DUBLIN — In this week’s episode, Alec Hogg offers some advice to young South Africans who are thinking about emigrating against the backdrop of rising global anti-immigrant sentiment. We discuss the slump in South Africa’s agricultural sector and look at the implications of the latest Trump trade battles. We also discuss the recent Bitcoin slump and the risks of investing in unregulated assets. – Felicity Duncan
Hello and welcome to this week’s episode of From the Editor’s Desk with me, Felicity Duncan, the editor of the Premium section. And with me editor-in-chief of BizNews, and well-known radio personality, Alec Hogg.
Alec, you’ve just come from a rather interesting lunch meeting with a young South African. Do you want to tell me a bit about that?
Yes, it was quite fun, Felicity. When people come so far from South Africa, they arrive in London and ask to see me, I always try to make a point of getting together, having a cup of tea or as we did today, a hamburger. A really interesting young South African guy, who has no rights to any other passports, excepting through his great-grandparents who were in Eastern Europe somewhere. He’s in that situation that, I suppose, that many South Africans do get to, where they believe that there’s a bigger world out there and they’d really love to go and work somewhere else in the world. That’s exactly where he’s at. I like talking to young people on the one hand, but secondly, to people who are thinking of moving towards something rather than away from something.
Too often one gets those who relocate, moving away from South Africa because they perceive that there’s something going wrong in the country rather than moving towards a much bigger world where they can expand their own minds and their horizons. It was interesting talking to him, but in that conversation, we also got around to having a look at how difficult it is to get into the UK. In the Financial Times this morning, they report that 2,300 doctors – and the National Health System in the UK desperately needs doctors – 2,300 doctors couldn’t get visas to work in the UK in the first five months of this year. So, it’s not an easy place to get into.
Then the conversation turned towards South Africa and what would I would do if I was his age – he’s in his twenties – and I said there’s absolutely no question that being built the way that I am, as an entrepreneur, I would be looking to build a business within South Africa, because the opportunities in a country like that are aligned with the risks. The risks are higher, but so are the opportunities. And I said the opportunities are almost exponentially greater to build a business in South Africa rather than in a very competitive, very developed society as one has in the United Kingdom. So, it was interesting to realign and rebalance and almost rebase thinking about what we’re doing here in the UK with BizNews, which is globalising our business, being drawn towards an exciting, bigger world, but remaining mindful of the wonderful opportunities that exist for entrepreneurs back home.
Yes, it’s interesting what you say there about how difficult it’s becoming to get into the UK and that’s the trend everywhere, right. The US is clamping down very much on immigration, the UK is clamping down on immigration. We see now that Italy is starting to turn back migrants that are coming across the Mediterranean. Really, there’s almost a closing of borders happening and that’s happening against the backdrop also of a retreat on free trade in some quarters, most notably on the US side.
Yes, you’ve been following the G7 story with Donald Trump making it into one of the most acrimonious meetings of Western world leaders ever. He started by saying, “Let’s bring the Russians in” and the rest of the other six members of the G7 said, “No, thank you” and then it went downhill from there. He, of course, does have his trade issues at the moment. He’s slapping trade sanctions on America’s allies, but how are you reading it, you lived in the US?
It’s a very strange thing to see happening because for 50 years, maybe longer, 60 years America’s really championed free trade around the world and championed opening markets and increasing trade ties for many reasons. One, to drive economic growth, another to better integrate the global system to try to prevent future conflicts. But now we’re seeing this massive retreat and it’s very interesting to watch the Trump administration. They’ve opened up – I don’t want to say, trade wars quite yet – but they’ve opened up trade battles on so many fronts. There’s a conflict with China that had been signalled, for a long time. We knew that was going to happen and it’s starting to play out now. But then there’s also a conflict with Canada and Mexico over the North American Free Trade Agreement.
There’s also now a big conflict with its traditional European and G7 allies, so America’s slapping punitive tariffs onto steel and aluminium imports from those countries on the grounds of what they’re saying is national security – although of course, it’s hard to see how Canadian steel is a security risk for America. So, it’s just a multipronged assault on free trade and an assault on the global institutions that have allowed free trade to flourish. With that, as I said, is coming this closing of borders, this retreating into nationalism. It’s a very interesting development and I think in a lot of ways it’s also quite worrying because periods of rising nationalism are usually associated with rising levels of global conflict.
Yes and we certainly are seeing it and what happens next, I suppose, is the big question mark. But the good news, of course, is that the financial markets are completely ignoring it and they believe that it’s a lot of hot air and there isn’t really going to be that much change that one person cannot destroy – even if he is the President of the United States – the rules-based system has been built up over many years. I guess we have to wait and see what’s going on there.
Yes, one has to hope, right. I certainly hope that the other players in these multilateral institutions are going continue to do the work of co-operation. I think that Japan has done a lot to lead that – pursuing trade agreements without the US and so forth. But I don’t know, it does worry me. The last crisis that we had was brought about by something that some people were warning about, but the markets seemed to be ignoring, which was a high concentration of risks and credit in the form of derivatives in the US housing market. And, we don’t know right now, which of the risks is going to be the one that tips us into the next crisis.
I liked how Warren Buffett described them as “financial weapons of mass destruction”, but the good thing there was that once the global financial crisis came along, Buffett then focused on how to fix things. He never wanted to dwell on what happened in the past. But maybe it’s the cryptocurrencies? Maybe it’s Bitcoin? That’s had quite an interesting ride over the last little while, hasn’t it?
Bitcoin’s a funny one. There obviously are very passionate people involved and there’s a lot of really interesting technology, but I think what we’re seeing right now is that the price of Bitcoin is not really being driven by any kind of fundamentals, it’s really being driven more by sentiment. So, over the weekend Bitcoin went on a bit of a crash. It fell down to about $6,300, which is very close to its previous low of $6,000 back in, I think it was February last year. The theory behind the fall is that there was another hack on another cryptocurrency exchange and this again raised fresh concerns about the security of these cryptocurrencies.
Now, what I find especially interesting about this is that the cryptocurrency exchanges are actually distinct from the blockchain network that creates Bitcoin. So, you have two things. You have a very secure blockchain network in which Bitcoin is mined. And then you have these cryptocurrency exchanges where people go and they deposit their crypto tokens, they put them into digital wallets at these exchanges and exchange them for other cryptocurrencies or for regular, traded currencies like the dollar and individuals who are not part of the Bitcoin blockchain go to buy Bitcoin on these exchanges. So, the exchanges are really about trading the cryptocurrency, not creating it.
And these crypto exchanges have had an enormous number of security troubles. There have been hundreds of millions of dollars of cryptocurrency stolen from them in these hacks and they’re largely unregulated. So, investors, or perhaps I should say speculators who are trading on these exchanges are finding that when their cryptocurrency is stolen they don’t actually have any real recourse to get it back. Some of the exchanges have tried to refund people, but there are actually no protections or guarantees. It’s quite a risky business doing your trading on these exchanges.
Indeed, it reminds me a little bit of people in South Africa who have been conned into taking money out of the country by the financial equivalent of snake oil salesmen, who do it all behind a cloak of secrecy because they are avoiding exchange control regulations. So, a similar kind of thing. And when that goes wrong those people who’ve entrusted their money to the crooked middle-men end up too scared to say anything about it because they themselves don’t really have a leg to stand on. So, it’s a similar situation. If you are going to be dealing in an unregulated environment, even if it isn’t one that’s out and out breaking the law, but just to be unregulated puts you at enormous risk, so let the buyer beware.
Yes, it’s exactly right. You know I think that many people are attracted to Bitcoin in part because it represents an opportunity to hold assets outside of government scrutiny, which many people find very appealing. But the flipside of that is that with no government scrutiny you also don’t have any government protection. And I think that people find that when something goes wrong, suddenly they really miss, you know, “Uncle Reserve Bank” coming in to save them.
Before we wrap up Alec, I wanted to touch on your newsletter from today, which I thought was very interesting. You were talking about the GDP numbers, which we’ve discussed before, but you really zeroed in on the agriculture side of things.
Agriculture contracted by about a quarter in the first quarter of this year relative to the last quarter of last year. It’s easy to say it does come off a record base and that the rains have not been that great for the first quarter, but that’s a huge contraction. Part of it is perhaps – and this is a theory that many are now holding – that all the conversation around expropriation of farmland without compensation is feeding its way back into the behaviour of farmers.
It makes a lot of sense because if you’re a farmer and you’re being told that someone’s going to knock on your door, take away your assets, and give you nothing for them then the incentive to continue investing in the land, in fertiliser, in tractors and all the other capital equipment that is required to farm efficiently – clearly that incentive is no longer there. In fact, it’s a disincentive to do that.
So, to see a contraction in the agricultural sector is, as I suggested, a big warning flare. It’s not a flag; it’s up there for everybody to see. There is a consequence of a political decision and if the certainty is not brought into that industry or into that sector of the economy, we can expect more of the same into the future. It’s happened in other countries and food security has gone out the window when the farmers feel unsafe or unwanted or disincentivised and that is a serious threat that South Africa’s going through at the moment.
Yes, it is worrying because South Africa is one of the very few countries in the world that’s a net food exporter. That’s a testimony to the health of the agricultural sector or I should say the productivity of the agricultural sector. So, any kind of threat to that definitely raises concerns especially, as you say, for domestic food security right, let alone exports.
It’s not a bunch of little farmers who have inherited from their fathers etcetera etcetera. The bulk of South Africa’s food production, which makes it into an exporter, is done through enormous enterprises. If those are at risk of having their assets confiscated, well, you have to realise that like any other enterprise they will act rationally. The rational approach is to cut back on investment and if you cut back on investment, you have a reduction in production and so on and so forth. So, you get into a vicious circle very quickly.
The problem in all of this is that, can you really believe the politicians if they say, “Well, it is rhetoric, but we aren’t going to do anything crazy.” Those are the issues that, I guess, when you’ve been through a Zuma administration of nine years of broken promises, corruption, lies and any other thing that could’ve gone wrong did go wrong, despite the fact that he’s been succeeded by an animal with a completely different colour, you still do leave a great concern and nervousness amongst people who have the capital. Never forget that capital is extraordinarily cowardly, it doesn’t like being frightened. It goes where it is welcomed and right now, it doesn’t seem to be terribly welcome in South Africa’s agricultural sector.