An article forwarded to us this week highlights how living standards in the UK have fallen significantly behind Western Europe and their real wages are not only lower than they were 15 years ago, but they’re likely to be even lower next year. “In the past 30 years, the British economy chose finance over industry, Britain’s government chose austerity over investment, and British voters chose a closed and poorer economy over an open and richer one.” The lesson is that deindustrialisation, degrowth and denigration of foreigners is not a successful strategy.
The Brits are not alone in their approach and Putin’s war in Ukraine may be the catalyst that further accelerates the deglobalisation trend. Whether it’s the US refusing China access to silicone chips, the Chinese, through Xi Jinping, themselves becoming more insular and domestically focussed, or the Germans realising that they should never again jeopardise their energy security by being reliant on another autonomous state, the impacts will permeate all regions.
We saw on Monday how Chinese stocks were sold off very sharply on the news that Xi Jinping had not only been re-elected for a third term but had strengthened his grip on the party by adjusting his leadership team to suit his market-unfriendly agenda. Then overnight the economist published a piece illustrating how President Biden is seeking to overhaul the US economy by increasing spending on infrastructure, the semi-conductor and science act, and on climate change. Once again, the US government is trying to drive the economic agenda, ironically a policy shift initiated by President Donald Trump and continued by his successor, Joe Biden.
It’s worth noting that the US economy is heading in a very different direction to that described of the UK as their strategy is to reindustrialise and they choose to spend over austerity. They are, however like the UK, also taking a more protectionist and narrow-minded approach to globalisation and immigrants.
The negative reaction of global asset prices in 2022 is less about the direct impact of the war in Ukraine, and more about the fact that the Fed and other central banks have felt it necessary to raise interest rates at the fastest pace in 40 years to curb inflation – an economic affliction that their own policy of low interest rates, combined with governments’ unprecedented fiscal spending, helped create. One could therefore argue that this tendency for politicians to try and manipulate the economy is exaggerating the cyclicality thereof, whereas the intention of monetary policy is to try and smooth boom and bust cycles. Unfortunately, it also seems that this trend is unlikely to reverse any time soon and so we’re going to have to learn to live with unpredictable and volatile markets.
It is within this environment of political interference that businesses will need to demonstrate agility through innovation, improved efficiencies and by adapting their supply chains in order to increase their revenue streams.
“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
– Thomas Sowell (Economist and political commentator)
Global News
- The UK’s latest Prime Minister, Rishi Sunak, who replaced Liz Truss earlier this week, has reappointed Jeremy Hunt as UK Chancellor of the Exchequer as he tries to repair the economic damage caused by Truss’ administration. James Cleverly stays as Foreign Secretary and Defence Secretary Ben Wallace was also reappointed. In a controversial move, Suella Braverman is back as Home Secretary – not long after Truss fired her over a national security breach. Sunak has pledged to restore trust, rebuild confidence, and lead the country through an economic crisis, although his economic plan has been delayed by 2.5 weeks.
- Over in China, Xi Jinping has secured a third term as leader of China’s Communist Party, which makes him the country’s most formidable leader since Mao Zedong. He is also upending norms designed to prevent the return of one-man rule. Xi declined to signal a clear successor, suggesting he might seek to extend his rule beyond 2027. The Chinese stocks and currency dropped ahead on confirmation that Xi’s policies of stronger state control over the economy and markets will continue unchallenged for years.
- US Treasury Secretary Janet Yellen said the most recent economic data indicated strength in the economy while providing a signal that there was a healthy spending slowdown that could have a positive impact on fighting high inflation. (The US economy grew by 2.6% in the third quarter).
- As the northern hemisphere braces for a cold winter due to the constant rise in fuel prices to heat homes, some good news is at hand. There is a steady growth of renewable energy, a report from the International Renewable Energy Agency shows. It indicates that renewable energy is dominating new power production worldwide with solar power leading the way.
- Tech earnings have disappointed, leading to stocks tumbling in after-hours trading on Tuesday after some of the industry’s biggest companies reported results below expectations. Quarterly updates from Microsoft, Alphabet, and Texas Instruments underscored the sector’s growing pressure. Meta, saw its profit slide by more than 50% as its challenges, including metaverse investments, continue to mount. Its shares dropped a whopping 25% on Thursday, its biggest one-day drop since February, as CEO Mark Zuckerberg’s pleas for patience fell on deaf ears.
- Ahead of Elon Musk’s $44 billion deal to buy Twitter closing today, he apparently told Twitter employees on Wednesday that he doesn’t plan to cut 75% of the staff when he takes over the company, according to sources. However, the top leadership structure, including the CEO and CFO have already been given their marching orders as Musk steps in as CEO.
- As at Thursday’s close the S&P 500 was up 1.45% for the week.
Local News
- The economic highlight this week was the presentation of the Medium-Term Budget Policy Statement, which saw government lower the economic growth forecast for this year to a measly 1.2%, with the average over the next three years at 1.6%. The state is taking responsibility for between a third and two-thirds of Eskom’s debt while promising to accelerate reforms in the electricity sector, fix Transnet, prevent the country from being greylisted, and lower debt. Gross tax revenue this year is expected to be R83.5 billion higher than forecast in the February budget. However, government is battling to decide which state entity needs a bailout the most, with trade-offs happening. For a detailed summary, click here.
- The Economist has published an in-depth piece on how organised crime is a blight on South Africa’s economy. The article details the level of crime, including heists, how drugs move through the country, and rhino-poaching. “In 1997 there was roughly one private security guard for every policeman. Today the ratio is almost four to one.”
- The president has laid out his implementation plan to “forever bring an end to state capture in our country”. Ramaphosa calls the caboodle of corruption perpetrated in South Africa over many years a crime against its people and has vowed to have independent panels appoint boards at state-owned enterprises, implement lifestyle audits for cabinet members, overhaul anti-corruption institutions, eliminate “donations” for tenders, assist whistle blowers, and review the position of ministers implicated in the state capture report. Read more here.
- Former Eskom CEO Matshela Koko has been arrested on charges related to the looting of Eskom. He and seven other people face charges of fraud, corruption, and money laundering during their time at the parastatal.
- BusinessLIVE columnist, Anthony Butler, has argued that, ahead of the national elective conference in December, it would be better to have a fair electoral contest between the strongest coalition the opposition parties can assemble and the most coherent leadership the ANC can muster. This comes up as president Cyril Ramaphosa’s top six is set to go up against a faction within the ruling party that may include tarnished names such as former health minister Zweli Mkhize, as well as Paul Mashatile, alleged former don of the Alex Mafia.
- In Johannesburg, DA councillor Mpho Phalatse resumed her mayoral duties this week after the high court set aside her unlawful ousting as Johannesburg mayor. However, her reinstatement may be short-lived as all her opponents need to do is to appeal against the judgement within two weeks or council could simply call another special meeting and have the same outcome.
- The producer price index declined for a second consecutive month in September, but the number was worse than market expectations and signals little respite for hard-pressed consumers. It dropped slightly to 16.3% in September from 16.6% in August. The market average estimate was 15.7%.
- Tongaat Hulett’s South African operations have been put into business rescue proceedings as it cannot repay lenders who will no longer extend part of its debt. Tongaat has more than R6.3 billion in excess debt which is increasing as interest mounts.
- As at the time of writing, the rand was flat for the week and the ALSI was up 0.6%.
Sources: Dynasty, BizNews.com, Daily Maverick, BusinessLIVE, Bloomberg, Reuters, The Economist, ITWeb, New York Times, Financial Mail, etc.