He is free to evade reality, he is free to unfocus his mind and stumble blindly down any road he pleases, but not free to avoid the abyss he refuses to see. – Ayn Rand

There is a certain level of frustration that critical thinkers may instinctively feel when slogans and assertions are chanted without any indication that these reflect reality. More annoying is the tendency of ‘educated’ university students – those who should know better – to be guilty of this. In response to recent events, social media activism has once again put this on display.

Following the ‘#ZumaMustFall’ protests – widely castigated as being platforms for ‘white interests’ – many voiced their outrage. As usual, university students have lead the charge in claiming that white South Africans are only angry because our president’s recent decisions sent the financial markets and whites’ investments into a tailspin. Many have gone on to say, in essence, that only white South Africans are affected by market turmoil – so we really shouldn’t care about it.

To borrow a sentiment recently expressed by American political commentator Ben Shapiro: only an educated person could say something that stupid.

There is much that could be said about how broader economic conditions affect all South Africans, but the specific focus of this article will be the financial markets.

Foreign exchange

On any given day, millions of South Africans use motorised transport – regardless of whether they use their own cars, buses, mini-bus taxis and so on. Petrol and diesel are the main cost component of transport. Besides government-imposed levies, the two main determinants of fuel prices are the oil price and the dollar-rand exchange rate. A weaker exchange rate puts upward pressure on fuel and transport costs.

Not only does this affect all South Africans, but the effect is most prevalent for low-income households, whose transport costs tend to occupy a large portion of household expenditure.

The table below shows the oil price and exchange rate used to calculate the most recent petrol price adjustment, as well as those for a comparable petrol price from a few years ago. Although the current state of the global economy has lead to lower oil prices, one can imagine what further effects changes in exchange rates or oil prices would have on our petrol and diesel prices. At the time of writing, the dollar-rand exchange rate is 15.22, and the average rate over the last month is noticeably higher than that used to calculate the most recent petrol price.

Petrol price and its determinants
Petrol price and its determinants

Besides the costs associated with transport, it is also worth noting that petrol and diesel are important inputs for almost all production processes. One example is agriculture, which brings us to another important point.

Not only could weaker exchange rates increase the production costs of food crops in South Africa, but the current drought may require South Africa to important large quantities of crops (such as maize). As with the petrol price, the weaker Rand renders such imports more expensive. Again, all South Africans are affected.

JSE: bond and equity markets

Perhaps the most interesting myth to re-emerge in recent weeks has been the idea that only rich, white people have a stake in what happens in the bond and equity (share) markets. One does wonder whether this intellectually-lazy proposition stems from American popular culture influences, which depict financial institutions (such as Wall Street) as being dominated by old, white men in fancy suits. Nonetheless, this is simply not the case in South Africa.

Few seem to be aware that pension funds are amongst the largest investors in South Africa’s financial markets. There is a good reason for this: when contributions are set aside for an employee’s retirement, these could simply be placed in a savings account and accessed upon retirement. However, it is often more desirable to accept some more risk in order to purchase investments which provide returns that counterbalance the effects of inflation, and which may even yield some real growth. Since pension funds hold savings accumulated over many years, the fact that they control masses of wealth – which they invest in the financial markets – should come as no surprise.

Pension funds are not solely luxuries to which white South Africans have access, though; it seems that the vast majority (around 75%) of pension fund members in South African are black. At this point, it is worth looking at some of the facts pertaining to a sample of pension funds in South Africa:

  • The Mineworkers Provident Fund administers R27.2bn on behalf of over 100 000 members. These members are workers from companies such as AngloGold, BHP Billiton, Exxaro, Harmony Gold, Sibanye Gold, Glencore and many others. Of the fund’s assets, which are managed by private asset managers, around 50% are invested in equities and over 20% are invested in bonds.
  • The National Fund for Municipal Workers retirement fund has over 39 000 members and R9bn in assets. Around half of those assets are invested directly in money markets, equities and bonds, and a further third are held in indirect investments (so-called ‘collective’ investments).
  • The Metal Industries Provident Fund has over 280 000 members who collectively own over R46bn in investment assets. At least 54% is invested in equity and 10% in bonds.
  • Then, of course, there is the gargantuan Public Investment Corporation (PIC), which manages assets on behalf of other funds: almost 89% of its assets are managed on behalf of the Government Employees Pension Fund (GEPF), and a further 6% of assets belong to the Unemployment Insurance Fund (UIF). As such, of the R1 813bn (read: nearly two trillion Rand) managed by the PIC, around R1 600bn belongs to the GEPF. It is no wonder that the Treasury has referred to the PIC as one of the ‘most influential’ organisations in the South African economy. Most of the assets held by the PIC (over 70%) are invested in local equities and bonds. In fact, the PIC controls around 12% of the total JSE market cap.

Numbers aside, what does this mean for black South Africans? To understand the implications, we briefly need to look at how pension funds work in South Africa.

Most pension funds these days are defined contribution (DC) funds. This means that when an employee’s salary is paid every month, the employee and employer each contribute a specified (‘defined’) amount to the employee’s retirement savings, which are held in the pension fund of which the employee is a member. The managers or trustees then invest the funds on behalf of the employee. Upon retirement, the employee can begin drawing a monthly pension[1]. Crucially, the size of the monthly pension depends on the investment returns that the fund earned while the employee was working and saving. If investments have performed well, the employee will have a comfortable retirement; if not, their outlook may be bleak.

Simplified diagram showing how DC funds work
Simplified diagram showing how DC funds work

Herein lies the crux of the matter: if economic events lead to sustained losses in South Africa’s markets, then future retirees – black and white South Africans alike – will ultimately lose out.

The law of DMU

At this point, it is worthwhile saying something about the law of diminishing marginal utility (or ‘law of DMU’). This is a concept often invoked when talking about wealth, income inequality and so on.

As it pertains to wealth and income, it states that for a given person, each additional Rand of wealth or income they attain is valued less by that person than the prior Rand of wealth or income they had attained. To put this in simple terms: someone with no income and living on the streets would value a gift of R10 more than they would if they were wealthy – this makes sense, since R10 has much more use (especially in a survival sense) when the person is poor compared to when they are rich.

Those who invoke this concept often do so with a faulty understanding, but for the sake of argument, let us use the conception that a given amount of money is more valuable to a poor person than it is to an entirely different wealthy person.

Using some of the more common (albeit uninformed) assumptions, it follows that losses in the financial markets are far more devastating to black people than they are to whites: for whites, it means that they may merely need to forego an overseas trip or send their children to a cheaper university. For low-income black retirees, it may mean that their monthly pension is too small to sustain their needs.

Final remarks

Given what has been said in the previous sections, it stands to reason that adverse conditions in the financial markets quite possibly have a worse effect on low-income households – many of which comprise black people – than it does on the ‘rich whites’.

There is a broader angle to consider, though. Undoubtedly, some white South Africans (particularly those of younger generations) have never faced or considered the reality of the many poor South Africans, most of whom are black.

In a peculiar turn of events, though, those who did suddenly wake up to this reality upon entering university (for example), and who often believe themselves morally superior to their ‘ignorant’ counterparts, still exhibit the same biases that render them equally ignorant of reality.

When it comes to those who acknowledge their racial ‘privilege’, it is strange that they would not put it to good use: the same people who may well have told others to ‘educate themselves’ (a phrase that is ubiquitous in the speech of university students) are now failing to do some basic fact-checking. Today the entirety of human knowledge is accessible through a device that fits in the palm of one’s hand; all of the information conveyed in this article can be found with internet access and a bit of time to spare, yet still some neglect fact-checking prior to delivering their ideologically-laden monologues about race dynamics in South Africa. It is worth reiterating that intellectual laziness is likely the cause of this sophistry.

There is a curious pattern of behaviour that is exhibited by many of the ‘socially-conscious’ Enlightened Whites – both in South Africa and abroad. While supposedly speaking to the interests of members of other races, some of these individuals still manage to place themselves at the centre of the universe. Specifically, this refers to the fact that they believe only whites have financial interests tied to the South African markets.

Perhaps the real racists are those to whom it never occurred that, despite such obstacles as poverty and low income, people from other racial groups have nonetheless found a way to become financially prudent and – whether directly or indirectly – become investors in the financial markets.

To all those who criticise others for ‘living in bubbles’ but ironically do the same, it is worth remembering your words of caution: check your privilege. Those who choose to ignore reality need to come to the realisation that when South African markets do badly, everyone is affected.


[1] Other benefit structures, such as a lump sum and pension are also possible; some pension funds even provide for death and disability benefits.

Nicolai is a Copy Editor and Senior Staff Writer at the Rational Standard. He is a fourth-year actuarial science student at the University of Cape Town. He enjoys thinking and writing about economics, Critical Theory, culture, and current affairs.