‘Incapable SA government and consequent inequality has set this tinderbox aflame’ – Piet Viljoen

Counterpoint’s Piet Viljoen, who BizNews founder Alec Hogg often refers to as ‘the most rational person he knows’, joined the BizNews Power Hour today – with his first comment being that it is super hard to to stay rational in times like these. Viljoen believes that the civil unrest that has been raging in parts of South Africa over the last few days may be a watershed for this country and that ‘things could either change for the positive or for the negative, but things will have to change.’ Viljoen says that the thing that struck him most was the complete absence of government, and that it is this continuation of this incapable government that has led to the massive inequality. The crux of the issue, Viljoen states, is that the disempowered portion of the population has just become bigger as a result of lockdowns and other associated measures to fight the pandemic. Viljoen also provides an alternative perspective on communities pulling together to fend for themselves. While he admits that it is a positive thing for communities, he notes that it will lead to large parts of the infrastructure falling away if it starts to replace the state. – Nadya Swart

Piet Viljoen on providing a rational perspective on what South Africa has gone through in the last week: 

Well, I think the first comment would be to say that it is super hard to stay rational in times like these. It’s just upsetting. It’s horrendously upsetting to see the videos and images of what’s been going on in KZN and parts of Johannesburg. And, you know, I think it’s a cause for deep reflection. It’s hard to just make a knee jerk reaction and say, ‘It’s this or that, or once you do this or once you do that.’ In terms of the funds I run, I have done nothing. I’ve actually consciously not done anything at all, because the environment is just so uncertain.

On the fact that the rand has not really moved much:

No, it hasn’t – and that’s the strange thing. I mean, stocks haven’t moved very much. The rand hasn’t moved very much. Yet, I think what’s happening is almost, it could be – and again, I mean, one would have to think very clearly and deeply about this and speak to a lot more people – but what is happening could almost be a watershed for the country. So things could either change for the positive or for the negative, but things will have to change. There’s no doubt. And how do you position for that massive uncertainty? I don’t have the answer for that right now. 

On comparing civil society in South Africa to the ‘boiling frog syndrome’ and the civil unrest being ‘the frog jumping out of that pot’: 

It could be, although it’s a pot with very high sides – so it’s very hard to jump out of that pot unless you move to a completely different new pot somewhere else. So it’s not easy. But I think what we have today is a result of an incapable government, because I think, you know, if you look at the images and the videos of what’s been happening on the computer, at least initially – the complete absence of security forces, the complete absence of government giving reassurance and attending to the matter.

The absence of government completely was probably the thing that struck me the most. And that could mean many different things, but what it definitely is is a continuation of an incapable government. And that is why there is such massive inequality in the country, which is this tinderbox, which has now been set aflame. 

On the possibility that the incapable South African government is not going to learn from this and instead double down on its ‘capable state ideal’: 

That’s why I say [that] I think we’re at a watershed, because if that happens – then I think things are quite negative. If the incapable state doubles down and tries to improve what it does, it just makes things worse. And it has been doing [so] for twenty five years now. Whereas, if it uses the opportunity to withdraw and starts thinking about what policies could be changed to create growth, to create employment, to create jobs, to help business do those things – then I think it’s a change for the positive.

And that’s why I’m saying I think we’re seeing a watershed here. If we go the way of promoting growth and jobs and employment – it could be a very good outcome. But if we go down the road of this incapable state doubling down on their failed policies – then I think it’s very negative. 

On communities realising that they have to fend for themselves and whether – with this genie out of the bottle – we’re talking about a different way of life:

Yes, possibly, but I do think that that sort of environment is one that is not conducive to growth. You know, when you have communities pulling together, it’s a positive thing for the community – and I would encourage that everywhere in the country, I think communities pulling together is a force for good. But if you have the infrastructure that’s crumbling, physical infrastructure that’s crumbling – ports, railways, all those sort of things run by the government – it’s very hard to generate growth, to generate jobs.

If you have a legal infrastructure that’s crumbling, it’s very hard to create jobs, to do business, to grow. And that’s why, you know, this thing with communities pulling together is great. But if that starts replacing the state, then I think there’s large parts of infrastructure that just fall away. And that’s a very different environment in which to do business and to grow and to create jobs. 

On the external view of what’s happened in South Africa:

Look, I’ve seen various reports and this is all very real for us in South Africa, it’s vivid because we’re living this – especially if you’re living in KZN. But remember, these sort of things happened in the US not that long ago. I mean, there was looting happening in a lot of the cities in the US post the BLM, when the BLM movement started, for days on end in Seattle and other cities – there was looting happening there. Just at the beginning of this year, you had a crowd of people invade the Capitol in Washington, D.C – you know these guys with the horns on their heads and all those funny guys invaded the Capitol.

So, you know, these sorts of uprisings have been happening all over the world and it’s come to South Africa. And the reason for it – one of the main reasons – is there are a whole bunch of poor people and disempowered people globally – and the problem has been exacerbated by lockdowns and other regulations put in place to fight this pandemic. And the second order and third order effects are what we are seeing now. The first order effects, some people would say that lockdowns help prevent the spread of the virus – that might or might not be right – but it’s the second and third order effects, as with most things, where the rubber hits the road.

And I think that’s what we’re seeing in South Africa. We’re seeing it in other countries; the US, Cuba, there was looting in the UK not that long ago. You know, it’s the disempowered portion of the population that has just become bigger as a result of lockdowns and other associated measures to fight the pandemic – and that’s the crux of the problem.

On whether there’s an upside to all of this:

I think longer term there could be an upside. Right now, where I sit, no – there’s no upside in this sort of thing. If you destroy a large portion of one of the bigger municipal centers of the country, there’s no upside to that. And to sit here and to say, ‘Where’s the upside, where’s the opportunity?’ I think that’s just wrong. I think the first thing to do is to support your community, support the people around you, help where you can. And hopefully, if the government’s policies fall on the right side of the watershed, there could be some longer term upside – but right now I don’t think there’s good in this. 

Right now, it’s a mess. It’s a complete mess. There’s an information vacuum. The right hand of the government doesn’t know what the left hand is doing. The right hand says this. The left hand says that. There’s no coherent policy. Let’s see, maybe they’ve withdrawn to the inner sanctum to think about what’s happening. One would hope that’s the case, but hope is not a great strategy.

On what to do as a Joe Citizen South African:

So, I guess what has happened is [that] our risk premium has gone up a bit now as a result of this. So whatever discount rate you’re using to discount the cash flows from the business you’re invested in to get to their present value – that has probably gone up a bit, which reduces their value somewhat. But, you know, many assets in South Africa are discounting really, really bad things happening. Much worse than this if you look at what the prices of those assets imply, which also speaks to the fact that asset prices haven’t really moved as a result of this. And that’s the thing.

It’s like a horse race; you know [that] if the favourite is so good, you know the favourite is going to win, you know it’s going to happen. But if you bet on another horse and there’s an outside chance that it wins, you can make a lot of money. And that’s how assets are priced in South Africa right now. They are priced as if disaster is going to take place. And this week we’ve seen some disaster and asset prices have basically not done anything, which shows you that they’ve priced it in already. It’s in the price.

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