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Tuesday, February 17, 2009

South African Resolve - Graeme Smith has showed us how to do it!

At Smith's press conference yesterday, there was an air of maturity to his person, a quite resolve and a great amount of modesty. To an unknowing spectator it would be hard to comprehend that this man had captained a side that had recently rewritten the history books. This was a different Smith to the one who last led the Proteas to Australia in 2005. He arrived for that series full of bluster and pomp, and the Australians understandably revelled in the defeat of South Africa after they had beaten us in the series. The Australian press and the public shamed Smith for his over-confidence and for his inability to back it up with results.

However in this current tour, Smith has won over the same press and public by beating his opponents on the pitch, as a gentleman, and playing a hard-fought series full of conviction and bravery. The Australian press has always been extremely partisan when covering their nation's sporting events, and South Africa has on more than one occasion fallen shy of the persistent media frenzy that ensues during a tour Down Under. For the first time in living memory the Australian press not only began to present South Africa in a positive light, but rallied behind the touring side with an enthusiasm previously, and strictly, reserved for their own national side.
Headlines such as "Day the losing captain won" and "Maimed king wins hardest hearts of all" appeared in the Sydney Morning Herald, but these sentiments paled in comparison to the admission by Australian journalist Andrew Stevenson: "And for the first time in my life as a cricketing spectator I felt my loyalties shift. Having grown up on a diet of Lillee and Marsh and Chappell, I'd found an opponent I could love.

"With every play-and-miss, Ntini seemed more worthy. Every time Steyn stood in line with the stumps and offered fierce resistance, I was in his corner. Smith's arrival at the crease was the crowning moment. In defeat, South Africa issued a proclamation to the cricketing world every bit as resounding as their twin victories entering this match. If you want to beat us be ready for a long fight: we will not concede an inch.

A new champion has arrived in world cricket: long may they reign."

South Africans around the nation woke up early for that final test day at the Sydney Cricket Ground. Children, wives, husbands and grandparents, many of whom had never been cricket fans before, watched in anticipation as the South African bowlers stood their ground, bats in hand, against the Australian onslaught.

After an almighty performance, Dale Steyn's wicket fell, and the Australian fans went wild in victory. As if scripted, as if on a movie set, the camera panned to the South African dressing room, and clad in borrowed clothes, battered and bruised, Graeme Smith made his way to the crease.

As he descended those steps, as he walked out onto one of the most hostile cricket grounds in the world, the stands erupted in a standing ovation. The fact that he lasted seventeen deliveries matters not.

As he walked from that change room Graeme Smith, our boy captain, our broken soldier, showed us what mettle really is. Despite this, despite the praise and the accolades, despite the symbolism of the moment, Graeme Smith demonstrated one thing; he demonstrated bravery, spirit and ultimately a moral victory won through action, conviction and good sportsmanship.
South African sport has come of age; our captains and players demonstrate a standard to the rest of the world that demands recognition, respect and a certain form of emulation. They offer all of us a reason to be proud, a reason to be hopeful, an example to follow, but most of all the pleasure of seeing South Africans showing the best in the world how it is meant to be done. Earlier this week we were forwarded this (unfortunately anonymous) email from someone who had been moved by Smith's courage:

"What a day of contrasts. The early hours saw one previously unpopular South African; walking down the stairs of the SCG, to a standing ovation and bringing even the hardest SA fan close to tears of pride. That's us isn't it? That's you and me, or at least visions of how we'd like to see ourselves, battered and bruised but defiant in the face of improbability.
"I have this constant debate with my wife who fails to see the point of sport. We may not have an Obama to give us a speech that invokes in us strength to keep believing in the impossible, but even my wife sat transfixed this morning as a picture of a man striding down 20 steps said, without uttering a single word, to the rest of the world "try tell me that I can't."

"Later in the same day headlines are made by another ex-South African who quits his role as England cricket captain after just 5 months at the helm. The odds were too tough to make it happen in South Africa, the greener grass of foreign pastures too alluring to resist. Without realising it KP, you represent so many others like you. You are not alone, there are many like you who figure the odds are stacked too high to make it happen here in South Africa and look for the easier option. But you forget one thing; you forget that dealing with adversity in life breeds strength and character. Having the chips stacked against you, only to believe in something enough to defy the odds to come through these things again, and again, and again... that's something another coloured passport can not offer you.

"Thank you Graeme Smith, you gave us the Obama moment that reminded us why we love being South African this much. We are in for one hell of a tough year this year with no promise of what the end result might be. The rest of the world keeps telling us that we are just another part of the crippled body of Africa with no hope and a one way ticket to failure. Seems like a pretty good time to go and bat then."

South African Politics Unravelled!

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What is the future for SA economy?

Can the country head off the shocks laying us low?

This needs a qualifier. Just how big will the external shocks still become? A global meltdown-cum-depression-cum-deflation would be in a class all of its own.

Such an ultimate shock is not what we face today. At least, that is the current reading. Even so, the actual reality is still daunting in the extreme.

The global banking system is bankrupt in important parts, with $2 trill of bad assets still to be written off.

There is a deep sense of fear and therefore defensiveness encouraging private spending withdrawal, abruptly pushing the global economy into deep recession.

What we face needs to be unpacked and compartmentalised.

There is the aftermath from last year: electricity shock cutting output, commodity inflation shock cutting real buying power, interest rate response increasing the debt servicing burden, national credit act inviting banks to be more conservative in granting credit, and a pervasive fear of more bad news to come deepening defensiveness.

All of that very expertly floored the economy, especially household consumption spending but also critical parts of private fixed investment. From July 2008 non-agricultural GDP (98% of the total) entered recession (-0.1% annualized). It only got (much) worse since then.

At the very moment the economy entered recession in mid-2008, some of the recession drivers abruptly let up.

Oil started collapsing, with food price inflation following more sedately. From December the SARB followed with its first interest rate cut of 0.5%. Throughout the Minister of Finance quietly accepted his tax receipts were falling (especially VAT, sin taxes, customs and excise, and above all property transfer fees), borrowing the difference rather than add insult to injury and start cutting his own spending, too.

Thus throughout 2H2008, we had many shock absorbers coming to the rescue.

The Rand went 40% down compared to 2007. The Finance Minister accepted an R14bn revenue shortfall while allowing R29bn of additional spending overruns (we now know). The SARB, not before time, decided to relent from December 2008, cutting rates by 0.5%. Oil dropped by over $110. Infrastructure spending continued at full throttle.

Yet in that very period, Lehman Brothers lost its battle and Paulson/Bernanke succeeded in frightening a world audience. The financial hit spilled over, pushing the world economy into deep recession overnight.

From October onward, it was obvious South Africa would be hit hard in a number of ways. Directly, there was to be fallout for our exporters. Indirectly, would external financing remain accessible?

This kind of shock event needs to be addressed on two levels. Foremost, the currency needs to absorb part of the external shock. And domestically there needs to be accommodation.

Happily, imported oil turned out to be our biggest shock absorber, falling over $100, thereby neutralizing most of our export commodity price declines. Although the Rand still needed to complement the oil shock absorber by also declining to compensate for net export volume losses (possibly of the order of 0%-5% this year), not all the burden would fall on it.

The Rand settling at 10:$ may have been enough, but coming months will tell whether more would have been better.

Meanwhile, what’s the use of accumulated economic strength if you don’t use it?

The Finance Minister has reduced the national debt from over 50% of GDP 15 years ago to nearer 22% today, allowing his budget two years ago to gradually drift anti-cyclically into surplus.

Following last year’s many hits to the economy, not only did he need to cover the revenue shortfall without cutting his spending, but ideally he would find ways to increase critical spending to prevent too much of a slide below growth potential.

The Minister did so by allowing a swing from 1% of GDP surplus to 4% of GDP deficit spread over two years, with half the swing accounted by tax shortfalls and half by extra spending, mostly focused on the poor.

Meanwhile what’s the use of high real interest rates? Well, you can cut them drastically in an emergency. From prime 15.5% in the crisis month October 2008, the SARB cut by 0.5% in December 2008, and by a further 1% in February 2009.

Further 1% cuts are expected in March and April, and possibly June 2009, with 0.5% rate cuts also still possible, prime now aiming for 10%-11% by 3Q2009, as already fully discounted by markets, realistically so.

Also, with political pressures independently building to do more for the poor, these stressful times create the opportunity to increase public spending on the poor without too many questions asked.

Exactly that has happened.

In this manner we are now addressing four shock demands within a year, counting local electricity and politics, and global commodity and financial upheavals.

Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics

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