Tuesday, November 12, 2013

The many faces of ‘Government Sachs’ reports

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12 Nov 2013 | Tony Leon  | Original Publication:  BDlive
When the Goldman Sachs report on South Africa moves from data on the past to challenges of the future, it enters less solid territory, writes Tony Leon

IN 2009, US journalist Matt Taibbi entered the lists of immortal phrase makers when he wrote about global investment banking giant Goldman Sachs. In his coruscating article for Rolling Stone magazine, he described it as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money".

In the same year as the Rolling Stone piece, Goldman CE Lloyd Blankfein got into a lot of trouble when he described his banking career as "doing God’s work". He obviously had never heard of the expulsion of the moneylenders from the temple. But while the banking czar retracted this heresy, Goldman’s activities in the US subprime crisis, from which it emerged enhanced, proved it to be nothing if not agnostic. At the time, it was racking up losses north of $1.2bn in residential mortgage-backed securities. But it made even more money for itself by betting against, or shorting, the same market.

The public release last week in South Africa of the Goldman Sachs report, titled Two Decades of Freedom — What SA is Doing with It, and What Now Needs to be Done, at first blush seems suggestive of another moniker slapped on the banker — "Government Sachs". Finance Minister Pravin Gordhan was on hand at the launch and African National Congress (ANC) treasurer-general Zweli Mkhize was quoted as describing the report as "positive for the ANC". Undoubtedly the fact that Goldman’s advisers include party heavyweight Tito Mboweni could fortify this impression.

But I thought that Goldman country head Colin Coleman’s introduction of the report as "empirical and data-rich" provided some disclaimer against bias.

Some of the metrics it reveals, in more than 60 pages of detailed analysis, could be gainsaid only by the wilfully blind. It shows a vast improvement in living standards, the growth of a significant black middle class, and major repairs in the sovereign balance sheet and its growth rate, and a quadrupling of the overall size of the economy.

These achievements have also been achieved without too much recourse to the printing press, as, in the same period, inflation was tamped down from an average high of more than 14% at the tail-end of the apartheid years to just more than 6% today.

As former US president Bill Clinton is fond of saying: "Everything is compared to what?" And benchmarking our achievements under two decades of democracy with South Africa’s global isolation and its internal strife, indicated by a siege economy, replete with sanctions and disinvestment, swingeing exchange controls and protracted violence is to compare parallel universes. It’s somewhat reminiscent of the story about when the most unpopular man in the community of an old village, or shtetl, in Russia was being buried and the presiding rabbi could find nothing good to say about the deceased. Finally, a village elder announced: "Well, his brother was worse."

Indeed, when the Goldman Sachs report moves from data on the past to challenges of the future, it enters less solid territory. It veritably tiptoes around some of the hard choices that need to be made to conquer the low growth and high unemployment and the failed labour market scenario it rightly identifies as being the most pressing future issues. It talks very vaguely of ending "endless policy debates" and makes hortatory claims for a "Team SA approach" and an end to "finger-pointing". Though we are going into an election, the opposition does not get a look-in.

But Goldman’s tentacles do indeed stretch across the world. In the week its report was launched here, a Goldman report in India was causing no end of trouble to the banker in New Delhi. India, like South Africa, faces a national election in the first quarter of next year.

But, in studied contrast to the South African report, which features Nelson Mandela on its cover, its Indian report was headlined, "Modifying our view: Raise India to Marketweight", this being a reference to the leader of the opposition in India, Narendra Modi, whom the banking giant cites as the possible next prime minister. It notes that "optimism for political change" under a Bharatiya Janata Party-led government "could be beneficial for investment demand pick-up in our view".

The fact that this ultranationalist Hindu politician is banned from visiting the US at present, due to his suspected complicity in the massacre of more than a thousand Muslims in 2002 in his home state of Gujurat, is not mentioned in the report. Naturally, in studied contrast to over here, the government of India seethed at the report and dismissed it as "inappropriate and objectionable".

Is Goldman Sachs simply being two-faced, or just agnostic?

Perhaps its different approach in India and South Africa confirms another missing, and unmentioned, aspect of our report card: the presence of competitive politics to drive transcending change in the one place, and its absence in the other.
Leon is the author of The Accidental Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA

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