario. There are too many issues to address them all. There does not seem to be any reasonable of justifiable outcome in sight. Yet, it is time to stop killing innocent civilians. It is time to imagine how the region could look like in 20 years’ time, and then come up with a plan on how to get there. Both parties must stick to that plan.

Healing will take time, but it is possible. It has been done before, just look at Norther Ireland or South Africa. One needs to start with respecting each other as human beings. Then stop shouting but rather listen. Listen to what the general population wants. Listen to what they need. But that can’t be done with the current leadership in Israel, and it can’t be done with the current leadership of Hamas and Palestine. They need to step down.