SONA 2016

While all the SONA drama was happening last night #ZuptaMustFall, I went out for sushi and paid it no attention at all.

Then this morning, I read the transcript (see here). And initially, I was a bit confused:

The year 2016 also marks the centenary of the battle of Deville Woods in France, which took place during the First World War.

Scores of Black soldiers fought in the war but were treated badly due to the colour of their skin.

A memorial that will restore their dignity and humanity is scheduled to be unveiled in July this year in France.

I thought that perhaps I had the wrong speech, because I wasn’t quite sure why French history lessons formed part of the State of the [South African] Nation address.

But then there was this:

When the economy grows fast it delivers jobs. Workers earn wages and businesses make profits.

The tax base expands and allows government to increase the social wage and provide education, health, social grants, housing and free basic services – faster and in a more sustainable manner.

Our economy has been facing difficulties since the financial crisis in 2008. We embarked on an aggressive infrastructure development programme to stimulate growth.

Our reality right now is that global growth still remains muted. Financial markets have become volatile. Currencies of emerging markets have become weak and they fluctuate widely.

The prices of gold, platinum, coal and other minerals that we sell to the rest of the world have dropped significantly and continue to be low.

The economies of two of our partners in BRICS: Brazil and Russia – are expected to contract this year. The third, China, will not register the kind of robust growth that it is known for.

Because our economy is relatively small and open, it is affected by all of these developments.

Our economy is also affected by domestic factors such as the electricity constraints and industrial relations which are sometimes unstable.

The IMF and the World Bank predict that the South African economy will grow by less than one per cent this year. The lower economic growth outcomes and outlook suggest that revenue collection will be lower than previously expected.

Importantly, our country seems to be at risk of losing its investment grade status from ratings agencies. If that happens, it will become more expensive for us to borrow money from abroad to finance our programmes of building a better life for all especially the poor.

I mean, that’s not only an accurate assessment of the economy – it’s also remarkably succinct.

Other pleasant surprises:

We must take advantage of the exchange rate as well as the recent changes of visa regulations, to boost inbound tourism.

And (close to my heart):

We have heard concerns from companies about delays in obtaining visas for skilled personnel from abroad. While we prefer that employers prioritise local workers, our migration policy must also make it possible to import scarce skills.

The draft migration policy will be presented to Cabinet during the course of 2016.


Overseas trips will be curtailed and those requesting permission will have to motivate strongly and prove the benefit to the country.

The sizes of delegations will be greatly reduced and standardised.

Further restrictions on conferences, catering, entertainment and social functions will be instituted.

The budget vote dinners for stakeholders hosted by government departments in Parliament, after the delivery of budget speeches will no longer take place.

This (although I can’t really see it happening):

A big expenditure item, that we would like to persuade Parliament to consider, is the maintenance of two capitals, Pretoria as the administrative one and Cape Town as the legislative capital.


To achieve our objectives of creating jobs, reducing inequality and pushing back the frontiers of poverty we need faster growth.

In the National Development Plan, we set our aspirational target growth of five per cent per year, which we had hoped to achieve by 2019.

Given the economic conditions I have painted earlier on, it is clear that we will not achieve that growth target at the time we had hoped to achieve it.

The tough global and domestic conditions should propel us to redouble our efforts, working together as all sectors. In this regard, it is important to act decisively to remove domestic constraints to growth.

We cannot change the global economic conditions, but we can do a lot to change the local conditions.

I mean, it’s true that most people were rather hoping that:

  1. President Zuma would mention the Constitutional Court proceedings around Nkandla;
  2. President Zuma would address his relationship with Dudu Myeni;
  3. President Zuma would bad mouth the Guptas;
  4. President Zuma would announce a set of SARS lifestyle audits for all government officials and State-Owned-Enterprise management in order to combat the giant corruption elephant in the room;
  5. President Zuma would explain for the Nene-whathisname-Gordhan debacle, as well as why Mr Nene isn’t working for the World Bank yet; and
  6. President Zuma would submit his resignation.

But I’m surprised that people were surprised that none of those things happened. Because, come now.

And on the plus side, there was no mention of long-discredited economic theories like “the amount of labour defines the value of a good or service”. Instead, those speechwriters delivered a fair assessment of where things stand (or, at least, as close as they could get without causing political offence).

I guess what I’m saying is: it could have been so much worse. And even if it comes to nothing, well, it still really could have been so much worse.

Closing thought (which was actually my first thought): "New glasses! Snazzy. But full frames are back in this season. Fyi."

Closing thought (which was actually my first thought): “New glasses! Snazzy. But full frames are back in this season. Fyi.”

And on that bombshell…

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.

Only 22% of China can drive

Here’s a Wall Street Journal article from over a year ago: “China Soon to Have Almost as Many Drivers as U.S. Has People“.

An extract:

As of [November 27, 2014], the number of Chinese motor-vehicle drivers was poised to break past 300 million people, according to the country’s top law-enforcement agency, including 244 million licensed passenger-car drivers. The U.S., by comparison, has about 319 million men, women and children, and nearly 212 million licensed drivers.

There is a link there to China’s Ministry of Public Security, where the data came from. I’ve been to the page. It looks like this:

But thanks to the wonders of ctrl+c, ctrl+v, and Google Translate, I can confirm that the first paragraph reads:

As of November 27, the number of motor vehicle drivers breakthrough the 300 million mark, where motorists 244 million people; the national civilian vehicle population amounted to 264 million, 154 million of which automobiles; the driver of the number of ranked first in the world First, the number of cars ranked second in the world. Ministry of Public Security Traffic Management Bureau official said, marking the development of China’s road transport has reached a new node is to promote a higher level of road traffic management a new starting point.

Which is basically my way of saying: “The data: it checks out. Assuming that you trust Chinese government statistics. Or just this particular set of statistics.”

The point is: the world is rubbishing China a lot. But however bearish you feel about it, there are some fundamental points to be made here:

  1. The development of China has a long way to go yet.
  2. Even just looking at driving statistics, less than a quarter of China’s population can drive.
  3. Compared to two thirds of the US population that can drive.
  4. Despite this, China is the country that is famous for crazy smog and crazy traffic.
  5. That doesn’t sound like a country that has over-invested in infrastructure. That sounds like a country in desperate need of more infrastructure.

But Chinese data, right? Who knows.

Anyway. I mention this because I have an infographic that I wanted to share this morning – but it made reference to the above Chinese driving stat, so I couldn’t just post it without a bit of a Google search for a more credible source.

Said infographic (also, it’s a shameless plug for a book – but I thought it was interesting anyway):

Happy Wednesday.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.

Contrarians Are Helpful, Even When They’re Wrong

The Conformity Experiments of Solomon Asch

A mental image: picture yourself walking into a room filled with people.

You have been asked to take part in a test of visual ability.

You receive this card (without the commentary at the bottom), and you’re asked to choose which line on the right-hand card matches the length of the line on the left:

The answer, obviously, is “C”*.
*Unless you’re part of the 2% of the population that apparently can’t get that right on the first attempt – but I’m going to put that down to sheer disinterest.

Now imagine that each participant in the room is asked to share their answers with the rest of the group (you’re sitting at the end of the table, so you’ll be going last, it seems). And the first two times these types of cards are handed out, everyone gives the same response: “C”.

Only, on the third occasion, the first participant stands up and announces that the answer is “A”! You scoff inwardly, and shake your head at his obvious blindness. The fool.

Then, to your complete amazement, the second guy stands up and also announces that the answer is “A”. As does the lady after him!

One by one, the rest of the group gives “A” as their answer.

Your amazement turns to panic. What if…what if you‘re the one with the visual disability? But surely not. You agreed with everyone on the first two sets of cards – and it’s as plain as day! So you quickly re-examine the card. You squint your eyes…

Finally, the attention turns to you.

And your answer is?

I mean, you want to say that your answer would still be “C”.

But would it be, though?

The Results

Each participant in the experiment was subjected to the above card & answer arrangement 18 times (that is, each card distribution and answer announcement was termed a “trial”, and there were 18 trials conducted for each participant). The other “participants” in the group were actually actors that were in on the experiment; and their answers were based on a set of instructions issued to them by the experimenter.

In 12 out of the 18 trials, the rest of the room was instructed to give the same incorrect answer. These were known as the “critical” trials, because this was when the real participant had the dilemma of conforming or breaking away from the crowd.

Under all that pressure, 75% of the actual participants gave the incorrect answer at least once. And when the results of the critical trials were aggregated, the participants caved to majority opinion a third of the time.

Just to be explicitly clear: we are not talking here about some complex question. We are talking about a simple set of three lines where one answer is obviously correct to the naked eye. There is no thought process or justification required. Just “which of these is the same as that?”

What If You’re Not Alone

Solomon Asch then repeated the experiment – only this time, he asked one of the actors to give the correct answer when the rest of the group was wrong. Just the presence of one supportive voice dropped the level of conformity down to 5-10% of the time.

Interestingly (and, I think, more importantly), Asch also conducted a variation where he asked one of the actors to give a different, but still incorrect, answer to that of the rest of the actors. That is: the rest of the actors might say “A” while the non-conforming actor would give the answer “B”.

And this had exactly the same effect on conformity as having just one other person give the right answer.

What To Take Away From This

  1. Most of us are lemmings some of the time
  2. Some of us are lemmings most of the time
  3. But you should always voice an alternative opinion, if you have an alternative opinion, even if you’re wrong.
  4. Because your non-conformity with the crowd might just give the guy with the right answer the courage to break with conformity as well.

At least, that’s how I console myself when I make horribly bad predictions on this very public platform.

If you want to watch a short clip of the experiment, here it is.

Happy Tuesday.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.

Why Things Go Wrong On Kickstarter

There is an article that’s doing the rounds on Medium: “How Zano Raised Millions on Kickstarter and Left Most Backers with Nothing“.

It’s a long read, but I’ll get back to that. First, some background.

Here is the campaign:

Screen Shot 2016-02-05 at 9.42.29 AM

And who wouldn’t want a nano drone, right? According to the campaign, here are the list of specs one could expect to enjoy:

Screen Shot 2016-02-05 at 9.44.11 AM

“Echo sounding sonar” and “IR obstacle avoidance” – spicy stuff.

How the campaign fared:

Screen Shot 2016-02-05 at 9.43.08 AM

Hashtag chronically overfunded…

So let’s talk about what happened after this:

  1. The Torquing Group were still designing working out the kinks of their design.
  2. The ZANO couldn’t actually fly, the wifi didn’t actually work, and all those features did not add up to a 55 gram piece of machinery (further complicating the “can’t fly” part).
  3. The promo video that they displayed to the world was, shall we say, “artfully edited”. Which isn’t a problem, exactly – but it did suggest that they were closer to achieving their goal than might otherwise have been the case*.
    *It also apparently violated some Kickstarter rules. Sort of. I mean, where does one draw the line between “slightly touched-up fact in good lighting on a great hair day” and “fact that was photoshopped into fantasy fiction”?
  4. I guess it’s possible that all of this could have been worked out had they not been fixated on their Kickstarter deadlines – and more importantly, had they not had to scale their production plans by over 2,000% (which is what happens when you’re 20 times overfunded).
  5. But there were also some bizarre Paypal rules that made for some poor decision making. You see, not only did the Torquing crowd raise money on Kickstarter – they also allowed pre-orders online. Only, Paypal doesn’t release money for pre-orders until the orders are shipped – meaning that debt had to be raised to cover the production cost of even more units until the pre-ordered zanos had started to ship.
  6. And the Torquing team apparently decided that the Kickstarter funds would be that debt, and so they used the Kickstarter money to fund the pre-orders in order to release the Paypal money to fund the Kickstarter orders.
  7. Which did not go down well with the Kickstarter punters.
  8. Especially because it didn’t work out.

So the ZANO project failed and is now in liquidation. And Kickstarter hired a journalist to go and write a very long article about why it failed.

Permit me to save you an hour of your time.

The ZANO project failed because most projects fail.

Yes, we can isolate out things that went wrong in a kind of truistic sense:

  1. Companies that grow too quickly can collapse in on themselves.
  2. Companies often struggle to take a small prototype design and put it into mass production.
  3. Companies fail when their management team are bad managers.
  4. Companies fail when their designs don’t work.
  5. Companies can be too ambitious with their delivery deadlines.
  6. Companies that buy too much stock tend to run out of cash.
  7. *the list continues*

And admittedly, the Torquing group managed to have all of those problems.

But that is still mostly irrelevant, because all start-ups have to negotiate their way through most of those issues. A start-up turns into a legitimate business by:

  1. Growing as quickly as possible;
  2. Scaling an original idea into something with broader appeal (and larger revenue streams);
  3. Dealing with tight deadlines and fixing design weaknesses.
  4. Taking risks on working capital and running a tight cash flow.
  5. Working out who can and who can’t manage the business well, and shifting the organisational structure around that into something that’s feasible.
  6. *the list continues*

And very few start-ups succeed because, for most business plans, one or more of those problems will be insurmountable.

This is traditionally why Venture Capital funding is generally reserved for specialist funds – funds that raise their capital from rich investors who expect the fund to lose money on most of the funded projects – but who hope that one or two of the funded projects will become real businesses with value far in excess of their original investment.

And as we move from traditional “managerial capitalism” to the “crowd-based capitalism” of the sharing economy, the crowd had best expect to lose a lot of money.

Because that’s just reality.

No matter how good the lighting is, and whatever the hair day.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.

“62 People Are Richer Than 3.5 Billion Of Us”

At Davos, Oxfam once again got all apocalyptic about “wealth” inequality. From their report:

Oxfam has calculated that:

  • In 2015, just 62 individuals had the same wealth as 3.6 billion people – the bottom half of humanity. This figure is down from 388 individuals as recently as 2010.
  • The wealth of the richest 62 people has risen by 44% in the five years since 2010 – that’s an increase of more than half a trillion dollars ($542bn), to $1.76 trillion.
  • Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period – a drop of 41%.
  • Since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%.
  • The average annual income of the poorest 10% of people in the world has risen by less than $3 each year in almost a quarter of a century. Their daily income has risen by less than a single cent every year.

The trouble is: this is just really bad math.

And it’s bad math mainly because “How do you calculate wealth?”

This sounds easier than it is. When we look around us, we can see people with houses and nice cars, and we can say “Oh yes – rich.” We can also look at people with no houses and no cars and say “Definitely poor.” But the minute you try to generalise that, you run up against problems. I mean, do you just look at assets people have? How do you value those assets? What about non-tangible assets like education and skills? What about debt? Is a person that earns the required income stream to get a R9 million mortgage to buy a R10 million house more or less wealthy than a person that owns a R2 million house outright?

And this is where Oxfam gets caught. They use the “net wealth” data that gets collected by Credit Suisse (here’s the Credit Suisse 2015 wealth report). Credit Suisse’s data calculates your net wealth as “All your fixed and financial assets less all your liabilities”. Which puts us into negative wealth territory.

So a student with a mountain of student debt is one of the poorest people in the world – poorer indeed than the street beggar in Africa who has nothing to his name, including no debts.

This from the Credit Suisse report:

Screen Shot 2016-02-04 at 8.17.53 AM

By this measure of wealth:

  • None of the poorest people in the world live in China.
  • 10% of the poorest people live in the United States.
  • About 20% of the poorest people live in Europe.

Looking at the US data: 10% of the bottom 10% of the world’s population is about 70 million people. The total US population is about 320 million people. So 22% of the US population are “the poorest people in the world”?

That simply makes no sense. What about the social welfare systems that exist in the developed world? Africa’s poor certainly do not have access to that kind of safety net.

The only reason that we’re looking at a statistic like “30% of the poorest people live in Europe and the United States” is because we’re dealing with regions where it’s easier to access debt far in excess of your asset base.

Oxfam’s defence of the data is mainly two things:

  1. The data is representative of trends; and
  2. The broader conclusion is still correct.

Which doesn’t really tie up with statements like “In 2015, just 62 individuals had the same wealth as 3.6 billion people”, but perhaps that’s just me.

Speaking of trends…

Here is a paragraph from the Credit Suisse report:

There are strong reasons to think that the rise in wealth inequality since 2008 is mostly related to the rise in equity prices and to the size of nancial assets in the United States and some other high-wealth countries, which together have pushed up the wealth of some of the richest countries and of many of the richest people around the world. The jump in the share of the top percentile to 50% this year exceeds the increase expected on the basis of any underlying upward trend. It is consistent, however, with the fact that financial assets continue to increase in relative importance and that the rise in the USD over the past year has given wealth inequality in the United States – which is very high by international standards – more weight in the overall global picture. When these considerations apply in reverse, the wealth shares of the top 1% and 10% are likely to decline.

So, a large component of wealth inequality is the asset price inflation that took place under Quantitative Easing…

The other side of the data that should probably be addressed is the impact of globalisation. According to Oxfam:

One of the key trends underlying this huge concentration of wealth and incomes is the increasing return to capital versus labour. In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth. In contrast, the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing.

So the question: are we seeing a Pikkety-esque concentration of capital, or is this more the result of an expansion in the amount of labour available to capital-holders due to globalisation and more women in the workforce and that sort of thing?

From this Forbes article:

[It’s] what we would expect would happen as a result of globalisation. We bring a couple of billion more low paid and low skill labourers into the global economy and the returns to low skill labour are going to fall and those to high skill labour and capital rise. As it happens, the low skill labour that lost out here were those below median income in the already rich countries. This is how come we’ve had rising in-country inequality and declining global inequality in recent decades.

But that process has run its course. In fact, the World Bank (from memory, think it was them) announced just last year that we had reached peak labour. From now on the global labour force is going to be shrinking. And the above process thus goes into reverse: the capital share will fall and the labour one rise: profits do, after all, flow to the scarce resource.

So really, there may not be that much to worry about?

Just a thought.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at Or both.