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Africa Brief                                                                             18 April 2017

Misreading risk     

by Cees Bruggemans                    words 400

Throughout last year, and into this year, finance minister Gordhan led a merry growth campaign that SA can get it right, if only we try. There was a tail risk of his sudden departure, that everyone kept talking about, but that few discounted as real. And thus growth recovery became painted in, indeed acquired new life.

Tail risks are only small probability events (if with enormous impact). Yet the way many viewed this issue with great trepidation, and their eyes wide open, it shouldn't have been seen as a tail risk, marginally discounted. Instead it should have been seen as the main political scenario, a matter of when, not if, and discounted as such by markets.


But somehow that wasn't politically correct, patriotic, hopeful, supportive, useful, informed or whatever. Instead, this blind following of the pipe piper, with his departure hopefully forever postponed instead of coming ever nearer.

Now that the “inevitable” has happened, and Gordhan has departed, it has been time to downgrade the economic forecasts so happily made as recently as last month. But it is again a grinding decimal point exercise, as if that reflects the true risks we are running, while private talk is far more dire.

It is apparently not seemly to fluctuate one’s forecasts too much, so the happy ship sails on, minus a few decimals – or to put it more appropriately, with a few more sharp barnacles to the keel that will slow us, but not too much.

Sure, there is more electricity capacity, but do we use it in support of the economy? Yes, farming output and income will nicely recover. Some commodity export prices have nicely improved. And inflation should be lower this year, reinforcing real purchasing power.

Except that fiscal policy will likely be restraining, and confidence shot, no matter what the politically correct terminology in public.

And that is before we get to the real risks, no longer tail risks, unless magically parliament were to stir itself later this month (another tail that isn't a tail, or the only tail left standing?).

Our business discourse isn't ready for radical departures from the future we were embarked upon. And thus this messing with decimals. But the range of outcomes is a lot wider once one starts digging as to what the ruling regime has in mind.

We keep treating nearly everything like tails. We would be so lucky.


Cees Bruggemans                                                                          

Bruggemans & Associates  Consulting Economists



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