The Economist 14Dec2019

The EconomistDecember 14th 2019 Finance & economics 63

2 arbiters to hear awkward disputes. This
should no longer be possible.
The shared vision of the Trump admin-
istration and Democratic lawmakers is
clearest when it comes to labour standards.
The aim was to make it less attractive to
move jobs from America to Mexico than
had been the case under nafta by support-
ing Mexican workers’ employment rights.
But in the first version of the usmca, the
afl-cio complained, the bar for proving a
breach of the rules was too high and en-
forcement mechanisms were too onerous.
Critics pointed to the only labour com-

plaint ever to make it as far as a formal dis-

pute as part of an American trade deal: a

case against Guatemala in which arbiters

agreed that the rules had been broken, but

not that any harm to trade or investment

had been demonstrated.

The new deal shifts the burden of proof

regarding such harm. To avoid penalties,

defendants will have to show that it did not

happen. Moreover, accusations that manu-

facturers are breaking Mexican laws cover-

ing freedom of association and collective

bargaining will be sent for speedy consid-

eration to panels of “independent labour

experts”. Rule-breaking will lead to penal-

ties on exports. Overall, the revised labour

provisions are good for Mexico, Mr Seade

says, and will reinforce its government’s

own labour reforms.

The revised usmca will restrict trade a

bit more than nafta did. It will probably

not live up to the hype. Even if greater use

of collective bargaining raises Mexican

wages, the usmca’s official impact assess-

ment suggests that American wages would

rise by just 0.27% in response. But for Mr

Trump, his Democratic foes and their

neighbours in Mexico, it counts as a win. 7

Buttonwood Dying many times

T

he firstquestion to consider in any

reckoning of South Africa is whether

you can get through it without a story

about Nelson Mandela. You can’t, of

course. So here is one that seems appo-

site. Mandela and his fellow prisoners on

Robben Island were allowed one book

other than the Bible. They opted for the

collected works of Shakespeare. Each

marked a favourite passage. Mandela

chose one from “Julius Caesar”: “Cow-

ards die many times before their deaths;

the valiant never taste of death but once.”

Fast-forward from the struggle

against apartheid to today. South Africa’s

economy has shrunk in two of the past

three quarters. The state-owned power

company has announced a series of

rolling blackouts. An unchecked budget

deficit means public debt is on track to

rise above 70% of gdp by 2022. The na-

tional airline has sought protection from

its creditors. The country’s investment-

grade credit rating is hanging by a thread.

The situation cries out for a valiant

response. Remedies have been discussed

ad nauseam. If the production of reform

blueprints were the key to wealth, South

Africa could be the world’s richest coun-

try. Instead it suffers an unending series

of small deaths. It is why, for many in-

vestors, it is often a tactical trade but

never a strategic one. It is a reform story

endlessly sketched out but never written.

The need for fixes is increasingly

desperate. This year will be the fifth in

which gdp growth has failed to keep up

with population growth. The unemploy-

ment rate is 29%, a grim statistic that

does not fully capture the extent of job-

lessness. One legacy of apartheid is that

many blacks live far from where the jobs

are. Since poor public transport makes

searching for work costly, many simply

drop out. The trouble runs even deeper.

South Africa is a cartelised country, in

which insiders—big businesses and their

employees; government workers—flour-

ish and outsiders languish. Labour laws

intended to reduce inequality have instead

reinforced it. Wage deals are fixed by un-

ions and big firms. Small firms must com-

ply, but struggle to do so. Startups and the

jobless suffer as a result.

The fixes are well-rehearsed: an end to

restrictive labour practices; a dose of

competition in industry; a clean-up of

state-run power-transmission and trans-

portation monopolies. Countless commis-

sions and development plans have urged

such measures. In its annual health-check

of South Africa’s economy in 2018, the imf

concluded that “bold structural reforms

are urgently needed”. It was hardly a new

message. In 2011 the fund had deemed

reforms “critical”; by 2013 they were “im-

perative”; by 2016 “urgent and imperative”.

But little has changed.

The wonder is that these simmering

problems have never boiled over. A system

of welfare grants helps contain some of the

population’s anger, but weighs on public

finances. South Africa is thus vulnerable

to a shift in investors’ mood. It runs a

persistent deficit on its current account.

It relies on overseas capital to bridge this

gap between what it spends and what it

earns. Ideally this would come through

foreign direct investment, which would

add to the country’s capital stock and

create jobs. But it is hard to attract such

investment when you do not have a

reliable power supply.

So South Africa relies on portfolio

inflows to stocks and bonds. It has had

enough residual appeal to keep these

coming. It has a range of well-run com-

panies that are not especially sensitive to

the struggles of the local economy, says

Rob Marshall-Lee of Newton Investment

Management. Oligopoly in many in-

dustries makes for handsome profit

margins. Bond investors, with one eye on

the country’s credit rating, are able to

earn higher yields than are available

elsewhere. There is still confidence in

South Africa’s key institutions, says

Yacov Arnopolin of pimco, a big bond

firm. The central bank has stuck to its

task of controlling inflation. The Trea-

sury has shrewdly extended the average

maturity of public debt to 13 years, which

buys the country a bit more time to deal

with its problems.

The buying of time seems to have

become an end in itself. There is still a

great deal of goodwill towards South

Africa among the money-men. The

memory of Mandela still evokes respect

and admiration. But the management of

money involves a cold-eyed calculus.

Investors are tactical on South Africa;

they will buy if the gloom seems over-

done or the rewards eclipse the risks,

even if barely. Few are valiant enough to

be outright bullish. They do not wish to

taste of career death even once.

Why it is hard for foreign investors to be bullish on South Africa