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Current International

How bad is the Covid19 epidemic?

The true severity of the crisis is only unfolding as I am writing this. Currently there are 1.7 million confirmed cases, 108 862 deaths and 404 236 patients have recovered. This equates to a death rate of about 6.4%. The figure though is misleading.

The problem with this strain of the corona virus is that it is transmitted incredibly quickly, and that many patients experience just mild symptoms, some none at all. And since the symptoms are very similar to the seasonal flue, many would have mistaken the signs for those of the flu, thereby did not bother to go to the doctors to get tested.

To get a better understanding of the severity of the epidemic, we would need 100% of a population (or the statistical representation thereof) to get tested for two things: 1) if they currently have the corona virus and 2) if they have had previously had been infected by the covid19 virus. While the first test would only paint the picture of a snapshot in time, the latter test (called an antibody or serological test) would reflect how much of the population has already been affected. Since most public health facilities are currently under severe strain, the antibody test has not yet been rolled out.

Most countries started testing for present Covid19 infections, but because of the relative cumbersome test, most have only tested 0.8% of their population. Outperformers like Germany have manged to test 1.5%. One country stands out though. Iceland has tested almost 10% of their population. Their results paint a more complete picture.

4.87% of the Icelandic population sample tested positive, but alarmingly half of those infected showed no symptoms at all, thus were asymptomatic. 0.65% of the infections turned out to be serious and the Icelandic death rate is 0.47%. But even those figures could be misleading because we don’t know how many were infected by the virus. It could have been that at that population has already gotten to the magical 70% infection rates, where the heard immunisation cause a natural slowdown to further infections as the virus can’t find enough new hosts to spread to. If Iceland is at that point the death rate would fall to 0.003% well below that of the seasonal flue at about 0.1%.

Similar statistics are available from the cruise ship the Diamond Princess where after the outbreak was not being contained, everybody was tested. Of those who tested positive, just more than half showed no symptoms and about 18% would go on to never show any symptoms at all. All this would substantiate that the epidemic has spread much quicker and much further than anybody assumed. This is confirmed by a case of the tragic death of a 15-year-old boy from one of the remote tribes in northern Brazil. They practically have no contact with anybody else, but the virus has announced itself in the most remote regions of the world.  This death also questioned another feature which was established in China.

Practically no Chinese children suffered from the infections of the Covid19 virus. This held true for most parts, but besides the death of the 15-year-old Brazilian, complications of Corona virus infection of the youth are increasingly reported in the UK and the USA. I see a strong correlation between the countries where Tuberculosis (TB) vaccination is mandatory and those were it is not. China tried to introduce the vaccination program in the 1940’s but they were too expensive for most Chinese. After the Communist Party came to power though, they eventually rolled the program out nationwide, and since somewhere in the 1960’s it was mandatory. Some countries used to have a mandatory TB vaccination programs, some don’t have them anymore. Others, mostly African, East Asian and South American still have a mandatory TB vaccination program. The infection levels seem to be very low in those countries. Interestingly, the countries who have not had a TB vaccination program for long, if ever include Italy, Spain, UK and the USA.

Given the wide range of possible scenarios it is right for the governments to proceed meticulous and cautiously, even if the economic impact is very severe. But because of the risk of losing livelihoods, it is important to paint a full picture of the severity of the epidemic, something that can only be done with the antibody tests.

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Current International

The case against share buy-back schemes

Shareholders invest their savings in companies to gain some return on their investment. The norm used to be in the form of dividends, but over time companies have rather been buying back their own shares and assumed that this would increase the value of each share. They reasoned that it is Tax efficiency. It should be discouraged.

One of the great characteristics of a free and vibrant capitalistic economy is that there are many companies who are listed on the various stock exchanges and anybody has the ability to purchase shares in those companies and thereby get their share of the fortunes generated by the companies they invested in. This is non-discriminate allows anybody, no matter what their background is, to participate in corporations’ fortunes by investing in them. Everyone can be part owners without the need of actually establishing a business oneself, something that is much more difficult, stressful and often disappointing than it seems in theory. As a return the companies us the profits twofold. They use part of the profit to invest in future projects that should enhance the future of the company. The rest of the profit is returned to their shareholders in the form of dividends. That has changed over time, and recently many companies preferred to return most of the money due to shareholders by buying back the companies own shares. The reasoning given is that it is a more Tax efficient way of returning money to shareholders, because it would not attract withholding tax but only the much lower capital gains tax, if any at all. There are three reasons why this should be illegal.

Firstly, it muddles the true performance of the company. Management use the capital, that could have been returned to shareholders in form of dividends to pay for shares, and thereby increase the earnings per share (EPS), without increasing the revenue line at all. It suits them, as most of their performance is measured by the EPS, but it shifts more risk onto the shareholder because they now need to time the sale of their shares to realise their value of the apparent increased profitability. But, as it is obvious in the current Covid19 crises, even shares with increased EPS fall in a crash. But is also makes the live of an investment analyst much harder. The timing and the pricing of the bought back shares plays a crucial part of the valuation and the determination of the return on shareholders capital.

Secondly, managers of companies have a very poor record of determining what a fair value is. Anglo American bought billions of their own shares back at the hight of the 2008 commodity bubble. Back then, the share price was approaching R550, which was never to be seen again. The most laymen equity Investor could not have done a worse job themselves. Managers often struggle to unlock value by buying companies, just think of the massive write downs at Woolworths after their disastrous decision to spend half their market capitalisation on a department store in Australia, while there is a worldwide trend away from department stores. Or look at EOH, where the previous management had a never-ending appetite for acquisitions. That worked well when the share price raced to R150, but now at R3.40 their market capitalisation is much smaller than many of their acquisitions. If they have such trouble allocating capital efficiently in their own field of expertise, how would you expect them to judge their own share price realistically and unbiased?

The third reason is the most important though. If the companies always pay out a share of the profits in the form of dividends, it gives the investor the ability to decide themselves what to do with the cash inflow. If they feel that the company is undervalued, they might just buy more shares themselves. But they also can spend the income on anything else they might desire, not necessarily in the investment world. They might use the money to pay towards their next car or might use it pay for their next holiday. Clearly this has got a much wider and a more positive impact on the economy.

In a world where we are once again talking about Taxpayers bailing out big companies, it is important to understand that should the companies just resort to buying back their own shares when they return to profitability, thanks to Taxpayers money, the wider economic impact will be very limited. The main beneficiaries are the managers, followed by the shareholders. The wider society, who are the sole reason for their survival will have limited benefits. Paying out dividends in cash will broaden the impact substantially.

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Current

The illusion of Quantitative Easing

As quantitative easing morphs into a wide-ranging asset buying programs, it is masking the health of the real economy.

The South African Reserve Bank (SARB) has been the latest central bank to dig deep into its toolbox and pull out the unconventional Quantitative Easing magic wand. In the depth of the Corona crisis, over the last few weeks the debt market was marred by very unusual intraday spikes in yields. The liquidity suddenly seemed to vanish, something very rare in such a liquid market. The SARB decided to buy unspecified amounts of bonds to provide the liquidity and normalise the yields, thereby starting their very own Quantitative Easing program.

In 2008, faced by unprecedented financial liquidity constraints, Ben Bernanke, the Fed chairman at the time, unleashed an economic stimulus bazooka called Quantitative Easing (QE). Essentially, the Reserve Bank would print new money to buy Government Bonds, so that anyone holding bonds (like Banks, Insurance companies and Investment Funds) could sell them to get access to cash, without causing a rise in the yield (and therefore a loss of capital). This proved popular because in theory, a Reserve Bank, operating in a free-floating currency market, has got an unlimited balance sheet capacity. QE was adopted by a few big Central Banks in the developed world, who were facing liquidity crunches and were desperate to keep the yield low.

A low yield has got a very wide impact on the economy. Firstly, it means that the Government can borrow more capital without paying more in interest. Therefore, the Governments, on paper at least, were able to stimulate the economies with borrowed money. But countries like Germany and the UK steered their way to fiscal prudence instead of stimulating the economy. The USA in contrast spent billions on foreign wars instead of revitalising their creaking infrastructure.

The second big beneficiary of low yields are banks. They can borrow at the Reserve Bank cheaply. The assumption is that they would pass on the low interest rates to their clients. It is doubtful how successful this was, since the banks had to grapple with ever increasing reserve requirements and snowballing compliance, thus were shy to lend their money out again. In-fact, a popular trade was a carry trade, i.e. using their cheap borrowing to invest in investment grade bonds thereby earning the small differential in interest – almost risk-free.

The third beneficiary of low yields were big companies who had the ability to issue their own bonds and sell them to investors. Since the alternative, the low yielding government bonds did not pay much, investors were happy to snap up any investment grade corporate debt yielding just slightly more. Companies like Apple found it more efficient to borrow money to pay dividends than to use their vast cash reserves. Second Tier companies also benefitted from the low yields, because even though their debt is sub-investment grade, they only had to pay yields slightly higher than their class-one peers. The result was a debt binge, with too many companies taking on too much debt. Now the Fed and the European Central Bank have announced that they will not be restricted by sovereign debt, but also buy corporate debt.

Big and listed companies benefit from low interest rates in another way. Since the sovereign debt is issued in the countries currency it is essentially the safest investment, and all other investment valuations take that as a yard stick. If the US 10 year debt yields 0.5%, then all other investments would need to return more than that, and the quantum is determined by the risk that the investment poses, ie the risk premium. Financial Research Analysts value shares of companies as a more attractive investment opportunity if their projected return would be higher than the risk free rate (10 government bonds) plus the assumed risk premium of the company. Thus, big dominant company with plenty of cash on their balance sheet could issue shares which would be prized much higher because of the low demanded return. Because of that, the internal rate of returns only needed to be relatively low. The effect has been a lot of money is being spent on projects that otherwise would have never passed the investment grade hurdle and will fail to enhance shareholders value. Another effect was that countless companies borrowed money to buy back their own shares. Earnings per share would grow, even if there was no actual top line growth, i.e. growth in turnover.

All this masks the health of the “real” economy. The trickle-down economic assumptions did not reach the masses. Most employees in the USA, as an example, are employed in the small or medium size enterprises (SME). It is much harder for these companies to benefit from the low interest rate environment. They are not able to issue bonds, and if they do, their quantity is so low that no institutional investor would bother looking at them. For most small businesses and start-ups it is very hard to borrow any money from banks, and if they do, the conditions are very onerous and combined with personal sureties. Therefor their “hurdle rate” is much higher. They have not been able to grow their businesses at the same pace as big companies have. This thirst for growth by the big created massive price increases for scarce resources. Specialized labour became very expensive (and they in turn increased the price for limited resources such as property beyond most affordability levels). These distortions are not reflected in inflation figures, because as long as the productivity gains equal or exceed the cost escalations, the cost per unit stays the same or falls. The main beneficiaries were big companies and e-commerce companies, not the small construction companies or the neighbourhood shops.

This has led to big distortions. California has just experienced the longest period of growth, but they have also had a massive increase in the homeless population. A recent survey found that 1 in 10 households across the USA would not be able to handle an unexpected $400 bill. These are not the typical signs of boom years, rather a worrying sign of policies not working. Much of the stimulus plans just passed by the American government to counter the effects of the Corona Virus relies on the type of trickle-down economics that has failed over the last 10 years. At some point the politicians need to step up and take the responsibility of building stronger more diversified economies rather than relying on Central Bankers to increase the economic activity, because they are always only able to target the big companies and hope for the stimulus to trickle down to everybody else.

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Current

The right medicine

A few remedies the government should pursue.               

No country is spared from the worldwide Corona covid-19 virus outbreak. The incredible infectious disease spreads like wildfire and leaves in its wake thousands dead and economies on its knees. Never has it been this important to have strong political leadership. On the surface it looks like Namibia is relatively unaffected, with only two reported cases and three suspected cases. But is it, and is it sensible shutting down most of the economy for such a minor outbreak?

Luckily, we have many countries to learn from. The low number of reported cases is probably due to the lack of testing (it doesn’t help that the biggest health insurance companies said that they will only cover the cost for tests that come back positive).  South Korea tested 10 000 citizens for every 1 million to gain a detailed understanding of how far the virus had spread and which areas were more affected. In comparison, the USA thought that they were mostly unaffected bar a few outbreaks in Washington state. But since they started properly testing a week ago, their numbers have suddenly risen to more than 120 000, increasing hourly. Namibia needs a massive test roll-out. People who show any symptoms should be visited by mobile test units, not to clog up the already strained hospitals. Just as you can’t fight an enemy if you can’t locate them, is it impossible to target a containment if you don’t know how widespread the disease is.

The second major challenge is how to support an already fragile economy. What to do. Firstly, all Namibians who have contracted the virus should automatically qualify for a N$10 000 payment. It might not be much for some, but for most Namibians it will go a long way to support them during the 2 weeks of isolation. Secondly, businesses should be encouraged to keep all their workers on their payroll during an eventual shut-down. To help, the government could offer to pay for 50% of the wages and salaries of all employees who work for a company with a turnover of less than N$10 million, 30% for companies with turnovers of between N$10 and N$20 million and 10% for the rest. To prevent the start of another Gravy Train, the government should use last years Tax returns. Businesses that honestly contribute to the fiscus should also be first in line to receive a handout.

Thirdly, the government should seriously consider a shutdown. Namibia has more to lose than most other countries when it comes to tourism. The tourist sector not only employs vast amount of people but is also a relatively big sector of the economy. But tourist simply won’t come back if they perceive Namibia not to be clear of the Corona Covid-19 Virus. It is the perception that counts. just as the tourists stayed away from Tunisia after the terrorist attack, would they stay away from Namibia if it is not perceived to be on top of the outbreak. Just as the tourists stayed away from Tunisia after the terrorist attack, they would stay away from Namibia if it is not perceived to be on top of the outbreak.

Decisive action by the government now shows the seriousness that they treat the problem and gives credibility. And credibility is what’s needed.

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Current

The outsider President

The impeachment trial of Donald J Trump was a showcase of a pretentious and dysfunctional American political system.

If one would have asked the average American citizen 10 years ago what the chances would have been of electing Donald Trump as the president of the USA, it would have been in the low single digits, most probably close to zero. There were good reasons for this. For one, his character is flawed. A few of his companies have declared bankruptcies, causing pain and suffering to all those who worked there. Lenders had to take losses but somehow, he emerged with a majority stake. Within the financial system he was treated with suspect, and most lenders would not give him new lines of credit. His Tax returns are never released, and it is speculated that he used obscure laws to avoid paying any Tax. He was recorded bragging about groping females, a crime in itself, which he just dismissed as “locker-room talk”. He spreads rumors and falsehoods, makes up facts with no evidence at all.

Yet, in 2016 he won the elections against Hillary Clinton, a hard-working seasoned politician who had a track record of working across the party lines to make progress. But the voters were yearning for an “outsider”, someone who is not seen as being part of the Washington elite. And so, they voted for Donald Trump.

During his tenure as president, Donald Trump did and said many things that were not statesman’s like. He ridicules the press, especially those who are critical of him. He mocks opponents and lampoons public servants who put up any resistance to his impulsive policies. Hi antics remind of cheap reality TV shows, not the president of the USA. While they were obnoxious, they were not law breaking.  But then he crossed the line. The president asked his counterpart in the Ukraine to start an investigation on his most likely opponent in the upcoming elections, hoping to dig up some dirt on Joe Biden. Mr. Trump coerced them into doing it, by withholding military aid to the Ukraine, even though they are an ally at war. Using the president’s office powers to coerce a foreign government to essentially interfere in local elections to gain personal favor is against the law. When this was leaked to the press, the presidency did their best to cover everything up. Nevertheless, the House of Representatives decided to investigate. In the process of gathering evidence, the White House refused to provide any documentation that could be used as evidence and reprimanded officials from testifying. But there was enough circumstantial evidence for the House of Representatives to impeach the president.

As such a trail was set in the upper house, the Senate. The Senate is essentially the third leg of the American democracy, a counterbalance to the abuse of power in the White House, because they have the power to impeach a president who has gone rouge. Each Senator swears an oath to uphold the Constitution, and to govern in the spirit of the founding fathers. They are meant to be independently minded, to rise above the party lines and to ensure that the US citizens needs and desires are addressed fairly by the US government, and that their individual liberties are not adversely impacted. As such it was, even if predictable, astonishing to see that only 1 of the 100 senators decided to vote with his own consciousness, proving at least partial independence. Mitt Romney of the Republicans was later chastised by Donald Trump and vilified by the right-leaning media. Yet he did exactly what was asked of him, apply his independent mind to the question at hand.

Clearly, there might  be numerous Democrats who would have truly believed that the president should be impeached on both counts, just as well as there might have been numerous Republicans how did not think so. But that there is no other Senator willing to cross the party line to show their independence indications that it was more important for the senators to vote with their party, than it is to display their independent mind. It thus questions the need to have a Senate in the first place.

But this would have not come as a surprise to those of us who followed the whole proceedings. From the outset, without hearing any argument or evidence, the majority leader of the House, Mitch McConnell said that he would support the president and work closely with the White House. That is like a judge saying that they would work closely with the burglar who was accused of breaking in and stealing to ensure his innocence. The Republicans then proceeded to not call any witnesses who might have shed more light, and who were barred by the White House to testify in the lower house. Clearly this was not the making of a fair trial, but a rushed through procedure where the outcome was never in question.

It seems that the voters who wanted to vote for an outsider, someone not associated with the Washington elite, someone who would clear up the system of cronyism have voted for one that is a master at the above, Donald Trump.

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Current South Africa

Better for who?

Unions intentions and motivations are not always clear, because of a perception flaw. What to do about it?

As the unionized workers at the South African Airways (SAA) go on strike, thousands of passengers will need to change their travel plans at the very last minute. Many will forego their holiday in South Africa, affecting many related industries.

On the face of it, the unions reasoning seems sound. They argue that it was not the workers who caused the R26bl in accumulated losses generated thus far, so they should not bear the consequences. The governments wage offer was rebuffed. Instead they are demanding that no jobs may be on the line over the next 3 years. The management of SAA however proposed that just more than 800 jobs will go as part of their turn-around plan.  

This is a familiar sequence of events. Unions drum up support by defending the plight of the workers. They demand above inflation increases in addition to other benefits such as housing and transport. This effectively makes labor in South Africa pricier relative to its peers, and less productive (because the higher wages are not coupled with productivity increases). Although in boom times this makes sense, it is fatal in bad times. Businesses like SAA, that are effectively bankrupt can only survive if they are restructure. This always means sacrifice by all stakeholders. The alternative can be seen in the textile and mining industries. Mines tried to gain efficiencies by mechanizing, and those who failed had to shut down. The textile industry is a shadow of its former self, despite Governments effort to help by levying a 40% import duty on garments from abroad. The job losses contributed to South Africa’s record-breaking high unemployment rate.

So why are Unions still so demanding, even at the risk of pushing the business into ruin?

The short answer is that Unions are businesses themselves. Like a sport club, they prosper if they get more members, and fail if members leave.  It can be a very lucrative business as such. There are about 3 million unionized workers in South Africa. Assuming that they pay about R120/month for their memberships, it means that the “union industry” is worth about R4.3bl, a sum worth fighting for. All you have to do is to fight harder than the next union, to attract more members. And then you fight for your members to not be dismissed.

Long gone are the days of the 1980’s where Unions down tools to fight against an abusive regime, where they fought for the equal recognition of workers and where they fought for basic human rights.

The stranglehold of Unions doesn’t only businesses but also government. The South African government was not even able to implement a pay policy in the education sector where the pay of teachers would reflect their ability to teach. As a consequence, poorly performing teachers get paid the same as those who put in extra effort to make sure that their scholars get the best education possible. This negativity is amplified by the fact that the governing ANC is in a tri-party alliance with Cosatu, a union collective, as well as the South African Communist Party. That means that government policy is influenced by a body that is motivated to do not what is best for South Africa, but what is best for their Unions members. A very precarious position.

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Current International South Africa

Strange times: when non-racialism is racist

Why is somebody classified as a racist when they don’t believe on using the color of the skin to base policies on?

The official opposition in the South African parliament, the Democratic Alliance (DA) is going through turbulent times. It all started with the election of a new chairperson, which the previous leader, Hellen Zille won. Three senior leaders resigning in quick succession. They accused the DA of showing their “real color”, i.e. that of a white racist party. It is a strange claim for a party that prides itself on being non-racist. What to make of it?

When Mmusi Maimane came to power to lead the official opposition, he had a vision of making the party more inclusive. They needed appeal for more support from black voters, who have shied away from voting for them. As one of the main pillars for policy direction, Maimane said there needs to be a recognition of the injustices of the apartheid regime. By default, they will have to support policies like Black Economic Empowerment (BEE) and affirmative action. These policies are the main policies of the ruling ANC to readdress the injustices of the past. Maimane’s policies were mocked as being an ANC-lite version.

The election of Helen Zille apparently was the trigger for the resignations. It obviously doesn’t help that she is a devoted fan of Twitter and as such has tweeted messages that by themselves can be ambiguous.  One such Tweet read “For those claiming legacy of colonialism was ONLY negative, think of our independent judiciary, transport infrastructure, piped water etc.” followed by “Would we have had a transition into specialized health care and medication without colonial influence?”. Both observations are probably right, based on the facts and statistics, but it is not appreciated in a world were most attention spans are no more than a few minutes. She insisted that she was right, but it would be like saying “For those claiming legacy of Nazis and Hitler was ONLY negative, think of the German Autobahns, Rail Infrastructure and the development of the Rocket”. That would also be true, but you would be labeled as a Nazi sympathizer these days. What gets lost in the hype of headline news however is that Helen Zille has for years been a devoted anti-apartheid activist. Her time as a journalist in the 1980’s was spent at exposing police brutality of the apartheid regime during the day, and at night she provided her home as a safe house for political activist hiding from prosecution of the state.

As a fierce liberal she has never compromised on her believes. The only way to develop a better South Africa for all is by developing policies not based on race, but on merit. Those that have been neglected by the racial policies of need more help from the state to be able to succeed. Those areas that were deprived of schools and hospitals are first in line to get a new one built, those areas with a poor infrastructure will get a better one and those areas with a lack of transport will get more buses. As a major of Cape Town and later as a premier of the Western Cape, she has always lived up to that commitment.

Under her leadership, the DA was the only true liberal party in parliament. They believe in freedom of expression, freedom in believe and tolerance for one another. As a multicultural state it is important to recognize that others have a different culture than yourself, which should not make them better or worse. Neither should the color of their skin determine if they get a job or not. Sadly, that is precisely what affirmative action encourages. Indirectly, companies are given targets of what percentage of their workforce must be Blacks. This leads to cronyism and poor leadership, as employees are given jobs based on their skin color not on merit. In the end, it is the poor who suffer once again, because companies like Eskom are so badly run, that after a 500% increase in electricity price, they produce less electricity than 10 years before, and don’t generate enough revenue to cover their debt obligations which have increased almost 5 fold. The state has to continuously bale them out, and billions of Rands are diverted from ministries such as police, education and health to pay for Eskom’s mismanagement. A far greater cost, but harder to define is that of lost private sector investments because of the unreliability of power generation.

BEE also leads to such disparities. As Chris Hani said: “What I fear is that the liberators emerge as elitists, who drive around in Mercedes Benzes and use the resources of this country … to live in palaces and to gather riches.” There is a handful black elitist that got extremely wealthy by “buying” discounted blocks of shares in companies.  Even broad-based BEE deals are not correcting the injustices of the past. It is far more likely that urban employed workers subscribed to the broad-based BEE deals, because they have the knowledge of them and the means to subscribe. A resident of the Eastern Cape hinterland or neglected small village in the Freestate doesn’t benefit from them. Most of the country has not benefited from these corrective policies and probably never will. It is impossible to try and re-write the history, but it is possible to create a better future. And that is what the government should be focusing on.

That is exactly what the DA wants to focus on, a better future for all. Those who can’t afford to send their kids to school, will get help. Those without medical facilities will get medical facilities. And those who are the most vulnerable in our society will get more help. As such, they will form a more productive workforce that attracts outside capital to grow, thus creating more jobs, decent living conditions and a more just and equal society.

So how is that racist? Who knows……

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Current South Africa

Opposition dilemma

The official opposition in South Africa, the Democratic Alliance (DA) elected a new executive chairperson at the weekend. The results were not quite what anybody expected just a few weeks ago. Helen Zille, the former party leader and a fierce liberal fundamentalist, returned out of political retirement to manage the party that had previously tried to sideline her. How did this come about?

During the last few years the oppositions prominence was mainly enforced by the entrenched fight against the corruption, cronyism and mismanagement of the Zuma government. The then president was regularly dragged to court by the opposition parties, who stumbled over themselves to join court cases against the president. Through Zuma’s many shortcomings, he was an easy target and the opposition parties used it to gain voters favor. Now, that the ruling ANC has a new president in Ramaphosa, who seems to be the polar opposite of Zuma, the opposition parties are left in limbo trying to display their relevance. Their true political foundations seem hypocritical; the far-left EFF who purport themselves as the fighters for the poor drowse their thirst with expensive champagne and use money looted from the poor to fund the leaders lavish lifestyles. The leader of the Democratic Alliance (DA), which essentially has been the only constant liberal opposition to the apartheid regime, represent for years by the lone but powerful voice of Helen Suzman, said that anyone who wants to form a “true liberal political party” is welcome to leave the DA. It is confusing, but the DA wants to endorse liberal values but supports race-based policies.

As the opposition parties scramble to find their political compass, lets reflect in broad terms global developments over the last 200 years. Humans have never before experienced such an upliftment in their standard of living. They have never had such freedom to practice any religion they want to, and they have never been able to express their opinions as freely as they can today. Babies have never had a greater chance of reaching adulthood, girls and boys have never had such good prospects of working in the profession they dreamed of. Never before have so many people been allowed to vote so regularly for their political leaders, and never before have so few people had to starve or die of preventable diseases. More people than ever own their own homes. They can afford luxuries like travel and cars or spend their savings on fashion and lifestyle.

All of this was only possible because of the emergence of liberalism as the major political force. The American and French revolutions were based on this philosophy. Liberals believe that everybody is equal and as such should have freedom of speech, freedom of religion and freedom of movement. There should be no racial division or gender discrimination. The government has a central but limited role to make sure that the economy is free and fair, and that the best companies and the most hard-working entrepreneurs and employees get rewarded for it. Policies are based on facts rather than fiction and populations come together to archive a common goal – a more prosperous future for everyone.

No other political philosophy has done more to bring about the good in human societies.

Whereas 80% of world population lived in absolute poverty 200 years ago, less than 10% do these days. In the 1950’s Belgium had a GDP per capita similar to that of Lesotho today.  Ever since the Chinese government adopted more liberal ideas 30 years ago, the world poverty rate halved, the Chinese economy and the world economy has thrived. Whereas communism proved to be a destructor of wealth and well-being, liberalism was the contributor.

What can be so wrong in being a liberal party in South Africa today, especially if you have the credentials dating back at least 60 years? I would have thought that it is easy for Mmusi Maimane to build on that, and clearly differentiate the DA from the ANC and the rest of the political spectrum. For a country still scarred by the racial segregated policies of the apartheid regime, it would be appreciated to have one party that preached the non-racial gospel, one that preached inclusivity and one that talks about South Africans rather than referring to the subgroups based on their skin color.

The ANC-lite policies of Maimane probably caused so many voters to turn to Helen Zille for leadership. It is time for the DA to get back to its roots and make decisions on merits rather than skin color and promote policies based on helping the poor and vulnerable rather than on racial averages. It is time to build a better future for all South Africans, because after all, we are all just that, South Africans.

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Current International

Big Impact

When fighting climate change, the focus often is on the small changes instead of supporting industries that would make a big impact. In this article I suggest three industries which I believe could make a decisive impact on climate change and which need to be supported.

Making rational decisions is one of the most complex tasks humans face. We tend to base decisions on emotions, which comes more naturally. Emotions evoke compassion, and it is this compassion that has driven the success of the human species. We get others to co-operate and help, because we have arguments that arise similar emotions in others, who sympathize and would give time and effort for same causes.

This led everybody to demonstrate, sometimes violently, against nuclear power in the 1980’s, especially in the wake of the Chernobyl disaster. It was right to voice anger at the neglect and incompetence of the Russian nuclear operators and politicians; it was wrong to advocate shutting down all Nuclear reactors. It slowed down the development of safer, more advanced Nuclear power stations and lead to the exponential increase in coal power stations, suffocating the rest of the world. Now countries, that did not benefit from the abundance of cheap dirty coal-generated electricity have to bear the effects of global warming caused by the steep rise in CO2 those powerplants spew out.

The same emotional decision making caused an uproar against the use of fracking to extract gas from bedrocks. Horror stories of contaminated groundwater and earthquakes circulated on social media, and therefore many politicians were slow to support any fracking. Yet, the USA has probably peaked in CO2 emissions in 2006, even with Donald Trump, and his love for coal, at the helm. The drop was due not because of the electric car, nor the solar power stations, but fracking. The widespread use of gas, which often can be used instead of coal to fire power stations, was the main driver in the reduction of emissions in America.

The list goes on and on. Plastic straws are a swearword these days, and plastic shopping bag are frowned upon. Yet McDonalds in the UK instructed its outlets to discard the paper straws with the general waste because they are so hard to recycle. Multi-use shopping bags need to be used 140 times to negate the negative environmental impact of producing them. Even though I do think that it is right to look at alternatives to plastic, especially single use plastic, I do think we are forgetting about industries that can make a real change.

So what are the three industries I am backing? Wood especially CLT, Hydrogen propulsion and urban farming. I think each of them would could cause a substantial change to our environment and to our way of life. Here are some of the reasons why I chose those three industries, starting with wood.

Humans have used wood for millennia to build everything from ships, to carriages and houses. It has great properties. It was easy to work with, it floats, it was strong and had great insulation properties. But it had a big downside. It burns. Many great cities were partially wiped out because the fire spread easily. Think of London in 1666, San Francisco in 1851 or more recently how the Notre-Dame de Paris burned relentlessly. But in the 1990’s a technology called Cross Laminated Timber (CLT) was developed, which enhanced the properties of wood dramatically. The fire resistance of the wood is now far superior to concrete and steel structures in catastrophic fire events. CLT panels are also extremely strong, with a very favorable weight to strength ratio. Researchers have also established that it has excellent seismic resilience, with no residual deformation. CLT wood is now being used to build an 84-meter-tall building in Vienna, called the HoHo. Construction is much quicker than conventional concrete and steel construction, and alterations will be a lot simpler.  The foundations didn’t need to be as massive as normal because the weight of the building is a fraction of what a similar concrete and steel structure would have been.

But the biggest benefit of using wood in construction is the CO2 footprint. While trees grow, they absorb a lot of Carbon Dioxide and emit Oxygen. When a tree is fully grown the absorption of CO2 is dramatically less. Given the shedding of leaves or Pinecones, a mature tree is more or less carbon neutral. Therefore, sustainable forest planting and harvesting is a certain way to absorb some of the Carbon in the Atmosphere.

The second industry is the automobile propulsion industry. Elon Musk made one genius decision – to make eclectic cars less extravagant and more normal. They look like conventional elegant well-designed cars and their performance matches the looks. Before then, electric cars looked very much like something from the future, full of compromises. The electric car has a few critical flaws though, where a solution seems to be years if not decades away. The first problem is that cars take a long time to charge. Part of the problem is that lithium-ion batteries tend to get hot when they are charged too quickly. Since lithium is one of the more volatile elements, the batteries tend to catch fire if they are getting to hot. That’s why Samsung had to re-design their phones after a few caught alight.

The second problem is that some of the materials used to make the batteries are from some of the most volatile places on earth. Cobalt for example is mainly sourced in the Democratic Republic of Congo.  They are more known for their extremely violent never-ending armed conflicts. Those are not the best conditions to build a mine which is supposed to supply a steady stream of material. The commodities used in the batteries were in such demand recently, that the miners struggled to mine enough of the commodity. That it drove prices ever higher. With the global electric car production was not even 2% of total global car production it is hard to see where the supply of raw materials should come from if electric vehicles dominate global car production.

A solution that is just as environmentally friendly, but in my opinion more scalable are hydrogen powered cars using fuel cells. Hydrogen, probably the most widely available element is liquified and using a fuel cell technology is converted to electricity which then powers the electric motors of the cars. The only thing leaving the exhausts is essentially water vapor. Hydrogen is a very effective storage of power, but also faces some technical issues. There is a lot of energy loss in through the various stages of the supply chain. These challenges should be easier to resolve, than trying to build another 20 mines in a war-torn country with no infrastructure.

The technology has got very distinct advantages. To start of with, you can drive up to a filling station and fill up in the same time as you would using the conventional fossil fuels.  The power generated is also substantial. Toyota said that all their buses made for the next Tokyo Olympics will be powered by fuel cells. Other commercial vehicles like trucks and possibly planes could be powered by fuel cells because they will be able to generate enough power and the time re-fuel is not different from what they are used currently (which is important for industries where the assets constantly need to be productive). Hydrogen could also be produced almost everywhere. Filling stations could produce it themselves or be supplied through the same supply chain they currently use. It is probably easier to develop new more effective processes to liquify Hydrogen than it is to make Lithium less unstable.

The third new industry is urban farming, which incorporates everything from a basic DIY hydroculture set-up to vertical farming. (Sophisticated vertical farming start by breeding insects, which are fed to fish, who’s excrement is used as the enricher for the water for the plants.) It is all based on the principles of hydroculture, which essentially means that plants grow without the need of soil, but the water is enhanced with the minerals which the plants would normally extract from the ground. This also means that plants can be grown closer to where their produce is demanded; one could imagine a grocery shop producing their own veggies on site in the future. That would reduce the need for a sophisticated just-in-time transport system for fresh plant produce.

There are many more advantages for our environment. Hydroculture uses 80% less water than conventional farming. Since the plants are grown in a controlled environment, there is no need for pesticides, saving the ground from being drenched in poison and saving the insects from dying out. The freed-up farmland can then be used to restore nature, possibly by planting native trees.

There are obviously many more industries that impact positively on our environment, but these three, if embraced, will surely have a big impact on our environment. Best of all is that they already exist, mostly in their infancy, but with a bit more backing could get traction. They don’t life on futuristic hopes and dreams but on realistic technologies and practicalities.

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Current International

Go big and go home

Today, the 12th of September 2019 the governing council of the European Central Bank (ECB) will meet for the last time with Mario Draghi at the helm. It may just be his most important meeting ever.

Mario Draghi took over the leadership of the ECB at a very precarious time. Europe was in the grip of a financial crisis. Banks balance sheets were stuffed with government bonds which were priced for a European Union break-up. Populism across Europe was on a rise and hardly any politician was courageous enough to push through desperate needed reforms. The northern states didn’t want to share the debt burden racked up by the spendthrift southern cousins (even though they benefitted from the relatively weak Euro).  Instead, austerity was the default policy, and Germany was leading the pact. This obviously did little to revive the economy. Step in Mario Draghi.

From the start of his term he made it very clear that his priority was to defend the Euro, and by implication the Euro area. He famously said that “he would do whatever he can” to defend it. To the horror of the German government, Draghi did start a quantitative easing program, which essentially meant that the ECB would buy government bonds, up to 33% of the issuance. This pushed the long-term interest rates down, freeing up clogged banks balance sheets and spurred them to lend out again. The economies started to recover, and the normally muted German property market experienced a boom, fueled by cheap funding.  Now, at the end of his term, Mr Draghi is faced with another crucial challenge, and the outcome would probably shape his legacy.

European economies have mostly recovered from the Global Financial Crisis of 2008 and the European finical crisis thereafter. Eastern European countries have been doing particularly well. Unemployment figures are at all-time lows or getting there. But it seems that the upswing has turned now, not only in Europe but globally. The manufacturing sector in Germany is essentially in a recession and growth in industrial output across Europe is waning. Exports are affected by the trade wars between China and the US.  

As signs of a looming recession are becoming clearer, something needs to be done. Just what? Super Mario, as mr Draghi is affectingly known among the investment bankers, can either commit to pull out the big guns and kickstart the quantitative easing program again. Alternatively, he could do nothing, since many of the northern Bonds are trading at negative interest rates, and the Mediterranean equivalent are also trading at record lows.

Go big or do nothing – that is Mr Draghi’s dilemma.

He is not alone facing this challenge. The Chinese central bank has just loosened reserve requirements of banks, because their economy is slowing quicker than expected. Japan and South Korea have their ongoing spat, causing strain on their economies. Even the USA seems to show the first cracks. Even though retail sales and some service sectors are booming, the underlying sectors are struggling. Manufacturing is sluggish, impacted by higher costs and the China–US trade war. The Fed already started to cut rates, although it is debatable if it was due to the relentless political pressure of the Donald, or if it was because of economic growth concerns.

As I wrote in an article some time ago: “the time will become known as one where central bankers did too much, and politicians too little”. Central banks mandates differ from country to country; they are always broadly around two themes; 1) keeping price stability and 2) encouraging economic growth leading to lower unemployment rates.

The reality though is that they are only truly effective servicing the first need, less so addressing the second. There is only so much they can do to drive economic growth. Not so for governments. They have the power to lower taxes, educate their population, keep them safe, keep them healthy and uphold the rule of law. They have far greater powers to encourage new investments.

It is now time for politicians to be bold and courageous and implement reforms that will make their labor market more efficient. They must embrace progress in technological innovation which makes their economies more competitive. Politicians should look at cutting taxes and encourage more businesses to start up. They should stop fighting egocentric spats, stop blaming history and others and stop making unrealistic populist promises. Mr Draghi has done well, but there is only so much a Central bank can do to encourage economic growth. It is time for politicians to take their responsibility seriously.