Firstly, some scores:
You’ll notice that everyone, in general, had a good week. The general view: after the ANC won the election, everyone suddenly realised that “Oh yes, the ANC is actually quite pro-business!”
And then Naspers had an awesome week after Tencent announced that its profits from online games and advertising were up by 60% in the first quarter. And suddenly everyone realised that “Oh yes, Tencent isn’t just a mobile payments platform!”
So in a week of much realisation, it’s relatively good (albeit slightly contradictory) news. After all, the Rand also weakened. Perhaps, and I hesitate to say this, but perhaps this is because the market is beginning to be concerned by inflation. The official figures are up to 6%… And to be honest, I think that it should get higher. You can’t have a 30% devaluation over the course of two years with almost no inflationary impact. But more of that tomorrow (I have promised to try and have an opinion on the exchange rate).
Speaking of exchange rates and inflation, some indicators:
Which brings me back to where I stopped in last week’s post (The Investor Diaries: Week 8). To summarise:
- People (even finance-y people) expect to look at a list of numbers and know what’s going on.
- But that’s not really possible (certainly not if you’re looking at the list for the first time).
- You need a narrative and a context first – because only then do the indicators start to mean anything.
There are two ways to start an economic narrative:
- Politically (how does this country look relative to other countries); and
- Historically (how does this country look relative to how it looked yesterday).
You’ll notice that none of these narratives start with “Theoretically”? While it’s useful to know what the PMI is, for example; it’s only useful once the story is already in motion. If there is no story, then the PMI is a conceit – and an especially boring one at that.
The Political Narrative
Relative to the rest of the world, South Africa lays claim to the following descriptive phrases:
- “an upper-middle income economy”
- “25th largest country in the world by land size”
- “29th largest economy in the world”
- “2nd largest economy in Africa”
- “a middle power in international affairs”
- “holds 89% of the estimated global reserves of the platinum group metals”
- “the third largest coal exporter”
- “highly arid – only 13.5% of land is arable”
- “39th driest country in the world”
- “a tertiary-driven economy – 65% of GDP is derived from service industry”
- “26th or 27th highest official unemployment rate, depending on which authority you choose to quote”
- “one of the Fragile Five”
- “4th worst country in the world in terms of income inequality”
Taking all those factors together, you might say something like:
“South Africa is an economic version of the second-to-last track on a Rihanna album. It’s alright, but there are problems. The lyrics are ballad-generic, although it has the best drum chorus of any Rihanna song. But only the fans really know it well. And actually, Rihanna will never perform it in person, because then it would be obvious that she only ever hit the high note once – in the studio, on the 18th time, after taking a weekend break. But still. It’s a Rihanna song. And with the right remix, it might just be a drag-queen club anthem.”
Which is my way of saying that South Africa could be an economic power house – just maybe not in the way that it wants. Manufacturing and industry are not its strong points anymore, although the bulk of the population are still reliant on those sectors. And there are fundamental questions about its resources (water) and demographics (inequality).
How The Political Narrative Translates Into Indicators
When you think about how South Africa relates to the rest of the world, you’d likely look at the following:
- GDP – sitting at ±$384 billion, it tells you how “productive” South Africa is relative to its neighbours, competitors and other nations in general (here’s a post I wrote on GDP_.
- GDP growth – gives you an idea of how South Africa’s “productivity” is changing relative to its neighbours, competitors and other nations in general.
- Unemployment and Labour Participation Rates – when you look at these in combination with GDP and GDP growth, you can see some discrepancies emerging. High unemployment and low participation rates, when coupled with growing GDP, can be read as “There is more money being made, but it’s being made by fewer people” – suggesting that there is growing inequality (or, rather, that the gains in GDP are accruing to the wealthy).
- Labour force size relative to the population – this ratio, in my mind, is an indicator of economic development. When you have a small labour force supporting a large population, it says that a large portion of the population is unable to work (and in South Africa’s case, this has a lot to do with a young population under the working age). That kind of demographic is common amongst emerging markets.
Until next week.