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Thursday, March 03, 2011

Paper barrels

Betting the farm on oil
By Hossein Askari and Noureddine Krichene

In March 2009, when oil prices were at US$45 per barrel, if a speculator had made a bet that oil prices would rise by March 2010, he would have made a tidy gain of 82% as prices are now around $82 per barrel. But if a conservative retiree, who could not assume any risk, had invested his money in US government notes over the same period, he would have made 0.23%.

What a difference! Go back further in time. If in 2002, when oil prices were at $19 a barrel, a speculator had bet that oil prices would keep on moving up to $80 a barrel by 2006, he would have earned a tidy return of 43% per year compared with an annual
return of 1.5% on US Treasury notes. If in August 2007, when oil prices were at $71 a barrel, a speculator had bet that oil prices would accelerate to $147 a barrel in July 2008, he would have earned a whopping 117% per year, compared with 1.2% per year on US Treasuries.

Now, today in March 2010, if our speculator bets that oil prices will move up from the prevailing $82 per barrel to $100 per barrel, or a higher, in the near future, his bet would be consistent with observed trends. Let’s explain.

In the past decade, oil and other commodity price inflation have shattered records. Oil price inflation averaged 43% per year and commodity price inflation averaged 28% during 2002-2008, dwarfing commodity price inflation of the 1970-1981 period, a record for modern times with oil prices rising at 26% a year and commodity price inflation at 10% a year.

Why has the period 2002-2008 been so inflationary for commodities? Central banks, notably the US Federal Reserve and European Central Bank (ECB), have categorically denied any link between their monetary policies and oil and commodity price inflation during this period. Instead, they have blamed it on rapidly growing Chinese and Indian demand for oil and other commodities and on constrained supplies on the part of producers. Academics and the media have generally supported this view. The impact of expansionary monetary policy by the Fed during 2002-2005 and the impact of widening US fiscal deficits on oil and commodity markets have been simply ignored.

Despite a rejection by central banks of a link between commodity price inflation, record low interest rates and massive liquidity injection, a number of observers in the distant past, ever since the quantity theory of money, as well as contemporaneous analysts see monetary policy as a plausible explanation for sustained commodity price inflation. General price inflation could be plausibly explained as a monetary phenomenon. The monetary explanation for commodity price inflation lumps cost-push and demand-pull theories of inflation together as transmission mechanisms for monetary shocks and deals only with the accommodative or restrictive stance of monetary policy in fueling or retarding a general price increase.

The more monetary policy is accommodative, the more powerful would be the inflationary effect of monetary accommodation. Consequently, the present stance of near-zero interest rates and unlimited money injection by reserve currency central banks can only feed further commodity price inflation and a general rise in prices. The longer this stance is maintained, the faster the acceleration of inflation and the more predictable the rise of oil prices. In this unorthodox monetary policy setting, a forecast of oil prices going to $100 a barrel, or persistently moving higher, in the near future can only be a sound forecast.

In late 2008, equity and commodity prices crashed. Oil prices fell from $147 per barrel to a low of $32 per barrel in December 2009. Those who all along maintained that China and India were the cause of oil and commodity price inflation must have been embarrassed by this crash. Surely, they could no longer defend their view that China and India were the key determinant of oil and commodity price inflation.

If rapidly increasing demand from China and India was behind the explosion in oil and commodity prices, a student of economics would have had to infer that demand from China and India had crashed, or possibly supply had exploded. But this is not supported by the facts. Despite a fall in oil prices by 82% in less than four months, oil output and oil demand remained stable at 86 million barrels per day (mbd) during September-December 2008.

Similarly, the acceleration of oil prices from $71 per barrel from August 2007 to $147 per barrel in July 2008 would have made the same student think that oil demand had increased dramatically or oil supply had fallen dramatically. Neither event took place nor realistically could they have. Oil demand and supply remained stable at 86 mbd during August 2007-July 2008.

Are demand and supply models that economist use faulty? Certainly not. To answer the apparent puzzle, a student should be introduced to paper barrels, as opposed to oil in real barrels, traded in organized futures exchanges around the world that artificially increased the demand and supply for oil and to the role of speculation supported by the liquidity provided by central banks. The crash in oil prices in late 2008 was due to over supply of paper barrels in a stampede to sell long positions at a time when hardly anyone wanted to buy futures contracts when oil futures prices were collapsing; whereas the acceleration of oil inflation during August 2007-July 2008 was due to over demand for long positions when oil prices were confidently rising on the strength of abundant financial liquidity and low interest rates.

Organized futures markets were initially established for hedging as genuine commodity producers, such as wheat farmers, wanted to protect themselves against declines in prices and genuine consumers of commodities, such as bakers, wanted protection against a rise in prices. Nonetheless, futures markets have become dominated by speculation. Speculators are interested in profits from short-term changes in commodity and equity prices. Traders in oil futures could be commercial traders, non-commercial traders, or others. Non-commercial traders could include banks, hedge funds, commodity funds, pension funds, and a number of other institutions; brokers could trade for their own account.

Non-commercial trade may account for 60% to 80% of traded futures contracts. A seller of an oil futures contract does not need to be Exxon, British Petroleum, Shell, or any other oil company. A hedge fund that buys oil futures contracts would become a seller of a futures contract when it closes a position to reap gains or prevent losses from its futures contracts. In fact, futures contracts are settled in offset cash settlement and very rarely through actual delivery of commodities.

Why were oil prices stable during 1983-2000 at about $18-$20 per barrel? Does it mean that there were no speculators in the market during that time? Or similarly, why did the New York Exchange not crash during 1920-1929? Were there no speculators during that time? Speculators are always operating in the market.

During 1983-2000, interest rates were relatively high, liquidity was scarce, and government bond yields were high in the range of 6%-8% per year, making bonds more attractive and less risky than commodities. Speculation flourishes when interest rates are exceptionally low and liquidity plentiful. When interest rates are very low and liquidity is abundant, the cost of margins becomes very low. That is, speculators can borrow from their brokers at very low interest rates as they did prior to the stock market crash in 1929, and price trends become unmistakenly upward moving.

It is cheap liquidity that fuels speculation. When central banks generously provide very cheap liquidity, speculation is fired up. The speed at which equity, commodity, and asset prices rise would depend on the speculative euphoria and the real economic activity. Buoyant real activity would accelerate the speed at which speculative prices rise. Nonetheless, a drop in real activity would not necessarily preclude a rapid rise in prices when interest rates are very low and liquidity abundant. For instance, oil prices rose from $32 per barrel in December 2008 to $82 per barrel in March 2010 even though oil demand declined from 86 mbd in December 2008 to 85 mbd in March 2010. In 2009, major banks posted large profits from trading in commodities and equities in spite of a sluggish economy and rising unemployment.

The intensity of speculation also varies depending on the specifics of the commodity market in question. Even though all commodity markets are under a common speculative trend that could be rising as observed during 2002-2008, stationary as during 1983-2000, or crashing as in the last quarter of 2008, the intensity of speculation depends on the characteristics of each market.

For instance, a recent drop in sugar supply sent sugar prices skyrocketing by 160% from $295 per ton in December 2008 to $767 per ton in January 2010, with powerful inflationary effect on sugar-based products. Oil markets have characteristics that are different from agricultural commodities. More specifically, oil output has very low variability in the short-run and is almost fixed; similarly, oil demand is highly inelastic and cannot change in the short-run. These characteristics rule out short-term changes in real oil demand and supply and bring oil prices under stronger inflationary pressure compared to many other commodities. As for any commodity, speculative increases in oil prices are instantaneously transmitted to consumers. Oil price inflation continues to weigh on economic activity and contributes to a general rise in energy costs until it becomes disruptive as it did during 2007-2008 or during the 1970s.

Commodity markets rapidly transmit the inflationary effects of US Fed and other major reserve currency central banks monetary policies. Commodity prices are very sensitive to interest rates and availability of liquidity through borrowing. Cheap money policies have operated through a number of channels, including credit channel, exchange rate channel, and commodity channel. The commodity markets channel operates faster in comparison to other channels with instantaneous impact on consumer prices. For instance, while US banks are at present awash with $1.175 trillion in excess reserves, which they could not lend profitably and with reduced risk, futures markets have been on a speculative rise as illustrated by large rebounds in gold, oil, food, and many other commodity prices. At present, bonds are offering very low yields and would suffer large price losses if interest rates started rising; whereas commodities are offering a significantly higher and safer return under prevailing unorthodox monetary policy environment.

Who is in a position to determine whether oil prices move to $100 per barrel, $147 per barrel, or even higher? It is not the Organization of the Petroleum Exporting Countries, China or India. It is not even the speculators. Speculators are simply microstructures that are risk-averse and seek to profit from opportunities for gains; they were not able to prevent a sharp decline in oil prices from $41 per barrel in 1981 to $8 per barrel in 1986, nor were they able to push oil prices beyond $18-$22 per barrel during 1985-2000.

The late Milton Friedman stated that there was inflation only because the US Fed had decreed so. By setting interest rates near zero bound, the US Fed as well as other reserve currency central bankers are igniting oil price inflation. By creating fictitious liquidity, that is, liquidity that has no real counterpart, major central banks are providing the fuel for speculation and for driving oil prices to $100 per barrel and higher.

In fact, extremely low interest rates and fictitious liquidity created by US Fed and other reserve currency central banks pushed credit to excessively high levels that resulted in a meltdown of subprime credit. Not only did private sectors become over-indebted, governments also availed themselves of very cheap credit. The financial crises in Iceland and Greece have demonstrated the distortive and disruptive effects of excessively expansionary policies. Most disturbing, European leaders have yet to grasp the underlying cause of the crisis they face and the unsustainability of excessive public debt. Recently, European leaders have expressed anger against speculative attacks and credit default swaps (CDSs) for causing the financial crisis in Greece and making the financing of Greek debt more expensive. Likewise, the US Congress blamed oil companies and oil producers for the oil crisis in 2007-2008. If one were to believe the logic of European leaders, if CDSs are banned, Greece and other European countries could borrow more cheaply and the debt crisis would be resolved. Simple logic indeed.

Fictitious money creation by reserve currency central banks was conducive to high oil and commodity price inflation. Since the US Fed could not push oil output above 85 mbd nor could it prevent a sharp drop in sugar output, its fictitious money creation has amounted to a real redistribution of purchasing power in favor of borrowers and speculators and imposed a heavy tax on workers, pensioners, and other fixed-income groups - and a cut in real incomes for millions of consumers around the world. By paying threefold to fourfold more for basic commodities, consumers are cutting dramatically their real consumption of these goods and at the same are being taxed directly through commodity price inflation by central banks.

Today, major central banks may have become a powerful destabilizing force. If US banks had deployed the excess liquidity ($1.75 trillion) created by the US Fed, they would have triggered the worst commodity price inflation. Would economic recovery become sustainable and companies go on a hiring spree when oil prices are back up to the $147 per barrel mark? If you are the US Fed or the ECB and believe that commodity price inflation is irrelevant, then economic growth would be strong regardless whether oil prices exceed $147 per barrel or hit newer records. However, if you remember the 1970s and 2007-2008 with high oil and other commodity prices, then you would realize that persistent increases in oil prices could become disruptive and could dissuade hiring and undermine economic growth. It would appear that the world economy may be locked in a vicious circle of loose monetary policy and spiraling oil and commodity price inflation.

Hossein Askari is professor of international business and international affairs at George Washington University. Noureddine Krichene is an economist with a PhD from UCLA.

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Tuesday, November 16, 2010

Contest of the century: China vs India

A HUNDRED years ago it was perhaps already possible to discern the rising powers whose interaction and competition would shape the 20th century. The sun that shone on the British empire had passed midday. Vigorous new forces were flexing their muscles on the global stage, notably America, Japan and Germany. Their emergence brought undreamed-of prosperity; but also carnage on a scale hitherto unimaginable.

Now digest the main historical event of this week: China has officially become the world’s second-biggest economy, overtaking Japan. In the West this has prompted concerns about China overtaking the United States sooner than previously thought. But stand back a little farther, apply a more Asian perspective, and China’s longer-term contest is with that other recovering economic behemoth: India. These two Asian giants, which until 1800 used to make up half the world economy, are not, like Japan and Germany, mere nation states. In terms of size and population, each is a continent—and for all the glittering growth rates, a poor one.

Not destiny, but still pretty important

This is uncharted territory that should be seen in terms of decades, not years. Demography is not destiny. Nor for that matter are long-range economic forecasts from investment banks. Two decades ago Japan was seen as the main rival to America. Countries as huge and complicated as China can underachieve or collapse under their own contradictions. In the short term its other foreign relationships may matter more, even in Asia: there may, for instance, be a greater risk of conflict between rising China and an ageing but still powerful Japan. Western powers still wield considerable influence.

So caveats abound. Yet as the years roll forward, the chances are that it will increasingly come down once again to the two Asian giants facing each other over a disputed border (see article). How China and India manage their own relationship will determine whether similar mistakes to those that scarred the 20th century disfigure this one.

Neither is exactly comfortable in its skin. China’s leaders like to portray Western hype about their country’s rise as a conspiracy—a pretext either to offload expensive global burdens onto the Middle Kingdom or to encircle it. Witness America’s alliances with Japan and South Korea, its legal obligation to help Taiwan defend itself and its burgeoning friendships with China’s rivals, notably India but also now Vietnam.

This paranoia is overdone. Why shouldn’t more be asked from a place that, as well as being the world’s most-populous country, is already its biggest exporter, its biggest car market, its biggest carbon-emitter and its biggest consumer of energy (a rank China itself, typically, contests)? As for changing the balance of power, the People’s Liberation Army’s steady upgrading of its technological capacity, its building of a blue-water navy and its fast-developing skills in outer space and cyberspace do not yet threaten American supremacy, despite alarm expressed this week about the opacity of the PLA’s plans in a Pentagon report. But China’s military advances do unnerve neighbours and regional rivals. Recent weeks have seen China fall out with South Korea (as well as the West) over how to respond to the sinking in March, apparently by a North Korean torpedo, of a South Korean navy ship. And the Beijing regime has been at odds with South-East Asian countries over its greedy claim to almost all of the South China Sea.

India, too, is unnerved. Its humiliation at Chinese hands in a brief war nearly 50 years ago still rankles. A tradition of strategic mistrust of China is deeply ingrained. India sees China as working to undermine it at every level: by pre-empting it in securing supplies of the energy both must import; through manoeuvres to block a permanent seat for India on the United Nations Security Council; and, above all, through friendships with its smaller South Asian neighbours, notably Pakistan. India also notes that China, after decades of setting their border quarrels to one side in the interests of the broader relationship, has in recent years hardened its position on the disputes in Tibet and Kashmir that in 1962 led to war. This unease has pushed India strategically closer to America—most notably in a controversial deal on nuclear co-operation.

Autocrats in Beijing are contemptuous of India for its messy, indecisive democracy. But they must see it as a serious long-term rival—especially if it continues to tilt towards America. As recently as the early 1990s, India was as rich, in terms of national income per head. China then hurtled so far ahead that it seemed India could never catch up. But India’s long-term prospects now look stronger. While China is about to see its working-age population shrink (see article), India is enjoying the sort of bulge in manpower which brought sustained booms elsewhere in Asia. It is no longer inconceivable that its growth could outpace China’s for a considerable time. It has the advantage of democracy—at least as a pressure valve for discontent. And India’s army is, in numbers, second only to China’s and America’s: it has 100,000 soldiers in disputed Arunachal Pradesh (twice as many as America will soon have in Iraq). And because India does not threaten the West, it has powerful friends both on its own merits and as a counterweight to China.

A settlement in time

The prospect of renewed war between India and China is, for now, something that disturbs the sleep only of virulent nationalists in the Chinese press and retired colonels in Indian think-tanks. Optimists prefer to hail the $60 billion in trade the two are expected to do with each other this year (230 times the total in 1990). But the 20th century taught the world that blatantly foreseeable conflicts of interest can become increasingly foreseeable wars with unforeseeably dreadful consequences. Relying on prosperity and more democracy in China to sort things out thus seems unwise. Two things need to be done.

First, the slow progress towards a border settlement needs to resume. The main onus here is on China. It has the territory it really wants and has maintained its claim to Arunachal Pradesh only as a bargaining chip. It has, after all, solved intractable boundary quarrels with Russia, Mongolia, Myanmar and Vietnam. Surely it cannot be so difficult to treat with India?

That points to a second, deeper need, one that it took Europe two world wars to come close to solving: emerging Asia’s lack of serious institutions to bolster such deals. A regional forum run by the Association of South-East Asian Nations is rendered toothless by China’s aversion to multilateral diplomacy. Like any bully, it prefers to pick off its antagonists one by one. It would be better if China and India—and Japan—could start building regional forums to channel their inevitable rivalries into collaboration and healthy competition.

Globally, the rules-based system that the West set up in the second half of the 20th century brought huge benefits to emerging powers. But it reflects an out-of-date world order, not the current global balance, let alone a future one. China and India should be playing a bigger role in shaping the rules that will govern the 21st century. That requires concessions from the West. But it also requires commitment to a rules-based international order from China and India. A serious effort to solve their own disagreements is a good place to start.

Source: http://www.economist.com/node/16846256

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Thursday, July 15, 2010

Did South Africa win the World Cup?

By Richard Lapper and Simon Kuper

Published: July 9 2010 17:06 | Last updated: July 9 2010 17:06

From left: Ann Bernstein, William Gumede, Sanza Tshabalala, Mark Gevisser and Ferial Haffajee

It was a peculiarly South African exercise. On a beautiful Johannesburg winter’s morning, five smart South Africans gathered around a kitchen table and, over coffee and pastries, talked about how the World Cup had changed their country.

We had been wrestling with many questions about the tournament and South Africa. All five were fiercely independent; no one had come to the table to spout the official view. First of all, was it worth it? After all, the World Cup has cost the country a lot of money. The bill for stadiums, roads and related transport infrastructure has exceeded R30bn (£2.56bn). And was the World Cup worth it in a more intangible sense? There has been a lot of talk of a new spirit of social cohesion in the “rainbow nation”. Even before the first ball or opposing player was kicked, Jacob Zuma, South Africa’s president, and Danny Jordaan, who runs the local organising committee, had drawn comparisons with other “rainbow moments” of national togetherness. Nelson Mandela’s release from jail in 1990, for instance, or the day in 1995 when President Mandela handed the Rugby World Cup to the captain of the Springboks, a team beloved of Afrikaners.

William Gumede, Academic and writer: The son of a migrant worker, Gumede was active in the student movement in the 1980s. He worked with the Truth and Reconciliation Commission and was deputy editor of The Sowetan newspaper. His Thabo Mbeki and the Battle for the Soul of the ANC appeared in 2005. Gumede teaches at Witwatersrand University in Johannesburg

But is talk of togetherness just propaganda in a country with some very tangible needs? Shouldn’t those billions have been used to train people for jobs, or to provide impoverished schools with libraries, or even just with teachers who actually teach? We wanted South African answers, but those are hard to find. This is a peculiarly unknowable country. In a horrible way, apartheid succeeded. Starting from the absurd premise that “races” are different, the system ended up creating a country where people of different colours often are different from each other.

Most white, black, “coloured” and Indian South Africans still live within their own colour and truth. Driving around Johannesburg, it’s sometimes useful to know that apartheid has been abolished, because otherwise you might not notice it immediately. The northern suburbs remain overwhelmingly white. Alexandra township, five miles away, is black. It’s as if Kensington in London and a Lagos shantytown sat side by side, separated only by a highway. There are several different South Africas, and the people in them speak 11 official languages. Many South Africans are precluded by lack of education, or lack of English, from joining in the national debate. Perhaps 40 per cent of black people here still live in poverty, as bad, in many ways, as that which existed under apartheid.

And yet there is a vibrant South African debate, and we heard it at our round table. One reason why South Africa will surely never end up like neighbouring Zimbabwe is that society here is forever arguing. The writer Njabulo Ndebele got irritated months ago by the government’s boasts about “world-class” stadiums. What makes South Africa “world-class”, he said, wasn’t swish stadiums or a good football team. South Africa isn’t Germany. What makes South Africa world-class, Ndebele argued, is that it talked its way out of civil war into freedom and has kept talking ever since. There’s a constant national discussion in which everyone disagrees with everyone else, but in which everyone is respectfully heard. As Sanza Tshabalala, one of our guests, remarked: “I think we will always remain a talking nation.”

Our five South Africans are of different colours and have different personal histories, but each represents only one person. They came together not only as experts but as South Africans. They are critical of their country, yet never cynical. The Sowetan newspaper’s old slogan, “Don’t just stand there – Build the nation!” remained alive and well around our table.

...........................................

A talking nation…

Five South Africans, one crucial issue: the legacy of the 2010 World Cup

FT Weekend: When you look at the World Cup, do you think: this is what South Africa could be? People felt united, the event was well-organised, the visitors were mostly safe. Were there things that South Africa did that could become part of a post-World Cup strategy – the 41,000 extra police, for instance?

Ferial Haffajee, Newspaper editor: When Ferial Haffajee took over at City Press last year, she was the first non-white woman to edit a major South African newspaper. The daughter of clothing workers of Indian/Malay origin, she grew up in a Johannesburg township. Haffajee predicts Africa will become a Bric – ‘the future that is currently defined by Brazil, Russia, India and China’

William Gumede: We need a legacy, and a positive legacy is just the idea that we can, within a constrained period, actually pull things off – which hasn’t been the case before.

The public service is a key tool to make development happen. And in our case, there are inefficiencies, corruption and so on: the public service isn’t working. The World Cup local committee actually circumvented the public service. Here, I think, there’s a model for going forward. The local committee took the best out of the public service, the best out of business, put them all together and gave them an open phone line to the president. If there’s any obstacle, the president phones and says: “Create it now.”

It had a target: the World Cup must happen; if it doesn’t, we embarrass this country. That concept, I think, could be a model for us.

Mark Gevisser: You’ve got to have a compelling deadline, but you’ve also got to have a “slow and steady wins the race” approach, rather than boom-bust, deadline-driven.

South Africans, perhaps because of the way we punched so much above our weight, due to the “rainbow nation”, “Madiba miracle”, have an obsession with reputation and how we look. If we look good, then we are good, so this leads to a bling approach to development. Buy the best arms material at a huge cost, whether you need it or not. Build these great stadiums and then the world will see that we’re world-class and we’ll feel world-class, rather than the slow, steady growth that would happen through something like a National Planning Commission.

FT Weekend: To outsiders, it seems baffling that South Africa put all this thought and effort into a football tournament. Why not put your energy into fighting HIV/Aids, for instance?

Ann Bernstein: There are two reasons. If you focus on the World Cup, you don’t have to face some tough political choices. The World Cup was easy. You can get lots of people who say, “This is a great idea.” Also, there are lots of opportunities for people to benefit from a World Cup, both corrupt and not corrupt.

FT Weekend: What about the tournament’s economic impact? What will remain of all this in five years’ time?

Ferial Haffajee: The Revenue Service told us that at a macroeconomic level, the impact of the World Cup was going to be completely neutral. But we have to acknowledge the economic impact of the infrastructure, how it will bring down, hopefully, in time, the transport costs of ordinary working people who spend more than half their monthly income on transport.

The Gautrain [the new train link between Johannesburg and the international airport that is scheduled to extend next year to Pretoria] is going to be great, but the bigger one for me has been new train stations and the opening up of new bus routes.

FT Weekend: But couldn’t all that public spending have been better used for South Africa for the years to come, rather than for this one month?

Ann: Well, I think that’s a naive idea. To think that if we hadn’t gone for the World Cup, which I’m not a particular advocate of, that that money would necessarily have been spent on poor people’s housing or jobs or a whole lot of other worthy objectives, is naive. Societies don’t work that way. The political elite took on this big project and focused their minds.

The legacy all depends, actually, on what happens next. Do we capitalise on the focus the world has paid to South Africa, where I think most people have seen a country that’s much more developed, efficient, not race riven as they were led to believe? Can we capitalise on that in terms of tourism but, more important, investment? South Africa needs the post-games strategy.

Sanza Tshabalala, Radio host: Sanza Tshabalala, originally from Soweto, became well-known as a radio host. He aimed to be ‘the voice of the streets’, speaking particularly for young blacks. Now he sees himself mostly as a ‘youth, arts and culture activist’. His cookbook, The Pan Afrikan Male Vegetarian, appears next year

Mark: I think we need to have a perspective that there was another time in all of our living memory, in 1994, after the birth of the rainbow nation, when there was all this expectation of foreign direct investment. And it just didn’t happen and I think we need to understand why it didn’t happen and look at whether that’s systemic, before being able to be optimistic about what might happen.

William: We haven’t used the money in the optimum way. We should have started off with transport from the townships to the major cities, and getting that right across the country. What we also have done is create expectations that this World Cup will immediately deliver investments and jobs and so on, and so when that bubble [bursts], that is for me the danger-point. If you live in [an] informal settlement, you have no job, you have no proper house, you’d say, “Well, there is that World Cup stadium – if that can be done I need to have a job today and I need to have a house today, because if we can spend the money on that sort of thing…”

FT Weekend: Here’s a horrible question that underlies a lot of questions about South Africa. At this table and outside, do whites and blacks see the World Cup differently? Or are you all South Africans now?

Sanza Tshabalala: The more the African teams were going down, the more I started getting worried about our race relations. I thought, we [Africans] are not doing well otherwise and I thought we would do well in football and it would maybe do something with our pride.

I’m obsessed with race issues. South Africans should be behind African teams. Then I went to see the Argentina-Nigeria game, at Ellis Park. And I see young Indian professionals, white people, all dressed up in Lionel Messi jerseys, and the few of us [who] are supporting Nigeria – probably 2 per cent of the stadium. I sat there thinking, ‘What’s this society going to?’ Because we’re meant to be supporting an African team, aren’t we?

Ann: Why? Why should we support an African team? There isn’t a black view, nor is there a white view. What’s striking to me, going to a Soccer City game, was that you were seeing very large numbers of this emerging black lower middle class. They could afford to come to the game, they had all the right clothes and they were there. Class is more important now.

Mark: The sense I get inside these stadiums, or certainly in the Johannesburg I occupy, is that just as the middle class is deracialising in South Africa, and black and white kids are going to school together, are working together in professional environments, I think what’s happened in the World Cup takes that process one step further.

I’m haunted by an image on that same trip from Johannesburg to Bloemfontein, which was a group of villagers from one of those terrible hardscrabble Free State farm community villages along the freeway, in the freezing cold, in the make-do old coats that people wear in that part of the world. But behind a barbed-wire fence, obviously put up to prevent pedestrian accidents, incredibly, excitedly using whatever they had to cheer this convoy of German 4x4s zooming down with their flags going to Bloemfontein, and wanting so much to be part of this national celebration.

I haven’t spent enough time in the poor parts of the country to know how people feel there, but they’re certainly not at the matches. And, to the extent that they are partaking of this zingy cosmopolitanism, it seems to me often to be as service providers. I think so much of the negative energy that went into the [Jacob] Zuma revolution in this country was a feeling of not being invited to the victory table. A feeling of: “We should also be benefiting and we’re not.” I worry about that as an ongoing impulse.

Ann Bernstein, Think-tank director:Ann Bernstein directs one of the country’s most influential think-tanks, the Centre for Development and Enterprise. Her latest book, The Case for Business in Developing Economies, urges private-sector leaders to make a stand for markets, free trade and globalisation

William: I think expressly black people feel proud. Sorry that I’m using “black”. You can’t talk that way in a sense, but there is the element of pride: the World Cup is being put together successfully and black people predominantly could be seen as putting it together. Even if you don’t have a job, even if you don’t have a house, even if the new transport infrastructure is not serving you at all, there is still that sense of reverence around it, yes.

Ferial: Ours is a “Black Diamond” paper, a black middle-class paper. The subtext of the South African narrative is one of how black people can’t do it, look how they are messing up the government. And in fact, during this World Cup I see great moments of pride: we can do it. These are what I would call “Steve Biko [the murdered 1970s black-consciousness activist] moments” – moments of self-awareness and of achievement.

The City Press newspaper set out at the beginning of the World Cup to say we’re not going to do the elite World Cup. We’re going to go to the poorest parts of the country, Mpumulanga, Kwazulu Natal. We were sure we were going to find a story of hopeless people who couldn’t give a damn about the World Cup. In fact what we found was a very engaged community, highly excited, watching TV on big, fancy screens put up by the state. That was replicated all over the show.

Sanza: “Feel it, it is here” [the slogan for the World Cup used by SABC, South Africa’s state-owned broadcaster]. But it is really not in Yeoville [the low-income, mainly black African Johannesburg suburb where Sanza lives]. There are a lot of Africans – immigrants from other African countries – who love their teams, but they haven’t bought tickets and they don’t have family visiting. They watch it on TV. I was watching the Ghana-US game far away with some Argentinians and I rushed back to Yeoville to catch the spirit.

My moment is in Yeoville, where there is a lot of hope but there are also a lot of disappointing things about this World Cup.

FT Weekend: Was it worth it?

Sanza: Yes, [but] as a wasted opportunity. I think it was worth it for us to see that. I think we will always remain a political and a talking nation, and therefore this was worth it for us, to ponder the benefits or lack of, or to say, “It was an opportunity but we wasted it.”

William: Not that I don’t like soccer, I’m obsessed with soccer. But it was not worth it. I think we would foster a much more sustainable reconciliation between the races if we focus on development. If the black poor majority gets lifted up en masse, that would do much more for reconciliation.

Ferial: I think rationally and fiscally [it was] absolutely not [worth it]. But emotionally, I wouldn’t have missed it for the world, for the intangible benefits for our country, and the fillip it’s given it at a difficult moment. I was really worried about 20 years of democracy. I’m not so worried any more. I’d always thought that nationhood and non-racialism were evaporating dreams, and in fact I see they can still be made tangible and real.

I don’t trust our national anxieties any longer. We exist always on the edge of anxiety, and it’s been nice. Personally [this anxiety] has had little impact on my journey, how I write, how I think about the country. I like that we protest, complain. Communities here protest all the time. I’ve learnt to see that as an asset, that will compel us, I hope, in the right direction.

Mark: It was certainly worth it for me. It’s going to change the way I work. I can feel that something has shifted, the way something shifted for me personally in the early 1990s. In terms of a ledger, of hard costs and benefits, I have no doubt that it wasn’t worth it. But my sense is that in terms of reputation, and in terms of international perception, it has shifted things.

I happened to be in Dublin at the beginning of the World Cup. It was absolutely wonderful to hear every single taxi driver tell me how great South Africa was, even if the South African team was crap. It’s not clear to me how deep that is, or whether, with the sort of CNN mentality, the global eye goes on to the next thing, and forgets this backwater.

FT Weekend: Speaking as a South African, what was your moment of the World Cup?

Mark Gevisser, Author and journalist: Mark Gevisser is best known for his biography, A Legacy of Liberation: Thabo Mbeki and the Future of the South African Dream. Raised in Johannesburg, and a graduate of Yale University in the US, he divides his time between Paris and South Africa, where he is writer-in-residence at the University of Pretoria. He is currently working on a book about race and sexuality, and is The Nation magazine’s southern African correspondent

Ferial: I went to the game at Soccer City [Mexico-South Africa, the tournament’s opening match] and I realised as a country we’d come pretty far. Because a little over 16 years ago, I’d been to that stadium on two occasions. The first was when Mandela was released [in 1990] and the other was when Chris Hani [the Communist Party leader] had been assassinated [in 1993]. We sat in that awful stadium – it hadn’t been rebuilt – I was sitting right on top to catch a view of the crowd, and it really felt as if we were teetering. Our country didn’t know where it was going to. It felt as if we were on the edge of a civil war. Sixteen years later, it was a beautiful experience to be there. The game was great, but also the look of that stadium, the symbolism of it. Perhaps we are going to get through the next 20 years in fairly good shape, if we make good decisions.

William: For me, it was the first game, too. On the way, as I was driving, I could see black domestic workers in their Bafana Bafana T-shirts, white middle-class individuals with their flags and so on. I think for the first time I’ve seen black and white coming together around something. There was a positive energy on such a wide scale.

Mark: The South Africa versus France game in Bloemfontein. I’m not a flag-waver at all. I left Johannesburg in my civvies. By the time I got to Bloemfontein I was bedecked with flags, scarves, jacket.

My personal stand against reconciliation has been a refusal to sing “Die Stem” [the old apartheid anthem, some of whose lines have been integrated into the new South African anthem, “Nkosi Sikelel’ iAfrika”]. But at this Bloemfontein game I sang “Die Stem” for the first time since high school. My reason for doing so was I watched the white South Africans around me, and this is Bloemfontein, a lot of white Afrikaans Free Staters [people from Orange Free State] going to their stadium bedecked in our new national colours and wearing these colours with ease and comfort and just happiness. And I watched these Afrikaners sitting around me with tears in their eyes as they were singing, and they knew the words of “Nkosi Sikelel’ iAfrika” and I thought if they can sing that, I can sing “Die Stem” and it’s over. It feels like a personal healing and a national healing. The question for me is how deep it is. It’s great to feel that in a stadium. What it means in terms of a settling down into a mature national identity I don’t yet know.

Richard Lapper is the FT’s Johannesburg bureau chief. Simon Kuper is a regular contributor to the FT Weekend Magazine

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Monday, July 12, 2010

	I guess the one positive from the 2010 Soccer World Cup was that it gave those South Africans, Africans on the Continent and people abroad who through indifference, sheer ignorance and/or prejudice weren't aware of how cool South Africa is, a chance to do so.
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Wednesday, July 07, 2010

A disconnect between consciousness and money

Just Say No to Oil

What’s it going to take for you to finally take action?

By Sue Stevens and Jack Wilson

You turn off the TV because you just can’t bear to see those pelicans and dolphins covered in oil. The wildlife experts say they can’t be “herded” somewhere else because there won’t be enough food supply for the population already there. So the reality is most of those animals will die. But you still drive your oil-burning car just as much as you always have.

Your anger mounts as the leadership of BP enjoys an afternoon of yachting as more and more oil pollutes our waters and our food streams. “They” aren’t doing enough. “They” aren’t moving fast enough. But how many oil stocks are in your portfolio?

What’s it going to take for you and I to realize we have to take action to change our lifestyles and our investments to reflect what’s already in our hearts?

Put Your Money Where Your Heart Is

You don’t have to be a “New Ager” to want to do your part to make the world better. Your motivation might be your kids or grandkids. Do you really want the legacy that we’ve made the world worse than we found it?
In my experience, people can talk the talk about wanting to see change. But all that goes out the window when it comes to their money or their time. If your heart tells you our dependence on oil is unacceptable if it causes the damage we’re seeing in the Gulf, then you need to take the next step and vote with the way you invest your money if you want to see real change. And you may need to slow down your life enough to find alternatives to driving everywhere whenever the spirit moves you.

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