Knowledge is the Food of the Soul

Originally published in the Informanté newspaper on Thursday, 28 January, 2016.

“Muad'Dib learned rapidly because his first training was in how to learn. And the first lesson of all was the basic trust that he could learn. It's shocking to find how many people do not believe they can learn, and how many more believe learning to be difficult. Muad'Dib knew that every experience carries its lesson.”

A prominent distance learning institution in Namibia has as its motto: “Education is the greatest equalizer.” And the Institute for Open Learning does not base this on mere wishful thinking – even the United Nations Development programme has “to be knowledgeable” as part of the four basic capabilities for human development. The Namibia Statistics Agency as well has recently reaffirmed that a high-school level education results in a much greater ability to be employed.

But as with all skills, there is a cost to have it developed. True, the Namibian government has made some strides towards its promise of free education for all, but it still needs a lot more resources to be fully implemented. And while this solves some of the problems for our future generations, it does leave the current generation with a bit of a gap. But luckily there’s a solution. 

The poorest and most vulnerable people should have access to information that is useful and relevant, and that enable them to not only understand their environment better and learn new skills, but also to make informed choices about their lives. There is a service that provides just this – with a mandate of free and universal access to information. The public library.

In their research paper “Libraries, literacy and poverty reduction: a key to African development,” Professor Kingo Mchombu of the University of Namibia and Nicola Cadbury point out that “New knowledge and skills are also crucial assets that can improve a household’s income-generating capability and reduce vulnerability to shocks, such as economic downturn, loss of employment or the illness of a wage-earning family member.”

“They achieve this through offering access to reading materials that are relevant, stimulating, enjoyable or useful. Pleasure in reading, which in turn helps to foster a lifelong reading habit, is often experienced in the library in which readers gain their first opportunity to pick a book of their own choice. Libraries are also important for providing practical information that can be used to facilitate development, whether for seeking employment, understanding rights, learning a skill, checking a fact or gaining health information.”

I myself can attest to this. Back in 1994, my family moved to Windhoek. At the age of 11, my allowance was barely enough to buy a book every month, and I’d read through it in an afternoon. But every Wednesday, after school, my parents would take me and my sister to the Windhoek Public Library. The first time I walked in there… It was the most books I had seen in my entire life! I used my library cards and those of my parents, and I got to read 9 books a week. 

Pretty soon I had exhausted all of my favourite authors, but curious to see if there was any I missed, I combed the card catalogue. And to my surprise, I found much more. One of my favourite authors, Dr Isaac Asimov, had not only written science fiction, but also other books – in the non-fiction section. Dr Asimov, as it turns out, had written over 500 books during his lifetime, and had published books in 9 out of the 10 Dewey Decimal Classifications. 

Of course, not all of them were in the Windhoek Public Library, but those that were I read again and again and again. Dr Asimov had an unambiguous and direct writing style, and he explained what he knew simply and clearly. Though his work I learned to love mathematics, physics and astronomy – as can be seen in Theory of Interest topics here on occasion. And when I write, I try to at least bring the same qualities Dr Asimov used to my work.

To this day, some of the books I’ve read by Dr Asimov I’ve not found for sale anywhere, but they’re still available in the Windhoek Public Library. By now, of course, the library not only provides books, but also internet facilities that I would have jumped at to have access to back when I was young. 

The work of the Namibia Library and Archives Service to maintain our public libraries have been exemplary, especially considering the amount of work they had to put it to have the library sector included in the Education and Training Sector Improvement Programme for Vision 2030. Yet it feels that too often the contribution of libraries are forgotten when it comes to fighting poverty alleviation. 

Sara Harrity, of Book Aid International, said, "The role that libraries in Africa could play in reducing poverty has not been sufficiently recognised and hence the necessary policy developments and investment in the library network have not yet been made. Policy makers and donors, recognising the link between poverty reduction and literacy, have given centre stage to textbooks in policies to increase literacy and student achievement levels. Yet textbooks are the beginning of the solution, not the complete answer. Libraries sustain literacy and do so on a reuse basis providing a cost-effective means of support for a whole community of readers who seek information for tackling their own problems."

The burning of the Great Library of Alexandria was such a loss to the common knowledge of mankind that it is still debated today what we lost in its destruction. Let us learn from that mistake, and not let knowledge be locked up only for use by the rich and privileged. Knowledge is the right of all mankind – and if it can even lift just some of our citizens out of poverty, perhaps we too can experience a new age of enlightenment.

What Goes Up

Originally published in the Informanté newspaper on Thursday, 21 January, 2016.

For the financial markets, 2016 started quite ignominiously. Stocks worldwide recorded some of the worst first week openings in history, with the Dow Jones down 6.2% and the S&P 500 down 6%. In London the FTSE 100 lost 5.3% for the week, and in China circuit breakers triggered twice to prevent a more 7% fall in the Shanghai Shenzen CSI 300 during the week. 

Concomitant with this, emerging markets saw a sharp devaluation in a range of currencies (including the South African Rand, of which we are all aware), and the price of crude oil dropped to its lowest in in more than 10 years. But while it seems like everything started to fall apart in 2016, the reality is that it started quite a bit earlier. After all, the stock market’s surge upwards worldwide got halted in their tracks last year with China’s Black Monday. Oil already had a precipitous decline during last year that started in 2014, and most commodities had already fallen to new lows by the end of 2014.

In fact, it seems like a so-called ‘commodity supercycle’ came to an end back in 2014, but a measure of irrational exuberance kept everyone from fully internalizing this fact, with economies coasting on hope throughout 2015 for a recovery – a hope that only fell flat on its face at the start of 2016.

Economic ‘supercycles’ are theories that the economy behaves similarly to normal business cycles, but over a significantly longer period, as industries and technologies are discovered, developed, reaches maturity, and are supplanted. First proposed by Soviet economist Nikolai Kondratiev back in 1925, with his book “Major Economic Cycles”, this theory was later expanded by Joseph Schumpeter, who proposed that these ‘supercycles’ be called Kondratiev waves in his honour.

They theorized that longer economic cycles might reflect the impact of technological innovation and demographics. In terms of technology, over time one is discovered, then it rapidly starts developing into an industry, then this industry starts synergising with complementary industries, until it finally matures. With demographics, it can be observed that most people’s lives follow a predictable economic pattern, initially debt-fuelled purchases of capital, starting with schooling, a car, then a house, while income is low, and then a gradual reduction of debt while income increases and savings increase as well, until retirement, when savings is maximized, income drops, and the savings is gradually depleted during retirement.

It makes intuitive sense that the overall economy would in a way sync up with industrial development and changes in the demographic make-up of its participants. But given the long-term nature of these cycles, we lack the necessary recorded history to show its existence thus far. In the case of commodities, however, the capital investment and output cycle are long enough that a similar set of circumstances arise in the industry naturally. 

When China joined the WTO in 2003, its economy started to heat up. China started to develop its infrastructure, and had a huge need for raw materials. But for the twenty years prior, commodities were trading at just below all-time lows. China’s sudden need for more capacity (an increase in demand), did what traditional economics predicts – an increase in demand with supply constant raise the price. Commodity prices continued to ‘boom’ during the 2000’s, and these high prices spurred investment in mining and prospecting, with loans etc. taken out to develop now profitable ventures. But mining operations take a while to develop and start up, and by 2010 the first of these new mines started supplying. With an increase in supply to match the increased demand, prices stabilised. But what goes up… ?

During 2014, with 10 years of infrastructure development done, China started to slow down. All the low-hanging fruit was plucked, and infrastructure costs were skyrocketing. Curtailing spending was natural for its development. But for mines expecting the demand to hold up, this came as a surprise. Because as traditional economics predicts, with an increase in supply and a decrease in demand, comes sharp fall in the price. 

Most producers kept producing, sometimes lending cash to keep operations going in anticipation of a price correction upwards that never came. Oil, at first, seemed resistant, because conflict in the Middle-East kept uncertainty high. But as it became clear that oil supply lines were not under threat, oil, too, collapsed. 

Eventually, though, even hope runs out. With signs that China is definitely slowing down, and no indication of demand increases elsewhere, even the blind could see commodities are oversupplied, and will remain so until a new ‘source’ of demand can be found. Mining and oil companies are shelving projects, and retrenching workers, and those effects reverberate throughout the global economy. And so the cycle goes. While it was in upswing, it seemed that the good times would never end. With the downswing, it now seems there’s no end in sight to low commodity prices. But what goes down… ?

But just as everything that goes up must come down, so too all downward trends eventually revert to the mean. Closures and bankruptcies, hard as they are, will reduce supply and raise prices, or our economies will grow to utilize them. Perhaps, with input costs of raw materials this low, now is the time for all companies to consider investing in cheap infrastructure – after all, when the recovery comes, steel and oil will be more expensive. Or maybe a new ‘infrastructure growth’ economic tiger will emerge on the world stage… Iran has just re-joined the world economy after years of isolation, and needs to upgrade infrastructure and more. How ironic would it be if the international pariah turned out to be the saviour the world economy needs right now?

For Want of a Rate

Originally published in the Informanté newspaper on Thursday, 14 January, 2016.

2015 was a tumultuous year. Namibia saw the inauguration of our third president, and with the peaceful transition of power, our nation received accolades not only for the departing President Pohamba’s leadership, but also for the way in which new President Geingob took the reins, and set the tone for his presidency. But not all was well in Namibia, because even though our government was starting to deliver on its promises, the weather and its accompanying drought started to threaten our capital.

Outside our borders, in neighbouring South Africa, the year seemed to include more of the same, with continuing strikes and electricity supply problems continuing to plague its economic growth. And then, as the year drew to a close, Nenegate reared its ugly head, as South African President Zuma unceremoniously replaced his finance minister twice in a week, co-incidentally the same week that South Africa’s sovereign rating was downgraded. With some loss of investor confidence, the South African Rand depreciated against the major currencies, and while it recovered somewhat initially, the slide has continued into this year.

Namibia, of course, has been part of the Multi-Lateral Common Monetary Area agreement with South Africa, Lesotho and Swaziland since 1993, which pegs the Namibian dollar at 1:1 with the South African Rand. As a result, a slide in the free-floating South African Rand is directly translated to the Namibian Dollar. The huge media uproar about this slide has prompted some Namibian citizens to vocally demand that the Namibian Dollar be ‘de-linked’ from the South African Rand. This, however, would most likely cripple the Namibian economy. 

It is understandable that Namibians would resent having effects of an extra-territorial political situation affect us, but to be fair, given the close geographical proximity of South Africa, and its status as our largest trading partner, it would have affected us in any event. In addition, foreign exchange is governed in the CMA by the South African Reserve Bank, not the South African government, and the SARB’s independence and autonomy is entrenched in the South African constitution.

By being in the CMA, our currency gains the credibility of being managed by the SARB externally, and given its impressive track record, notwithstanding the SA government’s track record, it gives our currency some clout in the world markets. We also gain the ability to invest across the CMA, and allows all CMA countries to invest here. We have no transaction costs with regards to currency in imports and exports to the area, greatly expanding Namibia’s market reach. And since the SARB’s target is an inflation band, their efforts to remain in the inflation band assist our own BoN in limiting inflation.

If we ‘de-link’, then yes, our currency comes under the control of the Bank of Namibia. But since our economy is relatively small in comparison to South Africa, imports and exports will have a much larger role in shaping the foreign exchange value of our currency. As can be seen in the table, trade can vary a lot between Namibia and our different trading partners year on year, which would translate directly into exchange rate volatility. 

But consider the following. Suppose the exchange rate moves so that N$1 is now R2. The Namibian economy remains the same, but suddenly all imports from South Africa is now at half price to Namibian consumers. Conversely, all exports are now twice as expensive to South African consumers. Our farmers would no longer be able to export to the South African market, and Namibian consumers would prefer half-price South African produce to Namibian produce. So it would be in most industries, from meat to milk to fish to raw materials. And since Namibia is now an expensive tourism destination for South Africans, our tourism income would drop as well. The local economy would be decimated, and Namibian businesses with South African subsidiaries would find their income from foreign subsidiaries halved. We’re not even calculating the increased transaction and accounting costs.

Now consider that N$1 devalues to R0.50. Yes, most of the above would be reversed. Namibia would export easily, and our goods would be much in demand, and tourists would flood our country. But with Namibian businesses being able to sell in South Africa at twice the price, why would they sell to Namibians unless we match that price? Inflation would run rampant, and thus the exchange rate would move closer to parity.

Many Namibians point to Botswana and the Pula as an example of a strong currency not linked to the Rand, but unfortunately, the Pula’s truth is much stranger. While the Rand is a free-floating currency against other currencies, the Pula is fixed as well – albeit to a basket of currencies (mainly, the IMF’s SDR, and surprise, the Rand.)

In closely-linked economies such as Namibia’s with South Africa, where one is so much larger than the other, market forces will inevitably force our exchange rate to move in a band with our larger trading partner – although with much more costs and administration than a simple peg. Perhaps the solution to our quandary is not to cut ourselves off from our neighbour, but rather to provide whatever assistance we can, to help it transition out of this difficult period.