Volume 19 Issue 8 – September 2021
“Recovery begins from the darkest moment” – John Major.
COMMENT AND OUTLOOK – Afghanistan Humbles US
History has repeated itself in Afghanistan with the takeover of the country once again by Taliban forces. The final withdrawal of American forces and personnel was chaotic and tragic as people scrambled to try and leave the country out of fear for what Taliban rule meant again. People died trying to get onto aircraft out of the country and a suicide bombing killed 12 American soldiers at Kabul airport in the final hours of the American presence in Afghanistan. This is the third time that a major military force has been shown the door in Afghanistan with Britain and Russia having had similar experiences in their military forays into Afghanistan, in the past. After 20 years of war with the aim of building a democratic state in Afghanistan, it all collapsed at a pace that was not expected. The USA-trained Afghanistan military force simply disappeared and the result is that the Taliban is now one of the best equipped military forces in the world with the equipment which they can now access. The Taliban have said that this time their rule of the country will be different and less restrictive on personal and women’s rights. Time will tell but it is a humiliating blow to the USA and signals an end to its role as global policeman through its military dominance. Afghanistan itself does not have any impact on the global economy but its political positioning can influence geopolitical events in that region. Russia and China have been quick to engage with the Taliban to seek access to natural resources that the country has. The USA has been squabbling with itself about what went wrong and why. Hopefully lessons have been learnt from this experience on a number of fronts.
The events in Afghanistan had little impact on international financial markets which continued to be relatively buoyant through August. The markets in the USA, Europe and the UK were all positive for the month as were markets in the East. US markets were quite focused on the employment numbers and the language and message from the US Federal Reserve about its plans to cut back on its monetary stimulus policies. The US economy showed some signs of a slowdown as the rate of Covid infections rose and the number of new jobs created slowed down. There are many jobs available but a shortage of people to take them up. This has resulted is some wage increase pressure and the US inflation rate remains elevated at a 5.4% year on year increase. The message from the Federal Reserve remains one of not being unduly concerned about the higher rate of inflation and it gave no clear indication of when it may start tapering its stimulus policies. The employment numbers in the US are a key indicator of when there may be a shift in their approach and a slowdown in the economy does not help on that front.
The regulatory and anti-competitive income control crackdown in China continued but in spite of that the market had a bit of recovery after its recent sharp falls. In Japan there has been a change of political leadership and that was positively taken by the market there and economic growth improved after a weak first quarter. The oil price fell below USD 70 per barrel for the first time in a few months during August, but has recovered in spite of some increased production levels. Prices of a number of metal commodities fell and this had an impact of some of the commodity producing markets. The South African market fell by just over 2% during the month. This was caused by a combination of a decline in mining stocks, the impact on Naspers and Prosus of the Chinese crackdown and their share swap. In addition, the Rand strengthened towards the end of the month, and this affected the dual listed shares with significant international earnings. The Rand weakened to over R15.30 per USD at one stage during the month and has recovered to under R14.30 per USD. The SA trade surplus fell during July but was still a very healthy R36.96 billion despite a large drop in exports. Some of this decline in exports can be attributed to the July unrest and port closures, so will hopefully not be repeated. The SA inflation rate fell to 4.6% in July and is expected to decline a bit more. This means the Reserve Bank is under no pressure to raise interest rates and the current low level of interest rates will prevail for the foreseeable future. Changes in the way GDP is calculated have resulted in the SA economy being determined as being bigger than has been reflected in the past. This helps in easing some of the pressure on the debt to GDP ratio and it incorporates more of the informal sector activity. Sadly, the unemployment rate remains at worryingly high levels. This has to be addressed, particularly to give the very high numbers of unemployed youth some skills and hope.
A critical part of addressing the unemployment problem in SA is having strong political leadership and clear policies that are supported by government, business and labour. The shambles being experienced by the ANC in running its own organization does not give much hope that this will happen any time soon. They are the governing party and how they run their organization maybe explains some the country’s challenges.
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