Johan Fourie's blog

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Foreign skills needed to improve our economy

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Sergey Brin co-founded Google. He is also an immigrant.

Sergey Brin co-founded Google. He is also an immigrant.

Last July my university advertised a tenure-track position in the Humanities. We recruited widely and, in line with our goal of positioning Stellenbosch as an internationally-reputable university, appointed a US citizen with a PhD from Oxford. Our chosen candidate held a teaching job at another South African university before, but was eager for better job security and the prospect of educating the next generation of South African political leaders.

And then the process of applying for a visa started. It has been more than six months since her appointment. Although she was due to start in September, she has had to return to the US, where as I write in late-January, she is still waiting for feedback from the Department of Home Affairs.

She is not alone. Across South Africa, universities and corporations are lamenting the slow speed at which visa applications are processed. Since the amended Immigration Act was passed on May 22 2014, it has become increasingly difficult to obtain a work visa, even for foreign spouses of South African citizens. Part of the reason is that the new process requires communication between the Department of Home Affairs and the Department of Labour, with the latter needed to verify whether the skills are indeed ‘scarce’.

This is all the more saddening in a country so desperately in need of all kinds of skills. Those in favour of tougher laws against skilled immigration fail to recognise the immense shortfall in skilled workers across all sectors of the South African economy. The rapid growth of the South African economy since 1994 has created a huge demand for skilled workers, with institutions of higher learning unable to keep up with demand.

This is clear from a look at unemployment rates. Stellenbosch economist Hendrik van Broekhuizen calculates that the unemployment rate for South Africans with at least a bachelor’s degree is a low 5.9%. Black graduate unemployment is slightly higher at 8.6% because black students are more likely to enrol for courses in the arts, humanities and social sciences, and attend formerly disadvantaged universities, where the quality of degrees are perceived to be lower. But even an 8.6% unemployment rate is vastly superior to the aggregate broad unemployment rate of 41% for black South Africans (and lower, incidentally, than the graduate unemployment rate in the European Union too). This clearly suggests that there is a much greater demand for skilled jobs in South Africa – and why the #FeesMusFall-movement was so passionate in their pleas for greater access to higher education.

Yet despite employers’ need for skilled workers, the South African government seems eager to do everything in its power to isolate South Africa from the international labour market. According to Gary Eisenberg of law firm Eisenberg de Saude, more than half of all immigration applications have been refused since the new law was enacted. He estimates that foreigners can wait anything between five and 12 months for a decision, and then a similar period for appeals. Those awaiting applications or appeals after their visas have expired can be declared ‘undesireable’, and prohibited from returning for five years.

If there is a country that should understand how isolation from the global talent pool is bad for growth, it is South Africa. Apartheid and its discriminatory education policies meant that only a sliver of the population was acquiring the skills necessary to expand the manufacturing and services sector, and grow the economy. After democracy, the need for skills became acute as firms (and universities) had to compete not only for export markets in a rapidly-globalised world, but for a skilled elite that was increasingly mobile. Despite the fact that universities have trained large numbers of black graduates (there are now more black graduates in the labour market than white), the inequalities in the demand for skilled and unskilled workers have largely remained, as the unemployment figures suggest.

That is why the government’s attitude to immigrants is so baffling. Allowing skilled immigrants to work in South Africa – and making their application process as easy as possible – is what economists like to call low-hanging fruit: one of the easiest ways to significantly improve the prospects of the South African economy. Of course immigrants should not simply substitute for training South Africans too. But denying skilled immigrants the opportunity to work is actually hurting the ability of the next generation of South Africans to acquire the skills necessary to compete in the global economy.

That is exactly the reason why we appointed an Oxford-educated lecturer. The best university departments are those with a diverse faculty who are able to offer their students access to minds trained in the best universities in the world. Such professionals often bring an international network through which different avenues for scholarships and new outside sources of funding can be made available to South African students. They are the ones to push their South African colleagues to the boundaries of science, and help them develop new theories, invent and innovate. And they are the ones who will train a new generation of South Africans who can not only participate but prosper in the economy of the future.

*An edited version of this article originally appeared in the 21 January 2016 edition of Finweek. Buy and download the magazine here.

Written by Johan Fourie

January 30, 2016 at 13:51

Again: What to study in South Africa

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Big shots: Joseph Stiglitz, Jeffrey Sachs and Edward Glaeser, amongst others, were at the ASSA meetings in San Francisco

Big shots: Joseph Stiglitz, Jeffrey Sachs and Edward Glaeser, amongst others, were at the ASSA meetings in San Francisco

My most popular post on this blog – by far! – remains the Why and what to study in South Africa entry I wrote in May 2013. My advice was pretty simple: if you can do math, study a degree where you will develop your math skills further. Math and statistics, combined with economics, computer science and/or engineering sciences, will make you an incredibly desirable employee: both in South Africa and abroad.

I was reminded of this advice when I attended the world’s largest gathering of economists last week in San Francisco. The ASSA meetings spanned three days, had more than 500 sessions with more than 12 000 participants. I presented a paper with Dieter von Fintel (on persistence and reversal of fortune) in a session on apartheid – with excellent papers by Johannes Norling (on fertility), Dan de Kadt and Melissa Sands (on voting), and Martine Mariotti and Taryn Dinkelman (on remittances and migration). And there were many other excellent sessions: notable ones I attended was a session on long-run inequality (with a very entertaining Philippe Aghion), a session on writing books (see photo), and a session on early childhood development (where Melissa Kearney presented a paper I reported on here).

But what reminded me about my math advice was a discussion during one session about the need to diversify academia. One commentator mentioned that the reason for the slow diversification of economics faculty is the high level of mathematics required to do a PhD in Economics in the US. (The slow transformation was quite apparent at the conference: the vast majority of attendees were white males.) Much like in South Africa, black students in the US would often opt out of math courses because of poor grades or a bad experience at school. They are thus more likely to end up in the humanities and less likely to study more ‘mathy’ degrees, like economics.

Yet, there is an increasing realisation that the current state of affairs – the white, male bias – is neither fair nor sustainable. Harvard’s chair of the Economics department, David Laibson, confirmed this: he was quite explicit that Harvard will focus on hiring more diverse staff during his tenure. This is likely to increase the demand for female and black economists (and engineers, scientists, actuaries, statisticians) significantly in the foreseeable future. But to suspect that the market will automatically adjust – that the higher demand will induce more black students to study economics – is unlikely. That is why there are several programmes in the US to inform high school students of the possibilities that economics can offer, showing them the wide applicability of economics in their daily lives. (Economists, for example, study how Discovery Vitality can get their members to live healthier lives, they study how to make things like Uber and Airbnb more efficient, they study what’s wrong with the school system and how to improve it, they study how firms compete and grow, they study the minimum wage and its impact and, yes, they also study financial markets and the banking system. Just watch this video).

Economics departments in South Africa are certainly not doing enough to promote the field to young scholars. Prospective students have a very narrow view of what an economist does, if they have a view at all. I know I never thought much about Economics before I arrived in my Economics 1 class. But the truth is that there is a massive demand for good economists, both in South Africa and, as I witnessed for myself in San Francisco, abroad. South Africa’s services industry needs far more graduates with strong mathematical or statistical backgrounds; the industries of the future will require the analyses and interpretation of (big) data, skills for which economists are well-equipped.

So, what should you study? This is an incredibly tough decision to make at a young age, and it almost certainly will have a big impact on the quality of your life. But here goes: if you have the ability, you can narrow the risk that your choice will turn out to be a bad one by developing your math and stats capabilities. And if you really want to enjoy what you’re doing (yes, I’m biased), combine it with Economics.

Written by Johan Fourie

January 13, 2016 at 19:00

A time to reflect

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The center of it all: Johan was part of the Leuven/Stellenbosch ThinkTank 2015

The center of it all: Johan was part of the Leuven/Stellenbosch ThinkTank 2015

My last post of 2015 began with a reference to a train trip in Holland. With me on that trip was a young student from Stellenbosch, Johan van Huyssteen, who travelled with me to Belgium for a two-week exchange between Stellenbosch and Leuven students. I wrote about those two weeks here.

This morning I received the tragic news that Johan had died after slipping and falling 60m down a waterfall on his family’s farm in the Eastern Cape.

I have no words to express my utter disbelief that someone with so much vitality and enthusiasm for life is gone. There are many joys of our job as teachers and mentors, and during those two weeks in Leuven I experienced many of them. But that makes the loss of a young student like Johan even more heartbreaking. It is not only the loss of life, but the loss of potential unfulfilled that I find truly devastating.

I knew Johan only for a short few months, but there are many others that had the pleasure to know him much longer. My thoughts are with his parents and family, classmates (Johan studied agriculture), and fraternity friends (he was a Pieke onderprim) and my colleagues who worked with him in the various leadership structures.

It is moments like this when the busy world that surrounds us comes to an abrupt halt. Let us pause at the start of 2016 to not only celebrate Johan’s life, but to reflect on what it is we value and dedicate our most valuable commodity – time – to this year.

Written by Johan Fourie

January 5, 2016 at 16:22

Rainbow Nation: The Force Awakens

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ForceAwakens

As I stare out of the train window, watching the neatly-spaced Dutch farms flash past, I spot a faint rainbow on the horizon. Make no mistake, during this time of year the weather is miserable. But thanks to El Nino (or the weather gods), the Dutch have had a ‘light’ winter so far, meaning that once every few days you can actually see the sun. My attention is drawn to the rainbow: it is unlike the rainbows we get in South Africa. There they appear after a thunderstorm, shiny and brilliant, connecting one side of the horizon with the other, and signalling the arrival of fine weather. This one, instead, sits low and distant. It signals the coming of rain.

Trains are wonderful for thinking, and I’m thinking about the year that’s been. One thing is certain: 2015 won’t be a year we are likely to forget. Globally, the Syrian war had far-reaching geopolitical repercussions: hundreds-of-thousands of refugees are still streaming into Lebanon and Turkey with a few thousand lucky ones ending in Sweden or Germany or Canada; the continued emergence of radical terrorist organisations resulted in the tragic events of Garissa, Kenya (148 students), of Sousse, Tunisia (38 people), of Paris, France (130 people), to name a few; the near-Grexit and the shift towards a more fragmented Europe; the rise of xenophobia and, most recently, Islamophobia, notably in that country most famous for freedom and opportunity. Russia and Brazil’s economies are tanking: the expected GDP growth per capita of both these countries is -3.8%. The world at the moment, it seems, is fragile.

But my thoughts are mostly with my own country. I don’t think many would disagree that 2015 was one of the most tumultuous years South Africa has had as a democracy. Yes, in 1998 interest rates moved upwards of 20% following the Asian crisis. The Rand collapsed after 9/11. In 2008 we experienced country-wide xenophobic attacks. We’ve had periods of extended strikes, notably after the 2010 World Cup and again in 2014. And 41 mine workers were killed by police at Marikana in 2012.

But 2015 felt more intense: the EFF was forcibly removed from parliament in February; in April, at least seven foreign nationals were killed in violent xenophobic attacks, and the firing of Finance Minister Nene in early December sent the Rand into uncharted territory. But the major events of 2015 emerged from an unlikely source: the leafy, calm campuses of some of South Africa’s best universities. Rhodes fell. Verwoerd was moved. Students, angered by the slow transformation of university infrastructure, curricula, and personnel,  staged sit-ins, occupied public spaces, toppled statues, renamed buildings, and ultimately halted the sharp increases in student fees that had become the norm.

But these protests did more than just halt fee increases: they gave rise to a movement for social change that moved beyond party politics. They empowered rather than disempowered. They weren’t exclusively black, although they did – and continue to – confront the notion of white privilege. In truth, it is a conversation we should have had a long time ago but which, perhaps, needed the frankness of a new generation.

As I reflect on my own conversations with colleagues and students, one thing stands out quite prominently: the rise of female leadership. Of course, there had been female political leaders before: both the mayor of Cape Town and the premier of the Western Cape are female, for example, and Angela Merkel, Chancellor of Germany, won Time’s prestigious Person of the Year award. But across South African campuses, women leaders rose to the fore. Their influence, I suspect, is a major reason the movement remained non-violent, even in the most testing times of police brutality.

My thoughts continue to return to a conversation I had with one such student leader earlier this year. We spoke about Stellenbosch and the difficulty of black students to call it home, when she remarked: ‘Johan, we don’t live in a world of rainbows and fairies. The Rainbow Nation is dead.’ I wanted to appeal, but had no immediate response. She had made her point.

I think about what has happened since that conversation: to Rhodes, to Verwoerd, to Blade, to Zuma. There is no doubt that the Rainbow Nation my generation envisaged has not materialised. (No matter how hard I try, though, I cannot let go of the euphoria I feel when thinking of the young, promising country, for me best memorialized in this (an inevitable sport) moment. Just watch the last seven minutes.)

But let’s not dismiss the idea of a Rainbow Nation entirely. There’s been an awakening. The rainbows and fairies may be gone, but the inclusive and passionate student movements of 2015, to me at least, suggest a different kind of rainbow. One that is less shiny and brilliant. One that is not entirely complete. One that signals the coming of the rain.

And in a country scorched, rain is exactly what we need.

*This is my 42nd and final post of 2015. During the last 12 months, more than 100 000 unique visitors arrived here. As always, I have to thank my lovely wife Helanya for her patience and proofreading skills. Because of the success of the blog, I’ve been offered a contract to write a monthly column for Rapport (in Afrikaans) and Finweek (in English) in 2016, a challenge I look forward to. Do have a blessed festive season. Travel safely. Rest.

And, finally, if you’re worried about the global economy, look at it this way: Ethiopia, India, the DRC, China and Bangladesh are predicted to grow at more than 5% in 2015. They are unlikely to slow down significantly next year. Together, they comprise 41% of the world’s population. That is still improvement on unprecedented scale. We’ll be all right.

‘The dam wall has given way’

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Rand

Last night South African president Jacob Zuma fired Finance Minister Nhlanhla Nene. More than anything else that has happened in a turbulent 2015, this event will likely affect the South African economy – and therefore, ordinary South Africans – the most. As expert economist Cees Bruggemans wrote this morning: ‘The dam wall has given way’.

Minister Nene was an excellent appointment one and a half years ago as Minister of Finance. He had a tough job: amidst global instability and weak growth prospects and domestic political pressure to continue the unfettered spending on everything from government salaries to South African Airways, he had to somehow find a way to reign in public spending. And he managed to do so, even as demands on the budget – like student fee protests demanding out-of-budget expenditure – increased. When he finally stood up to the gross mismanagement of SAA last week, meddling directly in the ability of Zuma to capture an even greater share of the budget, he was removed.

We are now in a free-for-all. The new Finance Minister has no credibility, and it is likely that he will succumb to the political pressure to spend on Zuma’s pet projects. Expect debt levels to rise and the interest on the debt to increase as the Rand depreciates (see picture of what has happened to the Rand in the last 24 hours). Inflation is likely to increase significantly, followed by higher wage demands and greater levels of unemployment. To balance the budget, the only alternative to the new Minister will be to raise tax rates significantly. Or to print money, although the Reserve Bank is the only institution not yet under the remit of Zuma. How long it will take for that to happen is now a valid if tragic question.

On my Facebook feed I see friends asking what they can do. Not very much, is the sad answer. For those who can, focus on export markets, as South Africa will be much cheaper for foreigners in the foreseeable future. Advertise a room on Airbnb. Sell your design, editing, programming, consulting, or whatever service it is you do to an international audience. Change that planned European trip to a Kalahari getaway. If you can, diversify your investment portfolio into offshore markets (although you should have done that before the free-fall started).

But to stop the rot we would need to change the source of the problem: our head of state and his political cronies. Much as it pains me to say this, what he has said and what he has done now makes it clear that Zuma has little regard for the welfare of ordinary South Africans; his only aim is to fill his own pockets and those of family and friends. However much we want to hope that he will somehow reverse this course, his willingness to remove a well-respected Minister of Finance with no justification except that he stood in the way of further enrichment suggests that he won’t.

While the upper classes were busy fretting over postcolonial memory and white privilege, Zuma has orchestrated the perfect coup right under our noses. He has captured the state. No ANC member in parliament can vote against him; their livelihoods depends on his goodwill. Even those members high up in the ANC executive who may be worried about the latest turn of the events are too isolated to do anything about it. No, the only change can come from the ballot box. Unfortunately, that opportunity is a distant three years away.

We have local government elections next year. But even a considerably poorer performance by the ANC at these elections are unlikely to have an impact on the macroeconomic policies of a ruling elite now clearly uninterested in anything besides their own prosperity. Perhaps protests like the #FeesMustFall movements this year will spur change, but mass (non-violent) action like that will only hurt working South Africans with minimal inconvenience to the elite. Zuma is a survivor, and no Twitter campaign is going to change that.

No, things are likely to get much worse before they get better. And that, sadly, is the best case scenario.

Written by Johan Fourie

December 10, 2015 at 10:36

The last two weeks, and a vision of the future

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Leuven-0503

15 Stellenbosch students, 15 Leuven students, several support staff, and a random concrete mummy in the office of the rector

One of the great things about teaching at a university is that you sometimes get to meet remarkable people. At the start of this year I was invited to join a new ThinkTank as academic advisor: 15 Stellenbosch University students, handpicked from the best the university has to offer, would deliberate with 15 students from KU Leuven in Belgium around the theme of the ‘City of the Future’ . The plan was that they would meet regularly, listen to experts from various disciplines, and then, in November, travel to Belgium to produce a document and present their findings to the media and university community.

I’ve just returned from the two week trip to Leuven. My voice is gone, I have a cold, and I needed a few days just to catch up on some lost sleep. But it was certainly worth it: the several months of expert presentations and countless discussions via Skype calls and Facebook messages and WhatsApp chats paid off last week Tuesday as the students presented their vision of what the City of the Future will be. They structured their presentation into three pillars: Survive, Breathe and Thrive. Survive identified the challenges the city of the future will face. Breathe suggested practical principles that can be adopted to mitigate these challenges. Thrive allowed the audience to dream of what the future city could look like; the audience were at some stage even asked to blindfold themselves and explore the endless possibilities of their own imagination. (An article in Dutch is available here. Also, Matieland reported on the ThinkTank here.)

Leuven-0433

Yannis van de Velde (KU Leuven) and Rebecca Matsie (Stellenbosch) were the masters of ceremony

But a ThinkTank is more than just the content it produces. It creates new friendships, networks and partnerships that will last much longer than the few minutes of the presentation, or even the two weeks of exchange. I got to know some incredible young scientists, theologians, accountants, artists, farmers, engineers and teachers, to name a few of the students’ professions. After what was a difficult year for most South African universities, talking (and singing and dancing and drinking and playing football) with these students made me aware of the passion they share – even if they disagree with me, or among themselves – over the future of South Africa.

Students are often portrayed as either ignorant apathetics or bloodlusting revolutionaries. This was not the students I got to know over the last two weeks. They are thoughtful, eloquent, passionate, accommodating, knowledgeable and not scared to test their comfort zones. They value social justice, transparency, ingenuity, creativity, diversity.  They are, in a sense, the perfect citizens of the future city.

If this is the caliber of the next generation, I thought to myself during the final evening’s awards ceremony, our country is in good hands.

*Our hosts in Leuven were fantastic. Anse Heeren (second to right in the group photo), in particular, worked tirelessly to make sure everything and everyone is on track. Rector Rik Torfs (front, center), who had signed the initial agreement with the late Russel Botman, gave an engaging closing address, acknowledging the hard work the students put in. Next year the Belgian students visit Stellenbosch. Let’s hope we can return the hospitality in style.

Written by Johan Fourie

December 9, 2015 at 10:32

What determines South Africa’s inflation expectations?

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Do you know your financial adviser's biases?

Do you know your financial adviser’s biases?

Our perceptions about expected inflation have important consequences. It influences how we (or the trade unions we belong to) negotiate wages, our willingness to buy a house, and businesses’ decisions to invest or not.

Inflation determines how many goods and services we can purchase with our current salary. Inflation expectations, however, determine whether future goods and services will be more or less affordable and therefore how we will behave today. If we believe inflation will be 10% next year and our salary increase only 5% (leading to a decline in our purchasing power), we might be less likely to buy that new car.

Measuring inflation expectations and determining what influences peoples’ inflation expectations is therefore important to policy makers, notably, in South Africa’s case, the SA Reserve Bank (SARB).

Controlling inflation expectations is the first step to controlling inflation. If there is a shock to a particular price (such as oil), the macroeconomic consequences will be limited if South Africans believe that Governor Lesetja Kganyago and his Monetary Policy Committee (MPC) will bring inflation under control. If the response of the rest of the economy to the oil shock is muted, the process of inflation won’t get under way.

What do we know about the determinants of inflation expectations? Not much, it turns out. It’s quite difficult to measure inflation expectations. Surveys are often used, but usually of economists in the financial sector; they don’t necessarily gauge the perceptions of the proverbial man-on-the-street.

A new paper published in Economic Modelling by Stellenbosch University economist Monique Reid begins to shed light on the topic. She uses ten years of data from an inflation expectations survey by the Bureau of Economic Research to investigate how quickly the message from the SARB trickles down to the general public. Information is ‘sticky’, Reid finds, and for some groups more than others: financial analysts, for example, adjust their expectations quicker and more accurately than businesses and labour unions. This is because financial analysts have the ability and skill to use and understand other sources of information (like MPC announcements or international economic indicators) than simply the past inflation rate.

A recent paper by two US economists, Ulrike Malmendier and Stefan Nagel, in the The Quarterly Journal of Economics shows that even amongst the general public there is significant variation in inflation expectations. They find that own life experiences determine how individuals form expectations of the future. How would this work?

Say inflation over the last five years has been lower than the average for the last three decades. They show, using 57 years of data of US inflation expectations, that a young person who entered the job market five years ago would be more likely to expect lower inflation than someone who had been employed for longer and had thus experienced both high and low inflation regimes.

If this is true for SA, young South Africans are more likely to expect lower inflation, because the inflation rate in the sixteen years between 1999 (the year SARB started with inflation-targeting) and 2014 averaged 5.2%. South Africans entering the job market during this period would have experienced a low-inflation regime. But those entering the job market in the sixteen years between 1976 and 1991 witnessed an average inflation rate of 14.1%.

This has important implications for policy makers, financial sector managers and their clients. Behavioural economists repeatedly demonstrate that people have biases that they are often unaware of (in this case, a mix of the availability and familiarity heuristics). Younger financial advisors may weigh the recent low-inflation regime more heavily than older advisors would. An obvious way to diffuse such unknown biases is to have teams with advisors of different ages.

Such biases also influence household borrowing and lending behaviour. Younger people may, for example, be more inclined to choose variable-rate investments given that during their lived experience rates never varied dramatically. Older homeowners who remember the trauma of the 1998-rate hike, may prefer fixed-rate investments.

Policy makers in the SARB need to take heed of these findings and include demographic characteristics of consumers into their models of inflation expectations.

*This article first appeared in the Finweek magazine of 29 October.

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