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Africa Brief                                                                             1 May 2017

What not to worry about     

by Cees Bruggemans                   words 600

Whereas SA wasted 14 months of hard work in one cabinet reshuffle a few weeks ago, with the apparent intention of making state interests subservient to the president’s, and were punished with an immediate credit downgrading to junk, many geopolitical interests proceeded with gusto to favour their own.

Throughout, global markets nearly serenely sailed on, SA included, positioned on some distant outerwing, with Rand, bond & equity markets only minimally punished for the Zuma action, carried it as they are by the current fair winds of global capital. These winds suggest steady global growth acceleration, if from a low base, with minimal inflation elevation, steady central banks, and carry trade remaining the main feature, as yield seeking in more risky locations keeps outweighing the so-called political risk & fears of disruption & dislocation.

 

This is quite surprising really, considering American volatility, the European turmoil, Russian mischief, hot spots in the Middle East and a wary China trying to define and defend its interests.

So far, the Middle East hot spots seem contained, Europe pivoting on an edge away rather than towards populism, observable in the larger (French) and smaller localities (Holland), and Russia geared as always for mischief but not getting the best opportunities at present.

The more interesting parts are America and China. Trump having been elected on a promise of staying out of Middle East hot spots and not doing anything rash elsewhere, things have rather changed in a matter of weeks, with cruise rackets rained on Syria, artillery support in northern Iraq and more specialist forces on the ground everywhere, including Afghanistan.

Still, these seem only measured intrusions, not wholescale escalation. They offer calculated pressure in the region for no great outlays. And no clear indication where it may all head, in the typical endless fashion of the regions’s deserts.

Of far greater interest, it seems, is North Korea, where America has finally decided that its technical nuclear & rocketry advance has become an imminent threat to the American homeland. As another Pearl Harbour or 911 are clearly not to be contemplated, and given the nature of the North Korean regime, the American attitude appears to be to shift the frontline to the northern Korean Peninsula.

In the process it is putting growing pressure on China to get involved with its protégé which clearly has flown its 60 year coup. There is a growing list of what China and America don't want, a North Korea that isn't cooperating and time getting very short. Whereas George Bush & Tony Blair had to invent weapons of mass destruction in Iraq in order to act pre-emptively, there is no such need in North Korea, with weekly rocket launches and growing nuclear tests. This time it is staring us all in the face, with regime rationality long ago written off.

If China doesn't succeed in neutering North Korea shortly, and that regime proceeds down its chosen path, America appears determined to fix it themselves.

It isn't obvious whether this would involve physical destruction (bombing) with colletral damage to South Korea, or whether modern hacking methods would allow enough electronic disruption to disable the North Korean capabilities.

There is a lot here we don't know.

Neither is it yet obvious that it can be contained to the Korean Peninsula, with no Chinese or Russian intervention thereafter, in self defence or opportunistically.

Markets in the region are registering higher risk in greater currency volatility, but globally it remains off the screens.

Thus we snooze on, if with one eye open, as the North Korean challenge is getting ever more intriguing. Little else seems to really matter at present.

 

Cees Bruggemans                                                                         

Bruggemans & Associates  Consulting Economists

 

Website www.bruggemans.co.za

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Twitter  @ceesbruggemans

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