raymondparson

Classic Business · Fine Music Radio
Presented by Michael Avery, with Professor Raymond Parsons and Warwick Lucas.

Edited transcript

Episode broadcast on Friday, 2 October 2026. Speaker contributions are presented from the supplied transcript.

Michael Avery

Time for ‘The Week That Was’ with Warwick Lucas, Private Clients Portfolio Manager at Vunani, and Professor Raymond Parsons from NWU Business School and the University of the Western Cape. – welcome!

Friday, the second day of the final quarter of the year – I cannot believe it! And if you were hoping to coast gently towards Christmas, Timothy Ash has other ideas. The veteran emerging markets economist wrote this morning that he is, and I quote here, “probably the most worried I’ve been about global risk at any time in my career.’

And you just consider his list – AI increasingly untethered from regulation; Wars in Iran and Ukraine threatening a broader energy crisis; Russia testing Europe and Europe struggling to respond; a global bond sell-off exposing the fiscal cracks in developed- market economies, with sovereign debt risks suddenly back in the conversation. Meanwhile, climate change gets pushed down the agenda, defence budgets go up, welfare states come under pressure, multilateral institutions are weakening, and the organizing principle of the world increasingly looks like every nation for itself.

So, cheerful stuff for a Friday! Warwick, let’s just start with the simplest question, perhaps the hardest? If I had put you to sleep on New Year’s Eve and woken you up this morning, what would surprise you most about where markets are nine months later?

Warwick Lucas

Hi Michael. It’s a whole bunch of surprises here. Really, in a way it doesn’t surprise me that equities are up. We did, after all, start the year on a fairly bullish note and markets can climb a wall of worry But I think the surprise is that they’re up so strongly. Well, two very important valuation inputs have gone against them, and that is the oil price and the discount rate. Brent is at $100, and the U.S. 10-year is at 5.3% – that’s pretty ugly.

I wouldn’t have guessed equities to be up more than 12%. It’s a strange combination. So, what the explanation would be, basically, is the offset that you have had from AI and AI infrastructure and all the building around it – it’s almost the ‘new oil’.

So, there’s a very important shift here, and perhaps one of the biggest indicators is, well, where is ‘Dr Copper’? Well, Dr Copper doesn’t look bad and still headed up. And Dr Copper is telling us that there still is economic growth in the world, a demand for alternative power, demand for power – in any case, courtesy of all of this computation getting thrown around but yes, it is a curious world, no doubt.

Michael Avery

It is a curious world, indeed. ‘Master Jack’ springs to mind! Raymond, if you look back in the rear-view mirror at the first nine months of the year, what has really surprised you most?

Raymond Parsons

Hi Michael. I would broadly share what has been said so far by Warwick about the surprises and the unexpected. But also, what was the expected. Because we did say in the course of our discussions during the year – we did put down some economic markers as the year unfolded – as to how we thought we might end up at this point in time. Although some of the risks that you identified from emerging market economist Timothy Ash are indeed valid at present, it’s been a year so far of strongly testing economic resilience in many countries.

But in looking ahead I’d now rather ‘keep my powder dry’ until the IMF meets again at their Annual meeting in about two weeks’ time. Their usual updated economic survey is a pretty authoritative one. The IMF will put into perspective the risks and the opportunities of what has happened economically so far

So, I’m going to wait now and see what they’ve got to say at their meeting on October 12 about the global outlook – and of course, as we will eventually get to, also the latest on the South African economic outlook.

Michael Avery

Yes, we will do. But before we get there, we’ve got to talk about AI. You mentioned that Warwick, you’re seeing in ‘Dr. Copper’ still demand for power, and data centres are the big driving force of that. And Daron Acemoglu, the Nobel Economics Prize winner of a couple of years ago, has been writing and researching AI for the last couple of weeks.

He comes up with a pretty stark kind of ‘Hobson’s choice’ here. He says either we’re in this huge AI bubble and the market crashes, taking down the global economy with it in a downward bear cycle, or AI is hugely successful. And in which case, we’re going to see increased inequality and a deeper fracturing of the social contract in democracy. So it’s pretty apocalyptic stuff from Acemoglu. What do you make of it?

Warwick Lucas

One of the difficulties is how to frame the AI discussion. Quite apart from the ethical issues, which we’ll put to one side, it’s still framed as either a ‘bubble’ or a productivity ‘miracle’

And really, the capital allocation question is also pretty important. So, if AI infrastructure is absorbing three-and-a-half percent of U.S. GDP annually. It isn’t doing that now, but projections are from next year. We’re looking at a big macroeconomic event.

And of course, it’s going to the degree where literally a private-sector enterprise is ‘crowding out’ government borrowing. In a way, one would normally expect in an environment like this, where you’re having to pay up very high interest rates, that actually it would mean that your capital allocation is very efficient, because the rates that we’re looking at now are really expensive.

So those that are doing the spending, one would hope, have some reasonable idea of what they’re doing. But unfortunately, that logic doesn’t necessarily hold if the entities are well funded and actually just chasing an existential goal or dealing with an existential threat. Namely, if you don’t get a strong position in AI, you’re basically ‘toast’. So, it’s quite an involved question.

And then looking at Acemoglu’s warning: It’s also quite a technical discussion that he raises there. But in essence, what he’s saying is that a massive surge in capital investment as a proportion of national income can inevitably cause an inequality ‘skew’.

But my reply to that is – though I guess Raymond can come in on this one – things like the railroads and any kind of disruptive technology in its early days really do cause inequality. It’s almost a function of it that that happens There are some beneficiaries, and then it spreads out as the ‘productivity dividend’ spreads across the economy again. But initially, the focus group is the lot that accrues, and everyone else gets ‘hurt- feelers’.

Michael Avery

Raymond, what do you think? If AI infrastructure really absorbs something like 3.5% of U.S. GDP, are we underestimating how profoundly this boom could reshape interest rates and labour markets and just the distribution between capital and wages? Or is it just a natural function of almost Schumpeter’s ‘creative destruction’ that we need to brace for and endure?

Raymond Parsons

Michael, what we’re seeing at the moment with AI is a massive tug-of-war between the unprecedented capital deployment on the one hand, and the regulatory restraint desire, on the other. Despite this wish that there should be voluntary constraints, the overall AI thrust is still heavily market driven. We do want to see it pivot away from the pure sort of media hype that we are discussing, and to rather identify how AI applications will create genuine enterprise value in future.

We’re not there yet. There will be distortions and risks in the transition phase, but there are obviously key implications on both the business side and the government policy side, especially in the U.S – because we’re talking primarily about the U.S now. The important point here is, yes, there will be ‘creative destruction’.

But we’ve got to realise it could be on a scale that is very different from breakthroughs like the development of railroads, or the internal combustion engine. No modern government is going to stand by and not have guidelines or some transitional arrangements given public reaction so far. So that’s the big test now. Can we pivot from this aggressive development to something that will yield more consensus as to managing its good and its bad effects in the years ahead?

Michael Avery

Speaking of the U.S., Raymond, let’s talk about our relationship with the U.S., which is deteriorating at an alarming rate at precisely the wrong economic moment. Given all of this, the U.S. ambassador has now ‘demarched’ for the third time in nine months, though it’s not necessarily ‘three strikes and out’.

But at what point does this kind of diplomatic ‘brouhaha’ start imposing a measurable economic risk premium on South Africa? It was interesting to see our rand and bonds selling off this week. Didn’t seem to be in lockstep with what we saw in other emerging markets.

Raymond Parsons

I have two key questions, two major questions that I think are relevant now to this US- SA situation.

First, what is the appropriate role of an ambassador or diplomat accredited to a particular country? And I draw on this example. South Africa has recently had severe continental tensions around its illegal migrant’s policy, which badly upset countries like Ghana and Nigeria. And what happened was that, behind the scenes, the diplomats got together to negotiate.

They’ve managed to defuse the tensions and find some kind of consensus as to how to deal with the migrant’s question. So, one wonders – what is the appropriate role of an ambassador? Do you think that you can usefully conduct sensitive negotiations and make controversial statements through the media and from public platforms?

Second, there is the issue of a country’s sovereignty, and to what extent you can allow another single country to set or dictate your domestic agenda. The ANC Secretary- General wrote a good article a few days ago where he offered a balanced assessment along the lines of what he called, “Should it be candour or should it be coercion?” I think the important point is we’ve got to understand what is at stake for South Africa here, as also for the U.S. when we talk about mutual economic interests – to talk about trade, investment, rare minerals and so forth.

And we’ve got to be able to conduct these negotiations and these discussions in such a way that we don’t endanger important issues like AGOA. So, that’s where we are now. And I just hope that there will be a sensitive response on both the side of the United States and South Africa. But I must say that the omens don’t look very positive at the moment given the way the interaction is taking place – and could have economic consequences.

Michael Avery

Warwick, and AGOA obviously is the test case here, because the current extension only runs through December this year, as far as I’m aware. So, despite some immediate relief, eligibility remains politically exposed. What should Pretoria be doing now to separate legitimate foreign-policy independence – as Raymond says there are issues of sovereignty here – from avoidable commercial self-harm?

Warwick Lucas

Pretoria needs to separate principle from provocation. South Africa is entitled to an independent foreign policy and doesn’t have to agree with Washington on every geopolitical issue. But our trade relationships support jobs in multiple industries, and government needs to treat those relationships as economic assets, not rhetorical punching bags.

So, I have to ask: is that eligibility going to be durable enough for a company to invest? And of course, at this stage, looking at the short term, the answer is ‘no’. Any investment that’s happening is having to happen on extraneous or standalone merits, rather than in terms of an agreement. So, what should Pretoria do?

Well, I mean, professionalize the domestic channel. Disagree privately where possible and avoid public escalation unless absolutely necessary. Make sure that our AGOA defence strategy is prepared carefully, sector-by-sector, and make that case directly to U.S. lawmakers and so on. In other words, get intelligence about lobbying, and keep on diversifying markets. Some of that is happening and they’re helpful.

But the U.S. is such a huge market, you can’t ignore it, which means, – takes us to the fourth point – that is that you should avoid pointless self-harm. Foreign-policy independence is one thing, but just whizzing things around into a big froth and creating needless commercial risk is quite another. So don’t mortgage jobs for theatre.

What was Ronald Lamola, the DIRCO minister, doing at a Congressional Black Foundation, labelling the resettlement program as ‘apartheid 2.0?’ I mean, he’s talking to an internal ANC-aligned base, the country’s trade relationships be damned. I’m not saying I side with the way the Americans have gone about this, but we could do with a bit sounder foreign policy.

Michael Avery

Raymond, your PUI, your 3Q Policy Uncertainty Index, has fallen sharply, thankfully, from 81.9 to 61.3. Sounds encouraging. What’s behind the sharp decline?

Raymond Parsons

Michael, let me put it into perspective. In the second quarter of 2026 our PUI rose to a record high because the global energy crisis hit South Africa like a shockwave. Economic uncertainty spiked. So, it was not unexpected that there’d be some downward adjustment, to what you might call a sort of ‘new normal’ of uncertainty, as we come out of the second quarter into the third quarter. And this was confirmed also by the latest Absa PMI index for September which showed that towards the end of the third quarter that the manufacturing sector was beginning to claw back some of the decline which it experienced up until then, mainly from the global energy shock.

What this all seems to be telling us is that the global shock caused a clear interruption and delay in the modest economic recovery expected earlier in the year but has not derailed the momentum. When we looked into our crystal ball early in 2026, we were anticipating a better economic year. But we haven’t been derailed, but we’re still in negative territory – and the resumed economic recovery is now obviously coming off a weaker base. The high frequency data is mixed for now, with vulnerabilities still ahead.

So, there still are therefore certain policy implications at this point in SA’s business cycle. Policies must support this uneven recovery, so that we can at least end up with the lower 1.2% GDP growth rate that we’re now hoping for this year – as well as the 2% average growth rate anticipated over the next few years. But what we need to also understand is that we’ve got to do much better.

We’ve got to address what the Governor of the Reserve Bank wisely said a few weeks ago: ‘The SA economy is resilient, but we’re not flourishing’. So, what more must we do to flourish and grow? That’s going to be one important ‘message’ that must come out of the Medium-Term Budget on October 21. And it is also significant as to what political economy message will emerge, from our key local elections on November 4.

Michael Avery

And we’ll certainly be getting to that as well. Raymond Parsons, thank you very much, from NWU Business School and UWC. Warwick Lucas, Private Clients Portfolio Manager at Vunani. Nine months down, three to go – the first three quarters have taught us one thing: the final chapter is unlikely to be boring!