Featured Titan

Featured Titan
"Listen Attentively, Think Critically, Act Decisively!"

Friday, August 13, 2010

Building Blocks: reconstructing a frailing economy

Several years into political liberation and our people are still poor, some live under conditions animals shouldn’t have to, they go hungry for days and hopelessly go about everyday not knowing whether their skies will be grey or blue come dawn. Yet, many of us shamelessly live around a kind of opulence fit for kings, mindlessly and wastefully taking for granted the blessings many people know only how to pray for.

Even though we shouldn’t have to apologise for the earned fruits of our labour, we should however be very cognisant of the fact that we are mere beneficiaries of our context and that the random roll of the dice has tended to favour us more than others. There is no such thing as: “I made it on my own!” life sometimes randomly conspires to throw favourable circumstances to our direction and we are fortunate enough to mindfully exploit these to our full advantage, as we should. Think of many key moments in your life, where you had to choose between going north and going south and then think of where things could have very well ended had you chosen one instead of the other, only heaven knows where your life would be today.

What should be crystal clear to us all is that we have reached a critical juncture in a journey to a fortuitous destination. I say critical because it is yet another opportunity to choose between north and south. We live in a country plagued by corruption, joblessness, crime and diseases (AIDS in particular). As these worsen, they seem to reinforce their total effect and feed off each other creating a downward spiralling vortex of destruction. To go north is to decide to do something about it, no matter how trivial it may seem, to do nothing but watch from the sidelines is to go south, a sure-fire path to complete Armageddon.

Right now we have a lot of unemployed youth (75% of our labour force to be exact), most of whom have never had a job before and thus have no labour market experience, their future prospects of formal employment are slim to none. So if you look through the data into people’s lives you’ll see a lot of suffering, hopelessness and pain. Naturally, frustrated unemployable youth are a ticking time bomb and if we don’t do something substantial and very fast, heavens be with us.

Without jobs people cannot earn a living, without a living people become more dependent on the state, with this dependence comes a supplicant disposition, with this disposition politicians and elected officials cannot be held to account, without account people do what is in only their interest, with the self-serving interests of money and power come tyranny and with tyranny we are no different to many states to the north of our borders. Clearly, we are a lot closer to Armageddon than we’d like to believe.

The taxpayer base is already small as it is and with more and more people losing their employment this base diminishes still, this means overall domestic demand for all goods and services will shrink (because people don’t have income to spur demand) leading to more job losses, lessening our total output further. This means Government will have to borrow even more to just standstill on delivery. How long will that last? Eventually, social welfare, public health and service delivery will suffer to an unfathomable point. I don’t mean to sound like the prophet of doom; I am merely bringing caution to light.

There is no doubt in my mind that of all the challenges facing our nation, job creation is by far the most poignant. Even if you sealed off all portholes, paid public servants more and cleared the housing backlog, you would still remain with the grim prospects of an unemployed and angry youth; 16 June 1976 may look like a walk in the park. What makes this particular challenge all the more concerning is that it is laden with all sorts of complexities.

There is no single definitive solution to unemployment, because there is no single clear cause of unemployment. The solutions have to be structured and tiered correctly to address unemployment sufficiently and sustainably. Any solution prophesied to be a magic-bullet will fall short as too optimistic, idealistic or a mere simplification of what is a serious dichotomy of issues. Perhaps it is worthwhile to look at unemployment as a multiplicity of problems. For one, you have unemployed adults, then unemployed youth, then unemployed but educated, unemployed uneducated, unemployed urban and an unemployed rural populace. Clearly the solutions are as varied as the causes and require careful consideration and a multipronged approach.

To suggest that 6, 7 or 8% GDP growth is the ineffaceable solution is plausible and has some merit. However, we have seen, over the years, a growing disparity between the rate at which an economy grows and that at which it creates jobs. GDP growth may come purely as a result of non-labour absorbing economic activities, such as; an increase in global commodity demand or prices. Thus GDP growth may prove to be an underdose of an antidote. Moreover, the first hurdle with this solution is to first find solutions to the creation of GDP growth. Concisely, economic growth is a necessity but not an antidote for job creation.

Another popular proposition is the beneficiation of mineral resources, which has garnered much fanfare and excitement among some of my learnered colleagues, but questions remain around the international competitiveness with which we can beneficiate these minerals, the number of possible jobs that can be created, the nature of these jobs, the geographic spread of this jobs and importantly the education and skills required in these jobs. Two major categories of inhibitors come in the way of sustained employment creation, viz. Labour Related (Laws, skills and prices) and Economic related (growth, policies and infrastructure) challenges.

I stand by my view that it will be the orderly permutation of solutions that suffices in the end. South Africa needs to create 6 million jobs and provide for another 2 million new entrants very fast. Assuming that there’re no job losses, no major strikes, no electricity supply constraints and a translation ratio of 0.5% employment growth ratio for every 1% growth in GDP, it would still take 20 years to address our unemployment backlog, that’s an entire generation. Needless to say this is a highly optimistic view, unlikely to say the least.

So how then can we transcend this problem? What factors should we consider, what combination of solutions are likely to yield results in both the short-term and in the long-term? How do we create jobs, in what quantities, where do we create these jobs and what type of jobs do we create? These are all very thorny questions which require the skilful command on po-litical, macroeconomic and social expertise for our political leaders, union bosses and captains of industry alike.

There are two separate yet related issues that need attention; the first is education. If you consider the fact that South Africa has a Grade 12 pass rate of only 60% [2009], you should hasten to ask the question, what becomes of the 40% who do not pass grade 12? If 600 000 children write their grade 12 final exams and as many as 40% (240 000) fail, there’s clearly something wrong in the system. If you fail grade 12, you are unlikely to be employed, pretty much anywhere. So here you have 250 000 young adults, most of whom are loitering at home, finding entertainment in recreational sex (easily) with multiple concurrent partners often leading to HIV infections and “child” pregnancy, which at that stage becomes the burden of the state, through the payment of a child grants and perilous demand on the public healthcare system.

At this rate, we are on course to produce millions of unemployable youth, millions of new social welfare cases and an expansionary socioeconomic disaster. The solution begins in the individual households and communities with parents taking responsibility for the education of their children. It then extends to the department of education and to teachers, who have a collective legal and moral responsibility to ensure that these children receive good quality education uninterrupted by strikes and perverse personal ends.

So we start by achieving a 100% grade 12 pass rate, then we ensure that all those who wish receive further education in growing fields of employment. This is the idealism and simplification I mentioned earlier. However, our standards in education need to be unrelenting, it must be compulsory for all failed pupils to receive tutoring and assistance to rewrite and pass their grade 12 within 3 months immediately after failing their final exams. This is a very pragmatic approach to solving what is a very real cause of long-term structural unemployment.

The second problem is dealing with 8 million jobs that need to be created in a relatively short period of time. Practically speaking, there are two obvious pathways to solving the problem. The one is to identify, promote and invest in large scale job creating industries. Mining, manufacturing and agriculture come to mind, even though mining and agriculture only employ 1.1 million (8.3%) people combined. The scope for beneficiation in mining and security of tenure in agricultural land are almost certain to double the ranks of the employed in those sectors. Provided black farmers come to the party and new crops are explored i.e. for bio-fuels and allied industries.

Part of the problem with unemployment is our continued obsession with the obsolete dogma of working as salaried hedgehogs. We are now living in a virtual world, we are moving passed the information age at the speed of light, yet we continue to flirt with stale, failed and recycled proposals. In this century the concept of employment needs to be as fluid as the world in which it has to occur. People need to be taught to be enterprising and equipped with the basic skills they need to generate their own living. This is an inevitable change, no state or private sector can create 8 million jobs in the short or mid-term (No matter what the New Growth Path may suggest), the sooner we accept this fate the sooner we are able to forge ahead with practical solution that will work.

Unavoidably, the solution is small business development. I am talking less start-ups and more value-add. I am talking about co-operative business development, where complementary skills can be successfully invested and scarce resources concentrated to lessen the chances of failure of these small businesses. I am not talking about starting a million security, cleaning, landscaping and catering businesses, but, I am talking about the tailor making of effective and creative solutions to existing problems of Government, businesses and households.

If unemployed graduates were willing and allowed to work (on a contingency basis) at a local business, bringing in their education and marrying this with the experience and knowledge of business owners and employees, a very rich outcome could very well be the manifestation of such an initiative. If this translates to growth in these businesses then graduates can be paid a percentage of the additional income that these businesses now generate or maybe considered for employment, partnership in the business or self-employment opportunities as value-adding independent consultants.

In this way there’s a practical relationship between adding value to a local business and being compensated for it. This proposition represents no risk to the business owner and an incredible opportunity for a graduate to earn their stripes and generate some form of income. This can be done in rural and urban communities, assuming that there’re enough businesses as it is for graduates to approach. In this way, employment is created where people live and urban migration, to the extent that it is caused by unemployment, can be sharply reduced.

There is little wonder why our people remain obstinately poor, seeing how everyone is waiting for jobs to be created by the political kind. The correct cause of action is one whereby our people are both encouraged and empowered to do if for themselves!!!

Blood Money: The HIV Conspiracy

So I recently came across a report suggesting that the annual HIV/AIDS market was worth US$12bn in 2009 and that this figure will be US$13bn by 2016. The irony is, many of the afflicted nations can hardly weave together that amount in their annual GDP i.e. Botswana with US$11.6bn, Zimbabwe US$4.3bn and Swaziland US$2.9bn etc.

The most disturbing thing about all this is that although Africa is inhabited by less than 15% of the world’s population, it is plagued by 88% of worldwide HIV cases and about 92% of all HIV/AIDS related deaths. Why is this, you ask? Could it be that we are more promiscuous? More than the richer western countries with millions of druggies running around engaging in high risk sexual behaviour? I think not!

Here's a more plausible albeit more alarming possibility; Africa has a disproportionate HIV infected population by design! The higher death rates are a consequence of poverty, illiteracy and poor access to healthcare. We can tackle this another time. Why am I saying this is by design?

Well I recently came across another article, actually, I've been sitting on this article for a few years now. The article is called W.H.O Murdered Africa! by Dr William Campbell Douglas. Note the exclamation mark, suggesting that this is a statement not a question!

The article is complicated, laden with jargon and you need to understand a bit of virology to get it. However even I, with limited understanding of HIV and how it works, can see clearly the message being posited. The following passage is a direct excerpt from the article in question:

[There are some viruses in animals that cause very lethal cancer in those animals, but do not affect man or other animals. The bovine leukaemia virus (BLV), for example, is lethal to cows but not humans. There is another virus that occurs in sheep called sheep visna virus which is also non-reactive in man. These deadly viruses are "retro viruses" meaning that they can change the genetic composition of cells that they enter.

The World Health Organisation in published articles, called for scientists to work with these deadly agents and attempt to make a hybrid virus that would be deadly to humans. In the bulletin of the World Health Organisation WHO), Volume 47, p.259, 1972, they said, "An attempt should be made to see if viruses can in fact exert selective effects on immune function. The possibility should be looked into that the immune response to the virus itself may be impaired if the infecting virus damages, more or less selectively, the cell responding to the virus." That's AIDS.

What the WHO is saying in plain English is "Let's cook up a virus that selectively destroys the T-cell system of man, an acquired immune deficiency." Why would anyone want to do this? If you destroy the T-cell system of man you destroy man. Is it even remotely possible that the World Health Organisation would want to develop a virus that would wipe out the human race?]

The reason I've been sitting on this article all this time is that I don't believe in ALL conspiracies and prefer appraising information rigorously before I disseminate it further. This is also important since I don't promote libel or slander and if this is not true then the WHOs reputation is being defamed. However, if this were true, what would be a motive? and how does this answer the question about the disproportionate HIV affliction of African countries?

Well, Dr Douglass, suggests that "They used small pox vaccine for their vehicle and the geographical sites chosen in 1972 were Uganda and other African states, Haiti, Brazil and Japan. The present or recent past of AIDS epidemiology coincides with these geographical areas."

This hypothesis sufficiently explains why Africa has been so substantially plagued by the virus. As for the motive, US$12bn and counting can buy a small country! Make of it what you will BUT I am of the view that the largely western beneficiaries (Pharmaceutical companies) benefitting from this virus are living off BLOOD MONEY in the same way that many companies live off Blood Diamonds!

The economics of HIV/AIDS largely favour those companies that can ruthlessly exploit the deliberate OR accidental spread of HIV/AIDS. I guess money is measured in denominations and purchasing power and not in moral codes. As they say, there's no money in the cure, all the money is in the treatment... so don't hold your breath just yet!

Wednesday, March 24, 2010

Economic Development and Growth in SA

I am currently writing a white paper on job-led economic development and growth in Africa. The title being “How do we solve the problems on unemployment, underdevelopment and growthlessness”. This white paper seeks to posit an array of intellectual propositions to address the scourge of unemployment, which as we all know exacerbates many other social ills.

As someone whose opinion I value, I invite you to help me answer one very simple question;

1. What is it that needs to be done, in South Africa, to achieve growth that leads to employment creation and development?

Please post comments below and add your opinion on the subject matter.

Sunday, January 17, 2010

CRUDE OIL: Prepare for hyper inflation

OILY POCKETS by Tshepo Phakathi


According to the annual list compiled by Forbes (The Global 2000, 04.08.09); of the 10 largest companies in the world by sales, 6 are in the business of oil and gas operations. With combined sales of nearly US$2 trillion, the smallest of these 6 companies generates annual sales larger than the entire South African Gross Domestic Product (GDP). That’s hardly surprising given the worlds lust for the “black gold” and its illustrious ability to create dynastic wealth, notwithstanding our precarious dependence on it as a primary energy source.

Oil has been in use since the beginning of humankind, in-fact, the word petroleum is a hybrid of the ancient Greek word Petro (meaning ROCK) and old Latin word Oleum (meaning OIL). Crude Oil occurs in underground rocks that are rich in hydrocarbons and buried deep enough for subterranean heat to cook it into usable oil. Societies throughout history have used petroleum as the primary raw material for numerous chemical products, such as, pharmaceuticals, fertilisers, plastics, pesticides and solvents. However, almost 85% of petroleum is refined into gasoline and fuel oils.

Known reserves of petroleum (crude oil) are estimated around 1 trillion barrels excluding oil sands and oil shales (uneconomical oil). Current consumption is estimated at 80 – 90 million barrels per day. At this rate all the light grades of oil, which produce the best yields of primary energy products, will be depleted by 2040, all things being equal. There’ll be another 90 years of oil (very expensive oil) once we factor in oil sands and oil shales. At an average price of US$100/bbl, the oil industry still has another US$100 trillion of possible income to earn.

So why then is there so much debate on peak oil, a looming global oil crises and supply side constraints. What if we just sped up renewable energy to force down the average price of oil and simultaneously lessen our dependence of the stuff? Well I’d like to proposition three future scenarios of oil as I see them;

Calm Waters Scenario: Assuming that claimed and recoverable proven reserves are accurately stated at 1 trillion barrels and that the increase in demand for oil remains relatively tame, coupled with weak global growth and deceleration in emerging market demand, particularly China and India, for natural resources. In terms of this scenario, oil prices will remain relatively stable over an extended period much like 1991 – 2002 where oil stabilised around US$35/bbl precipitating the global boom that followed shortly afterward. In this way any interruption in the price of oil will be mild and self-correcting as demand and supply will remain fairly constant.

Quiet Storm Scenario: Assuming that there’s accelerated recovery in the global economy, exerting supply side pressure on oil production and forcing prices higher much faster. In the near term, Chinese growth will remain buoyed by accelerated investment in infrastructure, urbanisation and recovering global demand for Chinese exports. Crude oil prices quicken to US$150/bbl causing a panic in global markets with concerns that higher crude prices could mean higher inflation forcing a W-shaped recession and pulling the world back into the hole.

The sudden upsurge in the price of crude oil causes a mild cardiac arrest on the global economy, forcing down global demand, prompting accelerated investment in renewable energy production, secondary recoveries in abandoned oils wells, renewed exploration interest and an OPEC ping-pong aimed at sanctioning production volume increases. Ironically, higher crude prices remain obstinate as the Chinese increase demand to secure supply for their growth needs and the US outbids them for continued operation of the US economy. In this scenario, crude oil prices rise sharply and quickly recede to sustainable levels of around US$110/bbl, in a 1999 – 2002 n-style, causing moderate global inflation but nothing to crash the world economy.

Downpour Scenario: Assuming that not all the known reserves are recoverable, rising marginal extraction costs get out of control, stability in oil producing countries deteriorates, emerging market urbanisation accelerates, advances in medicine and science cause a rise in global life expectancy causing runaway population growth, global warming continues to play havoc on worldwide weather making winters colder and summers hotter and ever slowing breakthroughs in scalable renewable energy production.

This is more of a perfect storm scenario not necessarily far from realism. 80% of all oil reserves are located in the Middle East, with another 7% in warzones and volatile areas such as the Niger Delta and other rebel contested African states. It is not hard to see that without success in complicated peace negotiations, democratic elections that ligitimise governments and disarmament of nuclear weapons, we could easily have tragic supply side problems, which will unavoidably push crude prices higher. Furthermore, we know that not all stated oil reserves are easily recoverable, with an increasing number of wells running deeper and sparsely located making it more expensive for oil extraction. If you add rising labour costs pushed up by inflation, dreadful working environments, deteriorating worker’s health, an ageing workforce etc, then the crude oil price outlook appears less rosy by the minute.

More oil wells will soon reach their peak in the Middle East, causing permanent reductions in produced quantities and then oil will approach and possibly breakthrough the US$200/bbl mark. For as long as the worlds depends on crude oil for its primary energy needs, the threat of peak oil, runaway demand and supply-side interruptions lingers. It is possible that within the short to medium term the forces of a global economic recovery, emerging market growth, deteriorating investment in crude oil exploration, etc, will force oil prices much higher than most people can fathom, causing perilous hyper inflationary damage.

If you are a gambling man you might want to gamble with oil and potentially oil your pockets for generations to come. When John D. Rockefeller died in 1937 his net worth was measured at 3% of the US GDP; in 2008 dollars this would mean he died more than US$400bn strong, making Bill Gates’ US$50bn look like chump change. Rockefeller is history’s best remembered oil mogul having built Standard Oil using all and any means necessary, which would have earned him the mercenary label by today’s standards. If you won’t invest in oil, then find a way to hedge against its inevitable adverse inflationary effects.