Was Northern Rock the worst of it?

IPPR chief economist Howard Reed ponders our economic prospects f

The economic prospects for the UK and other countries in the developed world look bleaker now than they did twelve months ago. For some time there has been wide consensus that the global economy was in an unsustainable financial bubble characterised by inflated house prices and high levels of consumer and corporate debt, but no-one knew when the bubble would burst.

In retrospect the wave of US ‘sub-prime’ lending defaults which gathered pace in Summer 2007 looks like the bursting point. The sub-prime crisis has precipated a global credit crunch, as the ready availability of credit and debt which characterised the decade so far has been replaced pretty much overnight by an extreme reluctance among financial institutions to lend at anything below punitive rates. The Northern Rock crisis which emerged in the summer is a direct consequence of that changed financial climate.

But was the Northern Rock crisis the worst that’s going to happen to the UK in this business cycle, or are there even tougher times ahead?

Six months ago recession in the UK and US was being mentioned as an outside possibility, but now it looks much more likely. Since the summer, each successive release of business forecasts and economic data on employment and output growth from the US has been more pessimistic. And now, increasingly, UK data is following suit – for example, recently released Christmas sales figures from several leading retailers were well below market expectations.

We are now at the stage where Goldman Sachs and Morgan Stanley (for example) believe a US recession is the most likely outcome in 2008, even though central banks in the US and Europe have lowered interest rates and injected extra funds into the system in an attempt to loosen credit markets.

Given the interconnection between US sub-prime lenders and UK and European banks stems from the widespread repackaging and reselling of debt, if the sub-prime crisis blows a big hole in the US economy it is very likely to take Europe – including the UK - down too.

If the UK economy does go into recession this year, the effects are likely to resemble the most recent recession of 1990-92 more than the slump of the early 1980s, because circumstances were more similar in the early 1990s – a bubble had developed in housing and asset markets in the UK, US and Japan which burst in 1990, leading to a substantial fall in property prices.

By contrast, the early 1980s recession was precipitated by the oil price rise of 1979, but its longevity and severity were more a consequence of a huge shake-out in UK industry and a structural shift away from manufacturing and towards services – particularly financial services and the City.

It does not look like we are poised for big structural shifts in the economy this time round and London’s status as a world financial centre should survive any recession. But the UK’s reliance on the financial services sector makes it particularly vulnerable to the credit crunch in the short term.

Fortunately however, inflationary pressures are much weaker at present than they were in the early 1990s or early 1980s, so we are unlikely to see interest rates at the exceptionally high levels that we saw back then – which should assist economic recovery.

Another point of difference from the early 1990s is that the US economy is being hit hardest by the current slowdown.

Previously the resilence of the US economy has been a valuable catalyst for revival from global economic crises, but this time around, the US looks in much worse shape with high ‘twin deficits’ in the personal and government sectors.

Thus, global economic recovery will be more reliant than ever before on a strong growth performance by China, India and other industrialising powerhouses. In the medium term this is likely to lead to a change in the balance of global economic power, with the end of US hegemony and greater uncertainty over the direction of global economic policy than we have known for the past fifteen years.

In the longer run, shortages of water, oil and other natural resources, and the climate effects of spiralling greenhouse gas emissions, are a greater threat to long-term economic growth than any short-term financial imbalances.

Howard Reed is Chief Economist at the Institute for Public Policy Research

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The war on poaching

More than 1,100 rhinos were killed for their horns in Africa in 2016. Quasi-military conservation units are trying to stop the slaughter.

The Savé Valley Conservancy, 900 square miles of pristine wilderness in the Lowveld of south-eastern Zimbabwe, seems like a paradise.

Drive along its dirt tracks, past flat-topped acacias and vast-trunked baobab trees, and you scatter zebras and warthogs, impalas and wildebeest, kudus and waterbuck. Elephants lumber through the bush, leaving destruction in their wake. Giraffes placidly return your stares. Baboons cavort in the trees. A crowned eagle flies overhead with a rock rabbit in its talons. A pack of exquisitely patterned wild dogs lie on the warm red earth. There are lions and leopards, too, but out of sight.

My guide and I meet Bryce Clemence, the stocky, bearded outdoorsman who heads the conservancy’s Special Species Protection Unit (SSPU), by a muddy waterhole so that he can show us the most special of those species. He and a couple of his armed men lead us a few hundred yards into the bush before silently motioning us to stop. We wait, move on, stop again. Clemence points. Thirty yards away stands a two-tonne rhinoceros, a 15-year-old bull. It cannot see us, for rhinos have poor eyesight. It cannot smell us because we are downwind. But it senses our presence. Its ears revolve like miniature satellite dishes.

As we study this magnificent, primeval beast through our binoculars, one thing quickly becomes apparent. It has no horns. Normally it would have two, weighing seven kilos or more, but they have been removed in an effort to protect it. Rhino horn fetches around $60,000 a kilo in China and other east Asian countries, where it is considered an aphrodisiac and a cure for diverse ailments. This animal’s horns would have been worth more than $400,000 – a fortune in Zimbabwe, where the average household income is $62 a month and unemployment exceeds 90 per cent.

Sadly, not even de-horning works. Poachers will kill de-horned rhinos for any residual horn. In February 2015 they shot a six-month-old calf for just 30 grams of horn, Clemence tells me.

Savé Valley may look idyllic, but it is a front line in a war against rhino-poaching. More than 1,100 of the animals were killed across Africa in 2016, leaving barely 20,000 white rhinos, classified as “near threatened” by the International Union for Conservation of Nature, and 5,000 “critically endangered” black rhinos. What distinguishes Savé Valley is that it has begun to turn the tide, but only because it has access to the sort of funding that most African national parks can only dream of.

Clemence’s quasi-military operation consists of 35 highly trained men, all expert trackers, supremely fit and equipped with semi-automatic rifles and radios. Working in pairs, they do ten-day stints in the bush, monitoring the conservancy’s 168 rhinos from dawn to dark and endlessly searching for human tracks – or “spoor”.

They are supported by a canine unit whose two Belgian Malinois dogs can track at night and over rocks; a substantial network of paid informants in the surrounding communities and beyond; four 4x4 vehicles and 12 motorbikes; and nearly 100 armed scouts employed by the two-dozen private ranches that make up the conservancy.

Even that force is insufficient, Clemence says. The poaching gangs are growing more sophisticated. They now use high-powered hunting rifles with silencers to shoot the rhinos, and AK-47s to ward off the rangers. Sometimes the poachers use AK-47s against rhinos too: in 2014 one was hit 23 times.

They have begun using poison. One poacher was caught after laying oranges and cabbages laced with the pesticide Temik in the path of a rhino – Temik is nicknamed “Two-step” because that is how many steps an animal takes before dying. Another poacher planned to poison a waterhole, but was thwarted by an informer. “Poisoning is disgusting because it’s totally indiscriminate and has the potential to do massive harm,” Clemence says.

He has also caught poachers preparing to use the sedatives ketamine and xylazine. Having darted a rhino, they would then hack off its horns before it woke. They once hacked off the horns of a rhino that had been knocked out by a bullet and it woke with half its head missing. The creature survived for a week before Clemence’s unit found it. Vets had to put it down. “When you catch a poacher you want to beat him to death with a pick handle and very slowly break his bones, but you have to be professional,” says David Goosen, manager of the 230-square-mile Sango ranch, which forms part of the conservancy.

The odds are stacked against the SSPU in other ways, too. The poachers are paid well by the syndicates that run them – perhaps $5,000 each for a kilo of rhino horn. And even if caught, their chances of escaping punishment are high. Thanks to bribery or incompetence, just 3 per cent of prosecutions for rhino poaching in Zimbabwe end in convictions.

“You have to virtually catch them in the field red-handed, and even then they often get away with it,” Goosen says. “As soon as they get to the police station, a well-connected lawyer turns up, which means someone higher up is looking after their interests.” The maximum sentence for intent to kill a rhino is nine years for a first offence – less than for stealing cattle.

The SSPU is prevailing nonetheless. In the first three months of 2012, when Clemence arrived, the conservancy lost 14 rhinos. In 2015 it lost 12, last year three. It has also defeated Zimbabwe’s most notorious rhino-poaching gang.

Tavengwa Mazhongwe learned his craft from his older brother, “Big Sam”, who was killed poaching in 2009. Mazhongwe was responsible for at least 150 rhino killings, including many in Savé Valley. In December 2015 Clemence learned he was planning another attack and put his rangers on alert.

They found the gang’s spoor at 6.30 one morning, and tracked the four armed men in intense heat for nine hours. The gang took great care to cover their tracks, but late in the afternoon the rangers found them resting in a river bed. The rangers opened fire, killing one and seriously wounding a second. Mazhongwe and one other man escaped, but he was arrested near Harare two weeks later and given a record 35-year sentence for multiple offences. A judge had to acquit an officer in Zimbabwe’s Central Intelligence Organisation who drove the gang to the conservancy in a government vehicle because, he complained, the police did not dare investigate govenment officials. The rangers recovered an AK-47, a Mauser rifle with silencer, an axe, rubber gloves, a medical kit, tinned food and a phone-charger pack.

“You’ll never get to where you say ‘we’ve won’, but we have won in the sense that we’ve brought poaching down to a manageable level,” Clemence says. “We’ve taken out some of the most notorious syndicates. Victory will simply be breeding more than we’re losing and having sustainable numbers to pass to the next generation.” He hopes that the conservancy’s rhino population will reach 200 within two years, enabling it to relocate some animals to other parts of Zimbabwe where the battle is going less well.

The SSPU’s success comes down to skill, motivation, organisation and – above all – resources. The unit costs $400,000 a year, and is funded mainly by foreign NGOs such as Britain’s Tusk Trust. It receives practical support from the conservancy’s private ranches, some of whom – given the dearth of tourism – have to generate the necessary funds by permitting limited elephant and lion hunting for $20,000 an animal.

Zimbabwe’s national parks have no such resources. That is why private conservancies have 80 per cent of the country’s rhinos but 1.5 per cent of its land, while the parks have 15 per cent of the land but 20 per cent of the rhinos. Within a few years most of those parks will have no rhinos at all.

Martin Fletcher’s assignment in Zimbabwe was financed by the Pulitzer Center on Crisis Reporting