South Africa – winners and losers

The arrival of the World Cup to South Africa is a tribute to that country’s transformation since Apartheid ended in the early 1990s. It’s now a thriving emerging market–the “S” in the BRICS–and participates in the G20 and OECD work too.

But behind this success story lies a troubling and persistent problem – poverty. Based on the national definition of poverty – $4 a day – more than half of South Africans (54%) are poor. And, as the chart below shows, poverty and inequality still reflect race. While the African community’s access to services such as housing, water and electricity has improved substantially, its income continues to lag far behind other social groups. By international standards, this link between race and poverty is remarkably strong. Nor have there been too many signs of this link weakening.  

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And the World Cup winner is …

Allez les Bleus!

As the World Cup gets underway in South Africa, excitement is at fever pitch among soccer fans. For the rest of us, there will be nothing to do over the next month but wait to see how the financial sector reacts.

Even before the kickoff, some big names are already in action. Swiss giant UBS scored back in 2006 when it predicted that Italy would win the World Cup. Two years later, it used the same model to predict the winner of the European Championship: Sadly, it just wasn’t the Czech Republic’s year. This time round, UBS is offering only percentage likelihoods of victory. Its top four: Brazil, with a 22% chance of success, Germany on 18%, Italy on 13% and The Netherlands on 8%.

Goldman Sachs is also in cautious mood, and is predicting only the semi-finalists: England, Argentina, Brazil and Spain. But just for fun, it has also carried out a probability exercise based on FIFA rankings and bookmakers’ odds. Under that rubric, its top picks are Brazil, with a probability of success of just under 14%, Spain on just over 10%, and Germany and England neck-and-neck on just under 9½%.

And then there’s J.P. Morgan which has applied quantitative analysis to the problem. It sees  Brazil as the strongest team, but believes the fixture schedule will deprive it of the title. Instead, it predicts 3rd place for The Netherlands, 2nd for Spain and … a win for England (huh!).

But will markets respond to what happens on the pitch? Some believe they may, partly because testosterone-fuelled share traders are just the sort of guys who like to stay up all night watching big matches. In soccer-mad Hong Kong, China, for instance, trading is predicted to be light during the football festival, which can make for extra volatility in share prices.

In the United Kingdom, a study by a group of academics suggests shares in London fall when England loses or draws and rise when it wins. “Stockbrokers, like everyone else, can be carried away in the depression associated with an England loss at the World Cup,” Professor Robert Hudson told The Daily Telegraph.

 And then there are the business winners and losers. A good run for Portugal or Brazil might boost shares in Nike, which makes the teams’ kits. By contrast, success for Spain could be good news for Adidas. As HSBC’s Erwan Rambourg told Forbes, “The further your team goes in the tournament, the more jerseys, footwear and footballs you will sell.”

 The bigger question: Will the World Cup mark the beginning of a new era for Africa on the world stage? If you can tear yourself away from the soccer action, you’ll find regular postings here on the OECD Insights Blog over the next few weeks examining that question and, more broadly, the challenges facing Africa and its prospects for success in the post-World Cup era.  

 Useful links

 African Economic Outlook

 Africa at the OECD Development Centre

Photo courtesy of Steindy

China: back to the future

Napoleon Bonaparte never visited China, but his reflections on its future role on the global stage have stood the test of time. “Let China sleep,” he wrote about 200 years ago, “for when she wakes, she will shake the world.” Ironically, back in Napoleon’s day China’s share of the global economy was far larger than it is today, according to the economic historian Angus Maddison. The chart is based on data from his monumental economic study of the second millennium, The World Economy: A Millennial Perspective, which was published by the OECD in 2001. In the early 19th century, China’s share of the economy stood at just under 33%, according to Maddison, but fell to 4-5% in the 1960s and 1970s before recovering to reach about 12% in 2000, the latest year this study provides. China’s global share has continued to rise since then, as more recent, albeit differently based, World Bank estimates indicate. But why the earlier long decline? Maddison splits the millennium into two parts – before 1820 and after… (more…)