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This week, we're going to hone in on one of the largest emerging markets in the world: South Africa
Welcome to the Global Capitalist - A newsletter on emerging and frontier markets viewed through the lens of history and culture.
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This week, we’re going to spend a good deal of time on South Africa: One of the world’s largest emerging economies and countries.
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Last Week Briefing:
The U.S. State Department declared Hong Kong to be no longer autonomous, citing the new Chinese security law.
The United Kingdom is planning on opening its doors to nearly 3 million Hong Kong citizens amidst the changes in Chinese—Hong Kong relations.
Digital payments in Rwanda were reportedly up 400% during the month of April.
I’ve spent a great deal of time writing about some of the monetary relief packages issued to countries struggling from the aftermath of the coronavirus. Today, I wanted to dig a little deeper into the different International Financial Institutions (IFIs) and discuss what kind of role they serve in the global economy. These can be segregated between what are known as Multilateral Development Banks, Sub-Regional Development Banks and Bretton Woods Institutions.
Bretton Woods Institutions
If you recall from an earlier letter, the Bretton Woods Agreement effectively cemented the U.S. Dollar as the world’s reserve currency. During World War II, European countries had sought unprecedented monetary relief from the U.S.. The British pound, amongst other traditionally resilient European currencies, had plummeted in value as the Nazis pillaged the continent. The two cardinal institutions born from the Bretton Woods System are the World Bank and the International Monetary Fund. The Bretton Woods system was virtually dismantled when President Nixon divorced the value of the U.S. Dollar from the price of gold. However, its institutions still remain integral to the functions of the global economy.
Funny enough, John Maynard Keynes, the economist who helped model out the Bretton Woods System, was confused by the nomenclature of these organizations. He argued that the World Bank acted as more of a fund while the IMF acted more like a bank. Nonetheless, his complaints haven’t motivated anyone to swap the names around yet.
The World Bank
The World Bank Group acts as the financier and advisor of the the world economy. The organization is comprised of five different sub-organizations, including the International Finance Corporation (IFC), International Development Association (IDA), and the International Bank for Reconstruction and Development (IBRD). Like any other standard bank, the World Bank is tasked with connecting lenders to borrowers. The primary difference is that the World Bank services sovereign nations rather than businesses and individuals. The loans underwritten by the World Bank are specifically earmarked for emerging economies. These loans are low-interest by nature as to not burden the borrowing country with exponentially compounding levels of debt.
The World Bank has established a mandate to end extreme poverty by the year 2030 and promote shared economic prosperity. The World Bank also acts as an information services provider, assisting emerging and developed economies with economic projects and initiatives. Take for example, the Emergency Locust Relief Program, rolled out on May 20th of this year. This initiative was undertook by the World Bank in order to combat the anticipated onslaught from Africa’s massive locust outbreak.
The World Bank has revealed a lengthy list of proposed relief recipients who have been devastated by the effects of the coronavirus. The organization has committed over $160B in financial relief to over 100 developing countries. In Africa alone, the bank has committed over $93B to over 1,000 different projects. That said, the World Bank will be closely monitoring economic “re-openings” as countries gradually release shutdown restrictions.
The International Monetary Fund
The International Monetary Fund (IMF) acts as the monetary backstop and surveillant to global trade. The fund works cooperatively with the World Bank in the sense that it holds a balance of reserves to ensure monetary and fiscal stability. Consider the Asian Financial Crisis of 1997: The collapse of the Thai baht did not limit its damage to just Thailand’s economy, but rather collateralized currencies and economies all across the Asian Pacific. The IMF came in to rescue those economies before the wreckage spilled out across the globe. The Fund will often grant what is known as special drawing rights, or SDRs to struggling nations with the goal of stabilizing exchange rates and supplementing foreign reserves. These SDRs represent a fixed basket of reserve currencies and can be redeemed for those currencies when necessary.
Basket o’ Goods: What five currencies comprise the current SDR basket? Answer at the bottom.
All of that said, the IMF is not in the business of just throwing money away and will not lend to just anyone. In order for the IMF to act in a lending capacity, a nation must be a member and fulfill specific quotas. Membership also requires a minimum threshold of reserves as well as a historically sound fiscal and monetary base. Membership within the IMF allows for countries to access the IMF’s expertise and resources in times of struggle. Members of the IMF tend to broker healthy trade relationships and balance out asymmetric economic data.
The International Monetary Fund maximized its lending capacity to one-trillion USD in the wake of the coronavirus pandemic. The fund has already committed $200B in relief to over 100 different countries. While committed capital remains only 20% of their overall lending capacity, it isn’t unexpected to see that percentage increase in the coming months.
Multilateral Development Banks
Multilateral Development Banks, or MDBs, are international financial institutions that act in a similar capacity to the IMF and World Bank. In fact, both of the aforementioned organizations can be classified as MDBs although institutions such as the European Investment Bank and Asian Development Bank also fall under this umbrella. The MDBs exist to procure smooth operations of global trade and finance. The regional MDBs cooperate with some of the larger Bretton-Woods institutions in launching industry or country-specific projects. Take for instance: Indonesia’s response to the coronavirus. Indonesia has tapped not just the World Bank, but the Islamic Development Bank and the Asian Development Bank as well for over $750M in relief & stimulus loans.
Headquarters of the International Monetary Fund — Washington D.C., U.S.A.
Sub-Regional Development Banks
Sub-Regional Development Banks act in a similar capacity to the Bretton Woods institutions, although they are often more limited in membership and tend to exclusively be a borrower or a lender. Often times these countries will syndicate into one sub-regional development bank to create a stronger economic bloc and generate unity amongst geographic regions. Take for instance, the Caribbean Development Bank (CDB). Many of the member countries of the CDB do not meet reserve requirements or have sophisticated economies. Rather than burden themselves with enormous interest rates or unfavorable loan provisions, these countries will seek financing through the CDB in order to negotiate more-favorable terms and spread out default risk.
Some others institutions include:
The Rainbow Nation
The southernmost country on the African continent, South Africa is the second largest economy in Africa and the 35th largest in the world. South Africa is home to nearly 60 million people and is the sixth most populous country in Africa. South Africa is also the only African member of the G20, or Group of 20. The G20 countries are generally representative of the world’s twentieth most industrialized and sophisticated economies. South Africa punctuated the BRIC acronym in 2010, joining the likes of China, Brazil, India and Russia as one of the largest, fastest growing economies in the world. Like many of the other African nations I’ve covered in past letters, it’s imperative to grasp the significance and remnants of their history before delving into who they are today.
South Africa has technically been a democratic country for over one-hundred years. I say technically with emphasis because the Republic of South Africa — as we know it today — only became a true democracy in 1994 following the abolition of apartheid.
Cape Town, South Africa
South Africa has a very unique demography. For starters, the country is home to eleven different official languages. Government documentation and commerce are frequently conducted in English, although a mere 10% of South Africans designate English as their primary language. Dating all the way back to the 17th Century, the Southern Cape of Africa attracted European settlers like moths to a flame. The nation’s unique geographic position acted as an organic pit-stop along the trade route between the Arab East (Batavia, or modern-day Jakarta) and the European West. As a consequence, the Dutch East India Company established a small, satellite colony in present day Cape Town. They initially didn’t think to invest much time or capital into the region, given its remote geography. However, the following centuries would prove that doing business in South Africa was a lucrative venture.
Dutch farmers who remained and settled in South Africa became known as Free Burghers. The Free Burghers were a collection of freed European indentured servants granted land from the Dutch colonist, Jan van Riebeeck. They are often credited with being the first collection of Europeans to officially colonize the Southern Cape. Ironically enough, the freedom of the Free Burghers meant there weren’t enough slaves. As a result, the Dutch settlers began to import slaves, at the expense of the native Bantu people.
Long Story Short:
While the Dutch had occupied the African Cape, the Napoleonic French had been conquering the continent. After Napoleon had sacked the Netherlands, the Brits had promptly annexed South Africa, hoping to secure the strategic naval position between Europe and Asia. Standing in their way of their market were the next generation of Dutch migrants, known as Afrikaans. Afrikaans are known to have an intimate tie with their African roots, given they are physically born in Africa. To put it another way, Afrikaners feel more African than they do European.
Where does apartheid come in?
The nudging presence of the British Empire instigated conflict across the nation. They would often grant autonomy to the Afrikaners, then subsequently take it away. Take for instance, the Boer people. The Boer people were a Afrikan shepherd society that sought to distance themselves from the nagging British rule. It is estimated that around ten to twelve thousand people emigrated from the Southwest Cape to the Northeast towards Natal. This would be known as The Great Trek and just tally one of many conflicts between the British and the Afrikaners. The discovery of gold and diamonds reserves only exacerbated these hostilities as the British clung onto South Africa’s lush mines. At one point, the Witwatersrand Gold Mine would ultimately produce one-third of the world’s gold.
The Union of South Africa eventually be brokered in 1909, successfully granting independence to the Afrikan states, although keeping them under British jurisdiction. This Union, however, completely omitted the native African Bantu people from autonomy. While slavery had been outlawed for over sixty years, indentured servitude was commonplace. What’s more, The African Land Act of 1913 blueprinted a plan which would only allow for non-colored people to acquire land. Bantu tribes and states were purposefully split up as to discourage unity and syndication. Unfortunately, this was all happening before the era of apartheid and the Afrikan National Party.
Different Bantu Groups Spread across South Africa
The Afrikaan National Party emerged as a niche political movement during the 1948 election as a result of devastating economic fallout. World War II had just concluded and the world economy was trying to find its feet. Bantu people migrated into the cities en mass to shore up South Africa’s enormous labor shortage. However, there wasn’t sufficient housing nor infrastructure in place for the migrants. As a consequence, the Bantu people became the scapegoat for South Africa’s economic woes. Crime and poverty skyrocketed in South Africa’s urban areas and the Bantu people became easy targets for scared, White South Africans. This was in addition to the Afrikaan predisposed mentality of white supremacy or, baasskap directly translated in Afrikaan. Afrikaan leaders embraced white supremacy, believing it was their inherent burden to occupy the Bantu people and protect them from themselves. Keep note: The white South Africans were an ethnic minority. In the 1904 South African census, 65% of the nation’s population was Bantu. White Africans has seen their share of the population drop from around 20% then to a little under 10% today.
Apartheid became law in 1950 with a bill that successfully banned interracial marriage and introduced the Population Registration Act. The act required that all citizens fill out a census and register as one of three selected races: Bantu (Black African), white, and colored (biracial, or mixed). The apartheid government would use that census to purposefully segregate people across lines and mold society in the favor of whites. This would separate families, schools, and communities. Apartheid would draw the global spotlight upon South Africa eventually, as the United Nations tagged the nation with a crippling embargo in 1962. Couple that with the nation’s dependence on the floundering Soviet Union and the sun began to set upon the South African Nationalist Party.
Apartheid wouldn’t conclude up until 1994 when F. W. de Klerk, the seventh president of South Africa and a member of the National Party, dismantled the apartheid system and granted universal suffrage. This effort cannot be discussed, however, without mentioning his cooperation with Nelson Mandela, a lawyer who would become the President of South Africa. In 1962, Mandela was sentenced to life in prison for conspiring to overthrow the state. In 1994, he would lead the African National Congress to a Presidential victory. For the first time ever, all South Africans were allowed to vote.
Annual South African GDP Growth, since 1995
Following the conclusion of apartheid, the South African government placed a special emphasis on reinvesting into its people. The Reconstruction and Development Programme focused on enriching disenfranchised Africans through education reform, infrastructure investment, and social safety nets. The Mandela government abandoned their former beliefs on socialist economic policies as they believed there was no freedom without economic freedom. However, the reforms rolled out from Mandela’s government would be slow to implement. While Mandela’s ANC party reigns Africa to this day, his successors have been the subject of corruption and incompetence on the government level.
Fast forward to today and South Africa can’t seem to shake off the remnants of their ugly past. The topic of land expatriation has grown popular as wealth inequality remains rampant. Nearly R$60 billion, or $3.5B USD has been invested into futile land distribution efforts to curb the growing inequality in the country. In 2018, the country voted to amend the 25th Amendment which allowed for the South African government to seize land owned by White South Africans. This has become known as “Repatriation without Compensation” given the government’s hawkish role on unused land. All in all, this is a rather contentious way of flattening out income inequality.
The South African National Rugby team — The Springboks — were a bastion of South African unity during the 1995 Rugby World Cup
South Africa has seen an extremely volatile economy as of late, the country celebrates enormous agriculture, mining, and manufacturing sectors. South Africa remains the fifth largest exporter of gold in the world and comprises 33% of their exports. Despite its enormous mining sector, the country is the most sophisticated economy in Africa. In contrast, the nation suffers from rampant unemployment — hovering over 25% per year. South Africa’s manufacturing sector dominates Africa. South Africa produces 60% of Africa’s steel and the nineteenth most steel in the world. The country has attracted investment from massive multinationals such as Toyota Motors, BMW Daimler. On top of that, South Africa has an extremely sophisticated financial services sector, highlighted by the Johannesburg Stock Exchange.
It’s interesting to see how much the country has progressed since its liberation in 1994, although has a long way to go before achieving status as a developed nation.
Vroom Vroom: South Africa was one of two countries outside the United States to produce which car? Who was the other? Answer at the bottom.
Some Thoughts from Over the Weekend…
I’ve been thinking a lot about the events of the past week and it’s been hard to put into words. That said, I don’t think its right that I remain silent while others are so poorly mistreated.
As American citizens, we are to be endowed the right to Life, Liberty, and Property. You cannot omit one and expect to reap the others. Similarly, we cannot selectively protect one group’s unalienable rights while neglecting another’s. That is not how democracy works.
Our leaders and government officials have failed to protect the rights of all Americans, particularly our Black community.
Innocent African Americans are killed without second thought.
Corrupt government employees skirt the bounds of our legal system.
Businesses — Large, medium, and small — are ransacked, looted, and destroyed.
At a time like this, it is equally crucial to draw a distinction between the groups protesting versus the groups rioting. They are not the same. Those who are protesting are rightfully speaking out against a state that has mistreated people for so long. They are protesting not for their own self-interest, but for the greater good of ALL Americans.
Rioters are opportunistic. They tack on their insignificant struggles and purge their primal behaviors, drowning out the message and sentiment that’s trying to be conveyed by legitimate protesters.
I’m sad for America. I’m sad that Black-Americans don’t feel proud to be Americans. I’m sad that our leaders have resorted to side-taking and finger-pointing, when in reality — we’re all in this together.
I’m praying for America. I love this country, despite its flaws.
I pray that one day, we won’t have to deal with senseless police violence.
I pray that one day, black people can feel comfortable, welcome, and proud in America.
Please stay safe out there. Protect your loved ones. Support your friends, family, and communities.
Vroom Vroom: South Africa was one of two countries to produce the HUMMER when it was in production. The other country was Russia.