1 June 2009
Such was the dominance of the US over the rest of the world’s economy over the past few decades that, as a South African version of the old saying went, “Wall Street sneezes and the JSE catches a cold”.
That may be changing – and it may have taken a global financial crisis to make the change apparent – writes Anatole Kaletsky, editor-at-large of London’s The Times, in an article catchingly entitled: “America sneezes and the world is germ-free”.
“It is clear that some permanent changes in the global balance of power really are occurring,” Kaletsky writes, “as I saw this month while visiting Brazil and South Africa, two large economies hard hit by the crisis in statistical terms, but seemingly more emboldened by the experience than depressed.”
Kaletsky’s article was published on Times Online last Thursday, two days after the publication of data officially confirming that South Africa had entered its first recession since 1992.
The country took the news in its stride: the local currency dipped, but not by much, while the JSE ended the day well up, and the South African Treasury responded by issuing a statement saying it expected economic growth to start recovering in the second half of the year.
While the rand, before Christmas, was falling dramatically, by early May it had bounced back to its pre-crisis levels, business confidence was returning, “and consumers were again thronging the vast malls that have sprouted like tropical weeds in the ever-expanding suburbs of Sao Paulo and Johannesburg,” Kaletsky writes.
“The remarkable resilience of these economies and the confidence of their business communities, their media and their financial markets, in contrast to the apocalyptic gloom in Britain, Europe and America, highlight the three transformations that this crisis has brought to light.”
The first of these three changes, Kaletsky argues, is the growth of the middle class in developing countries such as South Africa and Brazil, where “it is clear that almost all of the global growth in consumer spending and industrial investment is going to occur” over the next five years or more.
‘Determining their own destinies’
Secondly, while emerging economies have not been able to insulate themselves completely from the global crisis, they now have the ability “to determine their own destinies, regardless of the success or failure of US or European economic policies.”
South Africa has been helped in this by the growing trade in its commodities – particularly platinum and coal – with an increasingly powerful Chinese economy.
More important still, Kaletsky writes, is that South Africa has had the financial resources to implement its own stimulus package.
“South Africa … is one vast building site today in preparation for next year’s football World Cup. Despite the economic crisis, the government has been able to continue financing the construction of new roads and public transport networks, as well as sports grounds – and now President Zuma plans to increase substantially the public investment in housing as well.”
Buy-in from investors
The Brazilian government, Kaletsky notes, responded to the crisis with big public spending programmes aimed at reviving economic growth, launching bonds to raise capital to support these programmes – and international investors bought in.
There was similar buy-in for South Africa’s largest dollar-denominated bond to date, with the government announcing on 20 May that its latest offering, a US$1.5-billion, 10-year global bond, had been three times oversubscribed, drawing bids of more than $6-billion.
Why did this happen, asks Kaletsky. “[M]ainly because these countries have begun to demonstrate the capacity for self-sustaining growth based not just on exporting raw materials or consumer goods to America and Europe, but also on domestic investment and consumer demand.”
Social, political transformation
The third transformation in emerging countries like South Africa, Kaletsky argues, is a social and political one. For an emerging economy to transform itself from an exporter of raw materials into a service-oriented consumer society, it has to do two things: encourage the growth of a prosperous middle class, but also ensure fast increasing wages for blue-collar and agricultural workers.
“Moreover, development of thriving service sectors will mean greater choice and individualism, challenging autocratic political structures in one-party states.
“This has been the story of South Africa and Brazil in the past decade, and they seem to have made the transition successfully to pluralistic, liberal free-market democracies.”