The best bridge out of poverty is over the future of cash

National prestige is not only measured by the weight of population but also by the economic prosperity and growth that citizens enjoy.  Countries that may be minnows when it comes to absolute numbers can still shine by virtue of the scale of their business interests.

Switzerland, with a population just over 7 million, is home to Nestle, UBS and Credit Suisse, and has a GDP per head of US$ 54 000.  Their influence on financial markets is profound despite having only limited ability to project its power through numbers of people, or military might.

What happens to nations that lack a homogenous and large population attractive as a massive market (such as India, China or Indonesia), overwhelming business and financial power (such as Hong Kong, Taiwan or Singapore), a dynamic and industrious labour-force (Vietnam, Cambodia) – or some combination of these (the US)?

In semi-nations, like South Africa, aspiring to be taken seriously by the international community, it means openness and transparency imposed by strong outside forces.

The Johannesburg Stock Exchange (JSE) has seen numerous big-listings flee overseas where capital is more readily available.  Foreign investors couldn’t read the JSE and so didn’t investigate.  Recently, the JSE and Financial Services Board (FSB) have introduced IFRS regulations from abroad, designed to harmonise all financial disclosure by companies.  The result is that our disclosure is now identical to European and US companies.  Suddenly we can be read and understood.  This has unleashed a tremendous amount of activity on the main bourse at the JSE and pushed it to its highest levels ever.

At the same time, though, plenty of financial mismanagement is exposed.  The sorry saga of Fidentia, a massive fund manager, is a case in point.  The fund managers are suspected of having simply pocketed the money they were supposed to be managing. The Living Hands Trust invested R 1.47 bn with Fidentia, cash needed to fund monthly payments to widows of deceased miners.  All of it is missing.

Revelations come daily, the most recent of which concerns Danisa Baloyi, a self-declared business magnate, who was meant – as a director of Fidentia – to be in a position of impartiality to oversee the running of the fund.  Turns out she took an R 8 million soft loan from Fidentia, such declared as a "material conflict of interest" by the FSB in January.

What’s good about all this disclosure is that – imposed from the outside – come laws and regulations that benefit South Africans.  Fraud and corruption at the highest levels are often blamed for the perpetuation of poverty and it is useful to have these exposed.

As wealth generation moves ever further into the realms of ideas the entanglement of nations gets greater.  A common set of rules allows simple communication and straightforward transactions.  Those nations with financial clout will set the rules that they are happy with.  Nations that want that investment and trade will have to play by those rules.

The most developed nations are in the process of getting rid of cash and going totally electronic.  This starts having a significant impact.

The anonymity of cash has supported crime and corruption.  Once it becomes possible to track the flow of money it becomes a lot easier for people to demand transparency from their governments.

Corrupt governments may not like it.  Again, disclosure is likely to be imposed by investors from the outside who just won’t part with their wealth until systems are in place to track that investment.

In this they will be cheered on by ratings agencies such as Whythawk.  Transparency allows for direct and meaningful analysis and comparison.  And that helps everyone, especially the poor.

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