It’s now or never, ac­cord­ing to the Mis­ery In­dex

Finweek English Edition - - MONEY - BY SCHALK LOUW Port­fo­lio man­ager at PSG Wealth

From a young age, we are taught to mea­sure things. To mea­sure is to know, right? Long be­fore my daugh­ters went to school, my wife and I used to ask them how much they loved us. They used to stretch their arms as wide as pos­si­ble and re­ply: “This much, Daddy.” In t he same way we can mea­sure love, so too mis­ery can be mea­sured.

Renowned Amer­i­can economist Arthur Orkun dis­cov­ered i n 1962 that a 1% hike in the un­em­ploy­ment rate neg­a­tively af­fected US GDP by nearly 2%. He cre­ated t he Mis­ery In­dex by sim­ply adding t he USA’s un­em­ploy­ment rate to the coun­try’s inf la­tion, which in the­ory meant that the higher this num­ber, the higher t he countr y’s miser y l evel. In t he late 2000s, economist Steven Hanke adapted this in­dex so it could also be ap­plied to coun­tries out­side of the US. He added the coun­try’s prime lend­ing rate to Orkun’s cal­cu­la­tion, and sub­tracted the year-on-year per-capita GDP growth per­cent­age. HOW DOES SOUTH AFRICA FARE? So, ac­cord­ing to Hanke’s Mis­ery In­dex, how “happy” are we as a coun­try? In short, very mis­er­able. At the end of 2014 we were 10th out of 108 coun­tries on the Mis­ery In­dex, with coun­tries such as Greece and Su­dan shock­ingly far­ing bet­ter.

To make things worse, South Africa is ex­pected to ex­pe­ri­ence the worst mis­ery in 2015, shortly af­ter Venezuela and Ar­gentina, ac­cord­ing to world econ­o­mists’ con­sen­sus. With sev­eral ma­jor com­pa­nies an­nounc­ing these past two weeks that large num­bers of em­ploy­ees will be re­trenched, the rand’s con­stant weak­en­ing putting pres­sure on inf la­tion, and our f irst in­ter­est rate hike for 2015 in June this year, the warn­ing lights are f lash­ing brightly to alert us that these pre­dic­tions may very well be true.

It is also in­ter­est­ing to see a di­rect cor­re­la­tion be­tween the weak­en­ing of this in­dex and the weak­en­ing of the rand, when com­par­ing the South African Mis­ery In­dex to our cur­rency. WHERE TO FROM HERE? The so­lu­tion to our mis­ery is a t woway street: as an in­vestor, you ei­ther go left or right. If SA’s stance does not im­prove on this in­dex over the long term, it will be in the best in­ter­est of both lo­cal and in­ter­na­tional in­vestors t o f i nd t hei r s a l v at i on i n ot her coun­tries. To im­prove these prospects, the gov­ern­ment would have to fo­cus on two cru­cial as­pects: ur­gent job cre­ation and pur­su­ing eco­nomic growth close to twice its cur­rent growth lev­els. On t he up­side, we have a l r eady iden­tif ied the prob­lems; now it ’s a mat­ter of f i xing them. Af­ter all, as 1. It is ob­vi­ous that a coun­try ex­pe­ri­enc­ing a higher un­em­ploy­ment rate than another would be con­sid­ered more mis­er­able. 2. In­fla­tion is mea­sured by how sharply prices on con­sum­ables and ser­vices rise. I don’t need to ex­plain why, as an elec­tric­ity con­sumer, I am mis­er­able be­cause elec­tric­ity prices have more than dou­bled over the past 10 years. 3. In SA, per­sonal debt lev­els (as a per­cent­age of per­sonal in­come) are still around 80%. The higher the Re­serve Bank pushes our prime rate, the more mis­er­able we be­come. 4. GDP growth mea­sures our to­tal eco­nomic growth as a coun­try. The lower this num­ber, the more we strug­gle. (This num­ber is mostly af­fected by points 1 to 3 above.) Mean = 39.80 Std. Dev. = 5.87

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