We have just gone through an extremely stressful, global economic meltdown, partly insulated in SA by the magnificence of the 2010 FIFA SWC, but after which we were very quickly dumped into the landslide as effectively as our international counterparts. This scenario has been analysed to death, over and over again, but so what? What now? Where do we go from here? What is the way out? Can we get out of this mess? We now need to concentrate our efforts on the way forward.
Global Economics – The Risks and Challenges
There are a few realities that we must take into account when we debate the way forward.
Globally the US remains the largest developed economy in the world and will remain so for the next 15/20 years. There will no doubt be a gradual shift towards the so-called Brazil, India and China (BRIC) countries during this period. The US as we know is mired in a catastrophic financial crisis, the mainstays of its economy having been decimated by the global recession. The UK remains entrenched in a massive debt crisis, Ireland along with Europe, primarily Greece, Italy, Spain and Portugal also reporting significant funding deficits. Other matters such as the cessation of hostilities in Iraq, which politically may be seen as very positive, will surely add to the domestic stress in the US economy from an industrial point of view plus the returning troops face unemployment queues that continue to rise at home in the US. Afghanistan and the incessant Middle East saga add to the global financial woes.
China is now the second largest economy globally, but the reality in China is not all as rosy as made out, with pressure on labour costs and sweatshops causing wages to rise and will effectively give rise to their losing some of their competitive pricing strategies. The global pressure for China to adjust their currency model had an almost immediate effect after revaluation, with a significant slow down on their imports that had a negative effect on global commodities. This significant market will continue to dominate global currency and commodity debate for the next few years, as the world starts adjusting to what will inevitably be the new world economic power in years to come.
SA Economics – Our Risks and Challenges
The positioning of SA Globally is of critical importance, both from a political and economic perspective. The questions are do we know and understand what our role is? Do we understand where and how we fit in?
What is the positioning of Business within SA? Do we have the right environment for business?
Do we have the right regulatory support framework at our disposal? Do we have the right leaders in the right places to make this happen? What can WE do about this?
Any economic recovery, in a macro-economic environment is based upon 4 fundamentals:
1. Inflation
2. Output Growth
3. Unemployment
4. Currency stability
We now have inflation firmly under control, with latest figures stating this is below 4%. Output growth is dependent upon consumer spending, and this comes about generally via business investment in production and employment.
The Global risk platform upon which we compete can be both positive and negative but we are primarily reliant on foreign investment flows. The briefly suggested tax on foreign inflows indicates that such comments continue to attract negative international sentiment. Our Economic Risk factor remains low due to excellent fiscal and monetary controls in place and this is manifested in the low inflation and interest rates. The resultant problem is now the very strong rand and other currencies exchange rates that is the current centre of attention by governments worldwide. History shows clearly that these matters are best left to competent Central Bankers rather than political parties, but either way it is senseless to purposefully weaken the currency in the absence of a commensurate sustainable initiative to ramp up local production and beneficiation for the manufacturing and export industry. These are very serious factors that require urgent and sustainable supporting interventions to reverse the negative trends.
Just as in the USA, SA is facing an unemployment crisis of catastrophic proportions. A number of recent reports have confirmed that SA as with the US continues to shed jobs. Very recently two of the big four banks have once again announced significant retrenchments, and this in our so-called world class financial services system. Agriculture, the backbone of the Western Cape growth, has lost 32,000 jobs nationally in the last 12 months according to Stats SA. Unisa's research in conjunction with the Reserve Bank, points to a true unemployment rate of about 41% of our labour force. The advertising industry's All Media and Products Survey (Amps) reports that the real figure is even higher at 43%. Unemployment breeds poverty and the income disparity in SA, already considered one of the worst in the world will continue to widen, unless programs are put in place to stimulate output growth and thus employment.
Insofar as Political Risk is concerned, the ANC is suffering under moral decay, this by their own admission. This is compounded by massive corruption amongst Government officials, and many bankrupt municipalities unable to deliver basic services. Centralisation notions, ala nationalisation rhetoric continues to flame international caution. The undeniable rift in the ANC ranks and the weakening of the Tri-Partite Alliance may still see the implosion of this relationship and we could witness a new party/alliance come to the fore. Will the ANC allow this? At the end of the day the people will speak and some political commentators are on record as stating that the ANC will win its last election in its present form in 2014.
The way forward economically is the path that has already been in some evidence and that is of joint partnerships between government and the private sector. History has shown that this type of partnership, if correctly structured, reaps the most efficient benefits but it requires political will and intent and a non-corrupted tender process environment. There is much work to be done in this space.
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