THE investor community’s love affair with developing-market economies has soured. The romance has been replaced by recrimination. Leading the charge in words, following the deeds of weakening currencies and the sell-off of bonds and equities in emerging markets, was Anders Aslund, senior fellow at the Peterson Institute for International Economics. The Peterson Institute has been rated the top in its field. And Aslund, a Swedish economist, has a penchant for bold predictions which history has often later verified. Of Russia, during the Gorbachev era, he prognosticated a future outcome of "radicalised economic reform with far-reaching democratisation". That was precisely the path the Soviet Union followed, for a while at least.
On Friday, he turned his coruscating pen — dipped in a fair amount of vitriol — to the present slowdown in the one-time surging Brics economies. Writing in the Financial Times, he said that "the Brics party is over" and suggested that their economic resurrection lay in "their ability to carry through reforms in grim times for which they lacked the courage in the boom".
Doubtless his obituary might prove to be a mite premature. Still, he offers some persuasive evidence on how the key developing economies and Goldman Sachs-selected members of this club — Brazil, Russia, India and China — essentially squandered the recent golden years of growth. Of the group’s most recent entrant, South Africa, there is no mention at all, more of which anon.
He notes that the Bric countries (and, indeed, South Africa, until fairly recently) were the beneficiaries of two of the mightiest tailwinds in recent economic history: the commodity super-cycle, the credit boom and, more latterly, the half decade of quantitative easing that flooded developing markets with cheap credit. But, he suggests, this proved to be a false dawn, as it insulated the "entrenched elites from having to make hard choices" in the more difficult areas of reform to improve the underlying state of their economies. Their lives have been too good, he suggests.
Building on the famous aphorism of Warren Buffett — "You only know who has been swimming naked when the tide goes out" — he singles out India, a one-time investor darling for exemplary condemnation.
"Its inflation is too high, its budget deficit, public spending, and current account deficit are too large. Governance is mediocre at best, reflecting substantial corruption and a poor business environment."
In all four countries, a greater role of the state is seen as a solution. But, as he points out, "the corrupt state is the problem".
One of the items of evidence Aslund cites is the 2013 World Bank Ease of Doing Business Index for 185 countries: all four Bric countries slump in the tail end of this league: China does best at a lowly 91, and the other three do much worse — Russia (112), Brazil (130) and India (132).
Although South Africa, by omission, is spared from this withering critique, many of the maladies identified as lying under the Bric surface are commonplace here.
But there is one striking distinction. South Africa far outperforms its Brics associates in the same World Bank Ease of Doing Business Index. We weigh in at 39, a drop of five places compared with our ranking in 2010, but in the stratosphere compared with the other Brics countries. As policy makers in the government wonder how to reignite our stalled growth, rising unemployment and sky-high inequality, seizing and building on this comparative advantage would be an obvious pivot to turn around our fortunes.
Apparently not. Two items of evidence in recent days suggest that the challenges of business are of little concern to the paladins of power. A leading Cape businessman complained that business is either ignored or intimidated when it airs its views. And as if to confirm this tendency, on the same day, the director-general of labour airily dismissed every single suggestion put forward by business groups for the raft of amendment bills presently being considered by Parliament.
I recently attended a meeting in Johannesburg with the CEO of a leading local company that has made great strides in extending its footprint across Africa in the energy sector and related fields. He told me his company now has its head office in Mauritius. He explained that the local environment is so burdensome, particularly in its black economic empowerment provisions, that it was far easier to use the tiny Indian Ocean island as its African gateway than Johannesburg. Apparently a major multinational will soon locate its African headquarters out of Johannesburg and place them in Nairobi.
Neither fortune nor history looks kindly at those who squander their advantages. Perhaps we should take stock of our national assets and comparative advantages and build on them and ditch or amend those that drag us down. Or do things have to worsen before we listen and reform?