In a corner: Turkish President Recep Tayyip Erdogan secured more power after winning the presidential election in May. But Turkey is in economic turmoil and the rand has been hit by contagion from that country’s problems. Picture: REUTERS
In a corner: Turkish President Recep Tayyip Erdogan secured more power after winning the presidential election in May. But Turkey is in economic turmoil and the rand has been hit by contagion from that country’s problems. Picture: REUTERS

After 16 years in power, the appointment of an ally as finance minister became the ultimate move by a president gaining an increasingly firm grip on the economy.

No, I am not referring to any economy from our continent — even though parts of this script have a very familiar ring to them. Cadre deployment, a schizophrenic currency and lack of economic discipline are not flaws unique to our part of the globe.

Turkey’s lira has fallen by almost a third in the past few weeks, triggered by that man again, Donald Trump, who took umbrage at the imprisonment of a US pastor. Authoritarianism, poorly thought-out economic policies and disastrous international relations have concocted a lethal cocktail threatening to engulf Turkey in serious economic turmoil.

With one of the highest current account deficits among emerging markets and a corporate sector heavily reliant on hard-currency foreign debt — amounting to a quarter of GDP — the currency sell-off has tightened the noose on liquidity as corporates scramble to ensure they can service a crippling debt service burden.

Back to Turkey, the transmission mechanism of the current crisis is via the banking system, which funded half of the hard currency-denominated corporate loans.

So now you know, blame President Recep Tayyip Erdogan for the rand recently shedding 10% intraday against the greenback. Things fall apart … quickly.

I am aware that we have a number of bureaucrats who have been working hard in the past decade to cripple institutions crucial to the efficient functioning of our economy. But the coalition of bureaucrats may indeed be a global one.

When Chinese bureaucrats decided that internet giant Tencent would not be allowed to monetise some of its new online games, the company missed its quarterly revenue and earnings forecast, leading to an 8% decline that day in the price of JSE behemoth Naspers.

And there you thought that in China the private and public sector were just two sides of the same coin. Nothing to worry about, says management, confident the company will get through the red tape.

Meanwhile, it’s more turmoil on the JSE for Naspers, which owns nearly a third of the Chinese internet company.

On our continent, Nigeria’s central bank asked MTN to repatriate almost a decade’s worth of dividend payouts and decided to fine the banks, including Standard Bank, for participating in the transactions.

Poorly crafted economic policy has serious consequences for business.

In SA’s mining sector, exhausted geology, weak precious metal prices, a burdensome regulatory framework and a capricious relationship with business by the previous regime have resulted in severe shrinkage, closures and, tragically, more than 50,000 jobs lost over the past five years.

But, surprisingly, some of the debate has veered again towards nationalisation, as if introducing more bureaucrats into the equation would improve things. It is quite obvious that our new mining minister now has to deal with the consequences of his predecessor’s neglect.

Back to Turkey, the transmission mechanism of the current crisis is via the banking system, which funded half of the hard currency-denominated corporate loans.

Valuation provided no protection against the sell-off, with the bourse down 24% in dollar terms this year and already cheaply priced banks trading at large discounts to book value.

There are even concerns that this crisis may contaminate the European banking sector, which has about 10% of its capital exposed to Turkey.

Contrast this to our own banking sector, which is trading at double-digit multiples and healthy premiums to book value and has shown an improvement in credit quality despite facing recessionary conditions locally. I feel that such resilience is underappreciated and it took the VBS crisis to highlight the dangers of a crony banking system.

Capital flows towards industries and geographies that it perceives will deliver the best returns.

As we commemorate a decade since the infamous Lehman Brothers collapse, we enter an era where rate hikes by the Fed are pre-empting investors to demand higher returns globally on their capital invested in emerging markets.

Regimes, which are not market-friendly, are seeing sharp capital outflows as money flees to safer havens prepared to accommodate it.

The emerging market nirvana, which was characterised by progressive economic reform, solid track records and open government, is being tested. After outperforming global markets by 12% in 2018, emerging market equities have reversed course, underperforming by 9% so far in 2018 in US dollar terms, experiencing a Minsky moment, where asset prices collapse following a period of prosperity.

Investors now run the risk of being mugged as we get lumped with our dodgy neighbours, with the JSE also losing close to 10% in dollar terms in 2018.

Our leaders had better bear that in mind before increasingly populist rhetoric gets bandied about ahead of 2019’s elections.

• Rassou is head of equities at Sanlam Investments.