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Extra Virgin - January 2010
Money
Money What from a distance might look like a small crisis in the Mediterranean threatens to have a very big effect at home, says Craig Gill.

How often have you heard the refrain, "we’re only as good as the weakest player in the team"? Yes, I know: too often. It's most often trotted out during some or other corporate ‘spanbou’ session, where everyone is supposed to spontaneously and collectively pull their socks up (or, as my rugby coach used to say, butchering the metaphor; pull your socks together!)

The reality though, in finance and football, is that it is often true. And the natural repercussions, where many suffer at the hands of poor performances by the few, are also valid. The brief discussion of the own goals being scored by Europe’s team member Greece in last month's column illustrates this point to a degree. But what do we, basking here on the Southern Tip, care about some far flung team or economy struggling with a serial problem player in their midst?

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As far back as records go, the great sneezes of the industrially developed world’s financial markets have always resulted in flu being caught in all the worlds economies. The Wall Street Crash in the 80’s, the Nasdaq bubble bursting in the 2000’s and, most recently, the world wide tremors and collapses caused by the earthquake of the overly leveraged finance model. Financially and economically we live in a global village, where the ties that bind are strong, if not always apparent.

 

The economic own goals currently being scored by Greece for team Euroland have had immediate and negative effects on (amongst other things) trade with the rest of the world. There has been a re-appraisal of the risk involved in doing business with sovereign countries (which was previously deemed risk free), and country's and company’s are less willing to expand and commit to new ventures and projects to their currency, the EURO.

The ripple effect has been felt right here in South Africa. Our largest trading partner is the EURO block and economic headwinds there do not bode well for export-oriented companies in SA. South African parastatals such as Eskom will face higher borrowing costs in the international markets – with knock on effects for users at home. As international credit markets endure financial flu, they too will remain safe and secure at home to give them time to recover, which will delay or even cancel visits to sunnier climes to investigate growth and investment opportunities. Not great news for large domestic expansion projects, which may now have to lean further on already strained local sources for funding.

As for people on the ground in Euroland and the greater global village, the "economic agents" so blandly referred to in economic texts, the impact will be very practically less dosh in the pocket. The ramifications may include no trip to SA for the football, no Castle’s, no Vuvuzela’s and no Rainbow Nation experience. That's right, it’s that connected. So, lets keep our prices within reason, and welcome those who do make it here in a short while with open hearts, so that they may hopefully open their (far smaller) pockets.