For the year ahead, fasten your seatbelts!

STAFF REPORTER

Worrying, he said, actually helped to clarify things.

January was an unsettled month. Generally, it is a good month on the markets.

“It usually signifies a fresh new start, and hope, and markets usually go up. Not this time. We started the first week with problems in Greece, then terrorist attacks in Paris – the world is troubled and it created uncertainty,” he said.

Then came the massive fall in the oil price as a result of fracking in the US, which changed the balance of oil supply, resulting in the fall of commodity prices. Added to that, was the fact that growth in China was lower than expected.

South Africa had its own issues with Eskom’s load shedding which is not attracting investors.

“It is a huge problem and we shouldn’t underplay it. While we don’t want to be negative, if we don’t understand and face problems, we will never fix them. We have to worry and make sure we improve. We can’t ignore failings on so many fronts. We are no longer the sweethearts of the world with Mandela at our head; we have become the mutts of the world that need grooming,” he said.

Shapiro explained the drop in the oil price. The US added more oil to the world supply as a result of fracking, which revealed huge reserves which were tapped using improved technology.

“In the past few years, new technology was developed to unleash this oil. The cost of oil had previously risen to $100 a barrel, so it was worth the price. As a result, when the world believed oil was in short supply, the black liquid started to flow into world markets with the US becoming self-sufficient,” he said.

It had previously come to a point where Opec controlled the markets and held back supply when prices went down.

“Now they aren’t holding back anymore because the US is pushing oil out. It has become a war of attrition and the result is that the price, per barrel, has halved to about $50. We are now starting to see producers in the US holding back. This is not a big deal in US life.

“It doesn’t mean they will be short of oil, but investment in fracking projects will be put on hold. As the US holds back on drilling, the oil price should recover – not to $100, but to above $50,” he said.

This had huge ramifications politically and economically, added Shapiro.

“I don’t think the positive impact has been felt yet in the world. With petrol now 30 to 40 per cent cheaper, markets have responded to the negative side, not to the consumers’ benefit. Who suffers? Oil-producing countries like Venezuela, Nigeria, Angola and the Middle East will be hurt. Revenues will come down,” he said.

Another reason for the drop in commodity and oil prices was that everyone had been pinning their hopes on a Chinese expansion and making use of the excess oil supply.

This did not happen. China, said Shapiro, was reshaping its economy from fixed investments such as roads, bridges and infrastructure, moving to social spending and a social service economy where there was no more need for commodities such as copper and iron ore.

Commodity producers expected the growth in China to continue another 10 years and many opened new mines as a result of this expectation. The price of copper, iron ore and platinum has decreased.

In South Africa, the prices are also down with no demand for platinum which is now lower in price than gold. This is going to result in lower and shrinking profits and less money for government with many new projects being withdrawn.

“This is going to hurt construction companies and allied industries. As South Africans, we rely on mining expansion and ancillary industries. This is also going to put pressure on the whole of Africa.

“Ninety per cent of Angola and Nigeria’s revenue comes from oil. This cutting back will have an impact on developments which will ultimately also affect South Africa,” he said.