The only saving grace is time
By fstimes On 23 Nov, 2013 At 10:58 AM | Categorized As Business, Columns | With 0 Comments

Cees Bruggemans

THERE are two recent instances in our national life, the one internally and the other externally, where the only saving grace is time.

For to get caught out unawares by a major disruptive event tends to be devastating, with only a very small chance of taking evasive action and limit the damage.

But if given enough time, seeing the event shaping from afar, one has a greater chance of preparing and even sidestepping what is inevitably coming.

The one event on everyone’s lips is the start of Fed tapering.

The other is the slow domestic becalming into what seems to be a long economic stagnation.

By having early warnings (the Fed won’t always follow a generous unconventional policy) and false starts and fire drills (the Fed dry run starting May 22 and ending September 16) about the imminent start of Fed tapering, it was possible for governments, investors, companies and households to think it through and take action in line with their risk appetite and self-interest.

This is no small mercy.

Think back to what Fed chairman Paul Volcker did to the world in late 1979, and then keeping the thumb screws fully applied through 1983.

It gave us the Third World Debt Crisis from which for many EM there was no easy escape, only a mostly torturous decade.

This time is so very different.

The Fed is in no hurry, given the very slow pace of US and global recuperation.

It has to start its return journey (exit) sometime, but we know it will be a slow turn and spread out over an exceptionally long adjustment period.

That won’t prevent sentiment from being jumpy in ever so fearful anticipation, given the magnitudes involved.

Yet slowly does it, learning along the way that what looked enormous and indigestible may prove to be more easily done when finally engaged.

But that takes learning, and we have barely begun.

It is a hint to investors to start repositioning early in terms of asset classes and relative weights, and for governments to take another look at their fiscal policies, balance of payments exposures, foreign swap facilities, debt ratings, and having domestic interest groups focused on what’s coming.

Businesses and households need to take into account possible rand and interest rate implications.

Forewarned is forearmed.

But all this tapering commotion is short-term stuff as the Fed normalisation exit will take some five to six years to complete, an inordinately long time to get back to a more normal-sized Fed balanced sheet and interest rate structure/yield curve.

Domestically, a far bigger and potentially far more wrenching encounter is playing out.

It concerns the clash of wills and world views of those for long repressed but now back in charge, and those newly relegated, at least in political terms.

This clash involves a protracted debate about ways and means, how society is organised, its aims and how it proceeds.

The upshot these past 20 years has been a steady increase in supply side constraints, regulatory intrusions especially into mining but also very broadly generally in its ever deepening prescriptions, organised labour militancy, loss of public sector service delivery and growing dependency by the poor on state support and by the country on favourable global commodity prices and financial conditions.

It is most fundamentally reflected in starkly diverse policy recommendations, emphasising the deep philosophical cleavages separating large parts of SA society.

It gives us unending policy paralysis preventing a performance breakout.

This increasingly chaotic rollercoaster ride has sapped confidence, among households whose real income is under pressure while limiting gainful opportunity for the many forlorn outsiders, and also among businesses which are experiencing stagnating demand, rising costs, demanding labour forces and intrusive government, thereby limiting the willingness to take risk, expand, invest and hire.

Pessimism is not new to South African society, the country having been written off regularly as clockwork by past generations, yet muddling through in its very own fashion, giving what we are today.

The naysayers, however, begged to differ, over many decades (and centuries) emigrating.

The modern equivalent is not so much the young professional packed for Perth (though still plenty of those, with easily half the private school population walking around with such aims) as the modern business proposition.

Foreign investors are more cautious today, given the political, labour and regulatory environment they find here.

But we have encountered such phases before, such as in apartheid heyday, and these need not linger if there were to be adequate reform and improved performance following in its wake.

What has been equally interesting to observe is the proactive approach of many local businesses to spread their wings in pursuit of growth markets while reducing their exposure to precarious political dispensations and their governments, now or in the future.

Far-sighted businesses already did so from the 1950s and 1960s onward.

They have been joined in the 1990s and 2000s decades by waves of new converts.

Some of these focused their entry on old rich countries, others tried fellow commodity producers, yet others were attracted by Asiatic or Eastern European EM potential, and many more simply were seduced by near Africa hinterland potential.

But they all had crucial commonalities, namely growth opportunities, risk diversification and reduction of home exposure.

There was another commonality: often very steep school fees to break into the new environment, find the right staff, understand the government and regulatory culture, and also the market itself.

Nearly every one of these breakout stories required long lead times to get established and achieve critical mass (and profitability).

Today, SA businesses are well down that challenging experience curve.

Increasingly, the managers involved look like geniuses harvesting diversified, rapidly growing income streams supplementing tired domestic earnings more bolstered by cost cutting and clever technology than tapping genuinely fast-expanding markets.

Be that as it may.

Home looks tired, hampered and tied down.

The real earnings kickers come from Africa, Asia and/or Eastern European holdings, with plentiful expansion potential.

That’s where the capex budgets increasingly focus, and the best staff.

Thus the home base gets its becalming embedded even as the growth markets naturally attract ever more attention and commitment.

Great for staff and shareholders.


  • Cees Bruggemans is a consulting economist at FNB. You can follow him on Twitter @ceesbruggemans or e-mail him at


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