Celebrations and demonstrations held around the country on 16 June
By Ashraf Hendricks, Bernard Chiguvare and Ihsaan Haffejee
19 June 2017 Commemorations were held on Youth Day, Friday 16 June at
the Hector Pieterson memorial in Soweto. People gathered to pay their
respects on the 41st anniversary of the Soweto uprising. Photo: Ihsaan
HaffejeeYouth sang protest songs and danced during a youth day event
in Khayelitsha, Cape Town. About 100 primary and high school youth
gathered at Site B Hall to commemorate the 1976 Soweto uprising. They
also discussed the difficulties that the youth face today. Photo: Ashraf
HendricksIn Mitchells Plain, Cape Town, about 70 youth from Tafelsig,
demonstrated against high crime rates and child abuse. The march
through the suburb was organised by the Eyes of Matroosberg Committee
and the Mitchells Plain Crisis Forum. Photo: Bernard ChiguvareGrade one pupils from Soweto stand ready with white roses
which they placed at the Hector Pieterson memorial in Soweto. Photo:
Ihsaan Haffejee
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International investors are still rattled by President Jacob Zuma’s sacking of respected Finance Minister Nhlanhla Nene. Reuters/Sumaya Hisham
South Africa has narrowly survived a downgrade of the rating of its government bonds. The reprieve, however, is temporary because government has been warned by the Big Three rating agencies – Fitch, Moody’s and Standard & Poor’s – to pull up its socks.
South Africa’s current rating – just about investment grade, heading south fast – puts it more or less on par with countries such as Italy and Spain. And even with a downward trajectory through speculative grade it is still several notches away from outright “junk” or “CCC”.
But a downgrade to sub-investment grade would slow inward investment and the economic fallout could become a self-fulfilling prophecy: as outflows increase, the economy slows.
Such meta-narratives are especially powerful during periods of global turbulence as is currently being experienced, with volatile commodity prices, the oil rout, the slowdown in China and speculative investors moving large amounts of short-term capital very quickly around the world.
Why sovereign debt matters
When governments need to raise money they may decide to do so by borrowing on international financial markets. Such loans, or sovereign bonds, are each assigned a rating by a credit ratings agency. The rating estimates the likelihood of a government’s creditors being repaid against a range of factors. These include hard economic data, political analysis, reputation and sentiment.
The yield of the bond can be roughly understood as the interest rate on a loan. The lower the credit rating, the higher the risk of a default and the higher the yield payable to investors for taking on that risk.
It’s important to note that sovereign bonds are just another asset class investors can consider in a universe of investable assets. A downgrade is not desirable as it may slow down institutional investment and make the economy more vulnerable to speculative activity. But some investors may very well have an appetite for risky sovereign debt if it means they can make a lot of money.
In fact, high-end brokerages such as Charles Schwab advise investors on investing in high-yield, sub-investment grade emerging market debt. This sort of speculative sentiment is exactly what drove the “Africa Rising” narrative. It also drove the introduction of ratings for previously unrated sub-Saharan sovereigns, as investors sought new sources of alpha in the low-growth fallout of the financial crisis in Europe.
Despite this, countries need to borrow to plug the gap between projected tax revenue and budgeted expenditure. However, as debt has to be repaid at some point in the future, any debt raised should be used to finance investment such as infrastructure, which expands an economy’s capacity and therefore potential for growth and increased tax revenue. In addition, the interest government pays on its debt is of paramount importance.
What there’s to like, not to like about South Africa
Rating agencies have cited maintaining investor confidence as one of the critical factors towards preventing a future downgrade for South Africa. So it’s important to know what investors were thinking about South Africa in the run up to the ratings, and what they’re thinking now.
The first point to make is that local institutional investors and financial institutions are also influenced by the global context. The political and economic developments of all countries are viewed proportionately to other markets. For example, in the case of South Africa, Investec Asset Management evaluates the country relative to other emerging markets. It recently did so in relation to Brazil in particular.
Investec’s house view on the two countries is informed by two insights. The first is that South Africa and Brazil have political headwinds that are governance risks to long-term economic development, and may present watershed moments. The other is that the strength of institutions in these countries is often overlooked. An example of this is the South African Constitutional Court’s ruling on President Jacob Zuma’s spending on his private home in Nkandla.
Publicly available international perceptions also matter. An example is the World Economic Forum competitiveness ranking. South Africa is ranked 49th out of 140 countries and only second to China among the Brazil, Russia, India, China, South Africa group.
Investors also like the country’s sound fundamentals. These include a sophisticated financial markets sector, and respect for property rights and the rule of law. And despite US government complaints about infrastructure gaps and the inaccessibility of officials, it still regards South Africa as an important gateway to the rest of the continent.
However, inequality, unemployment, power shortages, policy incoherence around black economic empowerment and labour relations remain risk factors. The UK government, for example, singles out corruption, fronting around empowerment deals and dubious tender processes.
International investors are also still rattled about President Zuma’s unexpected decision late last year to replace his respected finance minister, only to reverse the decision a few days later.
Another bugbear is Zuma’s weakened position and how succession within the ruling African National Congress will play out, particularly the realisation that Cyril Ramaphosa, currently the deputy, may not have enough power to become president.
The competition between Zuma and Finance Minister Pravin Gordhan is also being watched closely, as Gordhan is seen as a business champion.
Overall South Africa, right now, is viewed as a terribly difficult place to do business, with overweening bureaucracy, a collapsing education system, poor policy and militant labour groups. Kenya and Nigeria are increasingly seen as more favourable destinations.
As one investment advisor in London pithily described South Africa:
Lots of potential, not worth the hassle.
South Africa is thus particularly vulnerable with its relatively liquid portfolio flows and sophisticated financial markets. In addition, the rand, with its high interest rate, is a particular favourite commodity currency for speculators in the carry trade. And indeed, both Moody’s and Standard & Poor’s have worried aloud about the combination of low growth, high debt and political risk in the current global environment.
But some healthy scepticism and perspective is also in order. Yes, South Africa’s parliament is out of order, but there have been fisticuffs in South Korea too.
And there is no such thing as “idiosyncratic emerging market risk” – a patently hypocritical concept. South Africa has had its recent share of protests, but the 2011 London riots were intense, with three days of violence during which 450 arrests were made. Nor are emerging markets essentially “corrupt”. Take Italy, for example. And rent-seeking patronage networks and what the Chinese call guanxi – networks of influence – are a feature of politics everywhere.
Economic policy priorities
The sooner South Africans realise they have frittered away the Mandela dividend in a cutthroat global economy, the better. But this realisation does not have to come at the expense of equal negotiating power in trade and investment. By growing the economy inclusively with a focus on human development, the business environment also becomes more sustainable. Investors know this too.
Economic policy requires a shift away from the short-termism of a gross domestic product evangelism that is subject to the vagaries of hot money in a panicked and turbulent global economy. If this continues to be the case, economic development will only ever elicit a Pavlovian response from rating action to rating action.
People describe their desperation for a place to call home
By Barbara Maregele
19 June 2017 People living in shacks in backyards have been occupying vacant land in Khayelitsha. Photo: Barbara Maregele
At least six Khayelitsha residents are expected to appear in
court on Monday after violent clashes broke out between police and the
group reoccupying vacant land in the area at the weekend.
Those who were arrested are due to appear on public violence charges
in the Khayelitsha Magistrates’ Court, SAPS spokesperson Noloyiso
Rwexana told GroundUp on Sunday afternoon.
The group were among dozens of families who have begun building
shacks on an open field near the court. The occupiers, most of whom rent
space in the backyards of people with houses, began living in a large
blue and white tent on the open land last week.
This is the second occupation on this property in just over a month. Hundreds of backyarders in Town Two began their occupation on 15 May,
demarcating hundreds of sites on vacant pieces of land in Khayelitsha.
The land next to the Khayelitsha Magistrates’ Court is one of the sites.
The other two sites are in Makhaya and Kuyasa.
On 22 May, GroundUp visited the area where some of the erected structures were being demolished. The occupation was one of the biggest in the city in recent years.
Tensions in the community intensified yet again on Thursday evening
after several families began erecting shacks on the property. Residents
say that since Friday, the City of Cape Town’s Anti-Land Invasion Unit
(ALIU) had returned three times to demolish their structures. This led
to the arrests of at least six people.
When GroundUp first visited the area on Thursday, the ALIU had
instructed residents to remove their tent from the property. About 40
people including an elderly woman and three young children were seen
living on the open land. A woman, who asked not to be named, told
GroundUp that she was desperate to find a place to live with her
six-month-old nephew. “We are homeless. All of our things were taken
away the last time, so even the baby has no clothes or food. We are
willing to fight for a home,” she said.
Resident, Philela Gilwa, said the group’s decision to reoccupy the
land is because of their frustrations with lack of housing in the area.
“We decided to erect a tent after all of our building materials were
taken. There are various stakeholders involved here, but we are just
tired of being disrespected and our pleas falling on deaf ears,” he
said.
“These are all backyarders who don’t have anywhere else to go who
have been sleeping [on the land]. [On Thursday] we had a standoff with
the ALIU. They are intimidating us,” he said.
Another resident, Ncebisi Fanishe, said he was among the group that
first occupied the vacant land about a month ago. He moved to
Khayelitsha in 2004 and due to financial difficulties could not afford
to buy his own home. “I was living in a backyard in Site C when I heard
about the [occupation]. I’m here to build my house because I’m tired of
waiting,” he said.
On Sunday, tensions flared again as the ALIU assisted by police
removed the group off the land. By the evening no one was occupying the
land anymore, and there was barely any sign that an occupation had taken
place. But this is unlikely to be the end of the current spate of
occupations in Khayelitsha.
Published originally on
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Economists James Fearon and David Laitin have also followed this hypothesis, showing how specific factors played an important role in Chad, Sudan and Somalia in outbreaks of political violence.
According to the International Country Risk Guide index, the internal political stability of Sudan fell by 15% in 2014, compared to the previous year. This decrease was after a reduction of its per capita income growth rate from 12% in 2012 to 2% in 2013.
By contrast, when the income per capita growth increased in 1997 compared to 1996, the score for political stability in Sudan increased by more than 100% in 1998. Political stability across any given year seems to be a function of income growth in the previous one.
Usual economic performance indicators, such as gross domestic product, trade, foreign direct investment, showed higher economic development and globalisation of the Arab Spring countries over a decade. Yet, in 2010, the region witnessed unprecedented uprisings that caused the collapse of regimes such as those in Tunisia, Egypt and Libya.
In our 2016 study we used data for more than 100 countries for the 1984–2012 period. We wanted to look at criteria other than economics to better understand the rise of political upheavals.
We found out and quantified how corruption is a destabilising factor when youth (15-24 years old) exceeds 20% of adult population.
Let’s examine the two main components of the study: demographics and corruption.
But a bulk of population being under 25 years old in a given country does not necessarily lead to revolution. It’s when leaders of such countries deceive and fail their younger citizens through systematic corruption, for instance, that the risk of upheaval is much higher.
A 2014 study by political scientists Natasha Neudorfer and Ulrike Theuerkauf, suggests the contrastability effects of corruption: the beneficiaries increase their income while a larger portion of the population feels the inequality as economic growth and investment stagnate. It particularly affects the youth population who are not yet inserted in the system and have fewer economic opportunities.
Autocratic corrupt states also allocate a larger portion of their budget to military and security fores, under-spending on education and health. This situation might stimulate youth adhesion to anti-establishment movements, including radical ones.
According to NIgerian scholar Freedom C. Onuoha, political corruption is behind the formation and durability of terrorist groups in Iraq, Syria and Nigeria. These groups succeeded in attracting the marginalised parts of the population that are mainly from the youth bulge.
But corruption alone, like age, is not creating political unrest. A combination of the right amount of youth within the overall population suffering from corruption is necessary.
The case of Iran
A good example is Iran. The country experienced one of the most significant political changes of the 20th century when the 1979 Islamic Revolution ended its monarchy and has been thriving on oil revenues since.
Oil revenue-dependency was less than 1% of total economy from 1970 to 1973. Substantial increase in oil prices from the mid-1970s led to a massive increase in the Iranian economy’s dependency on it – from 0.3% in 1973 to 31% in 1974 according to the World Bank.
In 2009, youth protested for months in support of the reformist Mousavi, creating the ‘Green Movement’. Ahmed Jadallah/Reuters
Based on my calculations of the World Bank’s Health Nutrition and Population Statistics, the share of 15 to 24-year-olds among the overall adult population has been higher than 20% from 1960-2016 (with an exception of 19% in 2016).
For this time period, we observed a continuous increase in the youth bulge in Iran from 33% in 1970 to approximately 36% (one of the highest in Iran’s demographic history) in 1979 (World Bank Population Estimates and Projections, 2017).
With oil income growing along with a diversity of activities linked to its production and circulation, corruption – for which we do not have data before 1985 – has emerged as a way of life.
During his tenure, President Khatami complained that ‘a crisis every nine days’ made it hard to get anything accomplished.
This did not lead to a revolution but civil unrest has regularly affected political life including in 2009. World Bank Population Estimates and Projections show that the share of youth in Iran will drop to 11% by 2050, reducing the political risk of demographics in the presence of corruption in the future.
Additional factors
Using cases such as the Iranian one, we tried to understand how corruption and youth could lead to crisis.
We also took into account other drivers of conflict such as inequality, economic growth, investment rate, inflation, government spending, military spending, oil rents, trade, education, fertility rate, and democracy.
We controlled for specific differences between the countries we studied, such as geography, geopolitical situation, cultural and historical heritage, and religion. International attention and intervention of external powers were also taken into account. And we included events such as the 2008 global financial crisis and the 2003 Iraq war.
Table 1 illustrates the marginal effect of corruption on internal stability at different levels of youth bulge. Mohammad Reza
Figure 1 illustrates the marginal effect of corruption on internal stability at different levels of youth bulge. Mohammad Reza Farzanegan
Based on our main results, Table 1 and Figure 1 show average marginal effects of corruption on political stability at different levels of youth bulge. We are 90% confident that a youth bulge beyond 20% of adult population, on average, combined with high levels of corruption can significantly destabilise political systems within specific countries when other factors described above also taken into account. We are 99% confident about a youth bulge beyond 30% levels.
Our results can help explain the risk of internal conflict and the possible time window for it happening. They could guide policy makers and international organisations in allocating their anti-corruption budget better, taking into account the demographic structure of societies and the risk of political instability.
Eating fast food is frequently blamed for damaging our health.
As nutrition experts point out, it is not the healthiest type of meal since it is typically high in fat and salt. More widely, it’s seen as a key factor in the growing obesity epidemic in the U.S. and throughout the world.
Because it’s considered relatively inexpensive, there’s an assumption that poor people eat more fast food than other socioeconomic groups – which has convinced some local governments to try to limit their access. Food journalist Mark Bittman sums up the sentiment succinctly:
“The ‘fact’ that junk food is cheaper than real food has become a reflexive part of how we explain why so many Americans are overweight, particularly those with lower incomes.”
Our recently published research examined this assumption by looking at who eats fast food using a large sample of random Americans. What we found surprised us: Poor people were actually less likely to eat fast food – and do so less frequently – than those in the middle class, and only a little more likely than the rich.
In other words, the guilty pleasure of enjoying a McDonald’s hamburger, Kentucky Fried Chicken popcorn nuggets or Taco Bell burrito is shared across the income spectrum, from rich to poor, with an overwhelming majority of every group reporting having indulged at least once over a nonconsecutive three-week period.
A diet of Cokes and Oreos
In retrospect, the fact that everyone eats fast food perhaps should not be that surprising.
What we learned from our research is that we all have a soft spot for fast food. We analyzed a cross-section of the youngest members of the baby boom generation – Americans born from 1957 to 1964 – from all walks of life who have been interviewed regularly since 1979. Respondents were asked about fast-food consumption in the years 2008, 2010 and 2012 – when they were in their 40’s and 50’s. Specifically, interviewers posed the following question:
“In the past seven days, how many times did you eat food from a fast-food restaurant such as McDonald’s, Kentucky Fried Chicken, Pizza Hut or Taco Bell?”
Overall, 79 percent of respondents said they ate fast food at least once during the three weeks. Breaking it down by income deciles (groups of 10 percent of aggregate household income) did not show big differences. Among the highest 10th of earners, about 75 percent reported eating fast food at least once in the period, compared with 81 percent for the poorest. Earners in the middle were the biggest fans of fast food, at about 85 percent.
The data also show middle earners are more likely to eat fast food frequently, averaging a little over four meals during the three weeks, compared with three for the richest and 3.7 for the poorest.
Because the data occurred over a four-year period, we were also able to examine whether dramatic changes in wealth or income altered individuals’ eating habits. The data showed becoming richer or poorer didn’t have much effect at all on how often people ate fast food.
Regulating fast food
These results suggest focusing on preventing poor people from having access to fast food may be misguided.
For example, Los Angeles in 2008 banned new freestanding fast food restaurants from opening in the poor neighborhoods of South L.A. The given reason for the ban was because “fast-food businesses in low-income areas, particularly along the Southeast Los Angeles commercial corridors, intensifies socio-economic problems in the neighborhoods, and creates serious public health problems.”
Research suggests this ban did not work since obesity rates went up after the ban compared to other neighborhoods where fast food had no restrictions. This seems to pour cold water on other efforts to solve obesity problems by regulating the location of fast-food restaurants.
Not all that cheap
Another problem with the stereotype about poor people and fast food is that by and large it’s not actually that cheap, in absolute monetary terms.
The typical cost per meal at a fast-food restaurant – which the U.S. Census calls limited service – is over US$8 based on the average of all limited service places. Fast food is cheap only in comparison to eating in a full-service restaurant, with the average cost totals about US$15 on average.
Moreover, $8 is a lot for a family living under the U.S. poverty line, which for a family of two is a bit above $16,000, or about $44 per day. It is doubtful a poor family of two would be able to regularly spend more than a third of its daily income eating fast food.
The lure of fast food
If politicians really want to improve the health of the poor, limiting fast-food restaurants in low-income neighborhoods is probably not the way to go.
So what are some alternative solutions?
We found that people who said they checked ingredients before eating new foods had lower fast-food intake. This suggests that making it easier for Americans to learn what is in their food could help sway consumers away from fast food and toward healthier eating options.
Another finding was that working more hours raises fast-food consumption, regardless of income level. People eat it because it’s fast and convenient. This suggests policies that make nutritious foods more readily available, quickly, could help offset the lure of fast food. For example, reducing the red tape for approving food trucks that serve meals containing fresh fruits and vegetables could promote healthier, convenient eating.
Our goal is not to be fast-food cheerleaders. We do not doubt that a diet high in fast food is unhealthy. We just doubt, based on our data, that the poor eat fast food more than anyone else.
Economic policy requires a shift away from the short-termism of a gross domestic product evangelism that is subject to the vagaries of hot money in a panicked and turbulent global economy. If this continues to be the case, economic development will only ever elicit a Pavlovian response from rating action to rating action.
Our results can help explain the risk of internal conflict and the possible time window for it happening. They could guide policy makers and international organisations in allocating their anti-corruption budget better, taking into account the demographic structure of societies and the risk of political instability.
Our goal is not to be fast-food cheerleaders. We do not doubt that a diet high in fast food is unhealthy. We just doubt, based on our data, that the poor eat fast food more than anyone else.
