From colonialism to black asset managers

Seemingly unrelated headlines, about colonialism and an insufficient numbers of black asset managers, combine to spotlight: why economic solutions are remarkably elusive in SA, and how this situation can be made more manageable.

This is my fourth article in as many weeks exploring the implications of SA’s political economic dialogue being too dysfunctional to accommodate the emergence of a powerful growth model. The dialogue obstructions must be unblocked for the nation to move forward.

Politically, the factions of the ruling party are fraying but they still coalesce around focusing on inequality and redistribution. Economically, it makes no sense to emphasise the blurry concept of inequality as decades of focusing on high volume poverty alleviation is required to noticeably reduce inequality.

High volume poverty alleviation requires dramatically increasing value-added exports which, in turn, requires that the ruling party initiate sweeping policy reversals to emphasise growth and competitiveness ahead of equality and redistribution. While this doesn’t suit any of its formal alignment partners, such a shift should appeal to the ruling party's, and its partners', moderate, less-aged members. Yet their voices are quieted for lack of a commercially compelling and politically sellable plan.

While hatching such a plan is both difficult and doable, it can’t be cobbled together in a vacuum. Able economic solution designers would need to know what compromises are politically achievable. Such inputs are inaccessible without first transcending the dialogue challenges.

Among the reasons the dialogue impediments are so difficult to overcome is that there is remarkably little understanding, in the public or private sector, regarding how successful nations have managed their economic development. SA’s approaches pre- and post-1994 were never sustainable. Hence half the population is poor with poor prospects.

Economic development has been a hot branch of economics for over a decade as the global economy aggressively pivots from industrial-led to services-led and information-led growth. Multitudes of patterns and principles are being upended.

Industrial jobs have not just been moving to Asia and being lost to automation. The broad influence of traditional industrialisation, the cornerstone of development virtually everywhere, is in decline.

SA’s economic challenges are positioned along the leading edge of today’s historic global shifts, yet they are ignored politically in favour of an inward focus on inequality and redistribution. Commodity super cycles have not been repealed but SA’s resource wealth is likely to continue to lose relevance. The nation’s poverty will become increasingly entrenched in the absence of following the example of successful post-colonial nations which created massive numbers of jobs through exporting value-added goods and services.

Openly discussing colonialism in SA is awkward yet the country must upgrade its economic development knowledge base. Colonialism was followed by post-colonialism which offers the insights of some former colonies spectacularly succeeding while other have wallowed in abject poverty or gone backwards. Those insights are absent amid the intellectual void which exist where SA’s political economic dialogue should be thriving.

The global economy that SA’s policy makers must meaningfully engage is now post-colonial and post-industrial. Some post-colonial lessons remain relevant but there is no option of simply importing another country’s pre-21st century blueprint.

Within many of SA’s asset management companies resides tremendous economic analysis sophistication. For the most part however, such expertise relies on tools, developed to suit the features of highly advanced economies, that were later imported into SA. Today’s global pivot to a “new normal” creates potent incentives for SA’s leading asset managers to tweak their methodologies and expand their tool sets.

SA was always going to have to sharply increase value-added exports to meaningfully alleviate poverty but now it will have to happen out of desperation. The country's consumers are unable or unwilling to spend sufficiently to fuel adequate growth.

A basic follow-the-money analysis will highlight this: how money is redistributed in various ways from the affluent to those who are trying to escape poverty; and then significant portions of those funds flow to banks to repay high priced loans. This is hectically shortsighted, yet broadly accepted.

Metaphorically, this amounts to harvesting juvenile fish. Those who are somehow escaping poverty and government dependence are weighed down by imprudent indebtedness. From an economic development perspective, SA has pursued various policies that are the inverse of those followed by successful former colonies.

That SA’s political economic dialogues are profoundly inadequate was demonstrated by a real life pop quiz in 2014. Among all the voices of senior public and private decision makers, only two demonstrated an understanding of the basic economic development risks of resuscitating African Bank - the two lone dissenters were both asset managers.

Redistribution always had a role to play but it has been poorly managed. As appealing as redistribution is to many politicians, expanding reliance on it, through legislating increasing ownership and control quotas, is certain to backfire if it follows anything that resembles the state owned enterprises precedents.

Us-versus-them must give way to we-are-in-this-together type thinking. Having more senior black asset managers in the private sector is a solid idea if it leads to greater insights regarding how public and private decisions influence emerging households and communities.

There are strong arguments for shifting the composition of asset managers to include far more economic development expertise. This makes solid business sense as does having a more multicultural perspective.

That SA’s policy makers are closed off to global realities is a systemic risk factor. It must not be accompanied by ignorance around how policy decisions play out across local marginalised communities. From a dialogue perspective, it is much harder for political opportunists to push back against such local insights, as they do with those from the successes and failures of former colonies.

Asset managers are charged with safeguarding investments. In doing this they perform the extremely complicated and essential task of continually updating prices of financial assets. This allows capital flows to respond efficiently as opportunities shift.

Yet traditional macroeconomic investment tools are predicated on assumptions that don’t hold in SA. This country lacks sources of economic momentum amid rising liabilities and policy incoherence.

To meaningfully join the global community requires specialising to the point of being the best in the world. SA should lead the world in having asset managers that intimately understand the success determinants among emerging nations.

Shawn Hagedorn is an independent strategy adviser

@shawnhagedorn