“The butterfly effect” explains how a butterfly flapping its wings in the Amazon triggers a massive storm across Europe.
As John Gribbin explains the work of meteorologist Edward Lorenz, who first developed this chaos theory:
We all saw this – and many felt the pain in their savings and investment accounts – on Monday. Storms hit financial and stock markets worldwide. No one was spared, not least the battered ZAR and JSE here.
The rand returned to its lowest level in two months, reversing the gains it made on the back of the formation of the government of national unity (GNU).
The sharp but lesser fall on the JSE is explained by the bourse being less exposed than other stock exchanges to major US tech companies.
Several disparate but clearly interconnected data points and announcements triggered the global meltdown on markets, though there was some recovery on Tuesday.
Two key countries and financial systems, in the US and Japan, very far from here, precipitated the markets’ mayhem. This was a sharp and painful reminder of the interconnectedness of even seemingly random events and their global impact.
On Friday, in America, a poor jobs report – unemployment rose to 4.3% (how we can only dream of that statistic here!) and the US Federal Reserve was blamed for not cutting the interest rate at its meeting just two days before.
Fears of an economic recession coupled with a market correction led to vast selloffs, particularly in the overheated tech sector.
In Japan, which on Monday witnessed its worst one drop on the Nikkei Stock Average since 1987, the cause was attributed to both the US tech plunge and the rate rise in the Japanese yen. Many traders had borrowed in cheaper yen to bet on US tech shares, and promptly wound down these trades.
As the Wall Street Journal noted on both Monday’s market bloodbath and the relative recovery by Tuesday:
Twenty-four hours later a new trigger arrived, in the form of better-than-expected data: “markets partially rebounded – again far more than the data could justify”.
South Africa, a relatively small economy, on the far side of this world, is both exposed to all this global uncertainty and heavily dependent on outside events because of its borrowing needs from international investors. The slightest flap of international butterfly wings triggers local tremors.
Risk aversion which often follows market meltdowns has significant implications here, on everything from the cost of government borrowing (now around R2 billion per weekday) to our share prices (41% of the top 100 JSE companies are owned by foreign investors, according to National Treasury).
If external factors beyond our control lead to the withdrawal of so-called hot money, the obvious remedy for both stability and improving growth – intensely connected concepts – is to fix the local economy and make it attractive to long-term investors, both here and overseas.
This screamingly obvious, deeply rational, response, runs up against political obstacles here which have proven, over the years, hard to remove.
Last year, for example, foreign direct investment in SA fell 43% compared to 2021, according to the latest World Investment Report of the UN Conference on Trade and Development.
It is not a state secret exactly the recent offer of President Cyril Ramaphosa to the DA of the Department of Trade, Industry and Competition, which he withdrew just 48 hours later, was caused by intense internal opposition.
The powerful Mr Mantashe
There is little point now in interrogating the “what ifs” had a DA minister taken charge of the key government department which bestrides the local economy and either attracts or repels investors depending on its regulatory inclinations and interventions.
It is common cause the most sceptical person on the ANC side of any suggestion a market-friendly pro-investment force should take charge of the local economy was the powerful ANC chairperson, Gwede Mantashe.
In the past few days, Mantashe’s party has been involved in an interrogation of its recent vertiginous electoral fall and its decline in the affection of its previous loyal voters.
Intense disenchantment due to high unemployment – among other factors – was identified by the ANC as one cause. But there is no sign yet the party will seriously reconsider key articles of its economic faith which caused its own electoral meltdown.
A serious examination would uncomfortably require a reappraisal of Mantashe’s singular role and the roadblocks he has, since 2018, placed on the pathway to SA’s economic recovery and investor friendliness. These, too, are closely linked or correlated.
True, Ramaphosa relieved Mantashe of control over energy and electricity, which was his previous remit. Here the figures speak for themselves. As Carol Paton laid plain in News24, his five years at energy led to just “a pathetic 150MW of new generation capacity to the grid” (to meet a shortfall of 4 000MW).
Since the grim days and nights of load shedding was identified by the ANC, correctly, as a core reason for voter desertion, you don’t need to Sherlock Holmes to identify the culprit.
But for even longer – since he still holds this office today – Mantashe has been minister of mineral and petroleum resources. Here the score board is even worse. Not just on his watch but through both his actions and inactions, our once-pole position as a destination for mining investment has slumped disastrously. Take the minerals half of his political empire.
In mid-May the authoritative Fraser Institute survey, an international gauge on countries’ attractiveness as a mining destination for investment, saw SA slump. We were placed at a new low of 64th in the world (out of 86 countries surveyed ).
And while not each of the negative factors, such as logistics and environmental regulations, are in Mantashe’s wheelhouse, the regulatory measures and administrative (or extreme maladministration) competence of his department are entirely for his account.
Mantashe – beyond his heft as party chairperson – is also powerful and apparently immovable from the minerals job due to his strong trade union record as former secretary-general of the National Union of Mineworkers, the same post once held by Ramaphosa. And there is an intense debate right now as to whether mining is a sunset rather than the sunrise industry Mantashe proclaims it to be.
If traditional minerals and mining here dates back here to the 1880s, the new horizon which suggest a more blooming economic renaissance for the country is the significant discovery of lucrative gas fields off our coastline. So, we enter the other half of Mantashe’s political fief.
Disinvestment disaster
Another former trade unionist (and ex-ANC MP) and for decades since, a business mogul, Johnny Copelyn, the CEO of HCI, advised last week “no industry has greater potential to grow the country’s economy than gas and oil”.
Yet in the latest blow to a reeling investor landscape, French energy major TotalEnegies upped sticks and deserted its operations at both the Luiperd and Brulpadda offshore sites having sunk an already irrecoverable $400 million in both projects.
Copelyn describes their departure as a disaster. Two other international partners – alongside HCI and Total – had already quit both sites. Only HCI remains. But it will need new foreign investors to make up the investment needed.
There are plenty of parties to blame for this disinvestment and for the uncertain future for an industry which is currently galvanising neighbouring Namibia to new economic heights. Environmental litigation is one cause. The dysfunction and corruption at PetroSA are another.
But again zero in on Mantashe and his department: This is precisely what Claude de Baissac, who heads Eunomix, an investment and risk advisory consultancy, interrogates in a lengthy article in the Daily Maverick on 5 August.
Among his conclusions: The Department of Mineral Resources and Energy (as Mantashe’s ministry was until May) never had nor hired the necessary expertise to “understand, design the policies and programmes … and conduct the massive infrastructure work that comes with a project of such magnitude and complexity”.
Immovable status
In his view, the project “suffered a distinct lack of seriousness from government … and the responsibility squarely sat with Minister Mantashe, so does accountability for his and his team’s failure to deliver”.
To this bill of indictment, we can add the opportunity cost: beyond lowering our greenhouse gas emissions and the provision of cheap electricity, the project would have added a whopping 25% to FDI in South Africa. Apparently, its successful conclusion – now in the gravest doubt – was a key performance indicator which Mantashe signed with Ramaphosa.
Given his apparently immovable status as minister of minerals and petroleum resources, that contract likely will not be enforced. The likelihood that, at 69 years old, Mantashe will become a born-again reformist is as remote. Is there any light at the end of this gloomy, non-gas-lit tunnel?
Du Baissac suggests one serious option is for the GNU “to carve petroleum and gas out of [Mantashe’s ministry] and allocate it to the decidedly more serious Department of Electricity and Energy [headed by Kgoisiento Ramakgopa]”.
He managed with energy reform and Eskom refurbishment to achieve in months what Mantashe failed to do in years.
Of course, given the political roadblocks which stand in the way of this and other relief measures, no change can be confidently anticipated.
In the absence of a step change, Du Baissac offers a stark conclusion: “Watch Namibia eat our breakfast, lunch and dinner.”
One hopes this thought might cause some indigestion whenever the GNU Cabinet next meets. It is a butterfly flapping close to home indeed.
