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Focus on growth to eradicate poverty

29 August 2007 Gareth Stokes

The Association of Collective Investments (ACI) has grown from strength to strength in the 40 years since it was established. In 1967 the unit trust industry accounted for an insignificant R3 million in a single fund. Today the ACI presides over some 770 funds with in excess of R600 billion in assets.

As the ACI grows in stature so does its responsibility to the financial services industry and to individuals invested in the unit trust industry in particular. It is thus refreshing to note the organisations focus on regulation, protection, accessibility, transparency and flexibility. FAnews Online waits for the day when similar core values are adopted and implemented in the operations of all financial services providers in South Africa.

Yesterday we attended the ACI's 2007 Convention. The well attended event set out to address some of the opportunities and challenges in the investment industry in coming years. A series of presentations and panel discussions covered a wide range of topics including economic policy, corporate governance, retirement fund reform, regulatory issues and safeguarding investments. With so much featured in the busy programme it was difficult to choose a topic for today's newsletter.

Commonsense prevailed and we decided to focus on the conference's opening address. Deputy Minister of Finance, Jabu Moleketi, provided an overview of economic policy for the next ten years.

The foundation is up and ready

Treasury's outlook for the economy is of significance to the financial services industry because its success is inextricably tied to the performance of the domestic economy. Over the last ten years the domestic economic outlook has improved substantially, driving market prices higher and boosting investment across all sectors.

Moleketi outlined some of the improvements which contributed to the economic progress achieved since 1994. GDP growth averaged 3% per annum over the last decade, as opposed to a mere 1% average pre democracy. And in the last five years approximately 1.6 million jobs have been created. These improvements have led to favourable comments in the latest IMF Article 4 Report which believes that economic and fiscal conditions in South Africa are "generally positive."

With a solid foundation in place, South Africa must now strive for sustained growth. While 3% is acceptable, it is certainly possible to maintain higher levels of GDP growth. Moleketi mentioned 11 countries which have managed growth rates of 7% per annum for a number of years. These include China, Indonesia, Taiwan and Singapore, and one of our neighbours Botswana. South Africa must attempt to join this club.

With GDP growth rates of 7% individual earners in an economy double their wages every 7 years. South Africa has its sights set on GDP growth of 6% per annum which would result in wages doubling every 12 years. Of course this does not mean that South Africans will be twice as wealthy. Wage growth cannot be viewed in isolation and the impact of expenses and inflation cannot be ignored.

Huge challenges to South Africa's economic future

It is clear that government is aware of the need to boost GPD growth and is taking steps to achieve just that. "Government is playing an active part in this through a whole range of infrastructure projects. Many headline projects are associated with the 2010 Fifa world cup. But investment cannot and will not stop in 2010. To sustain and accelerate growth investment must continue its path even beyond 2010," said Moleketi.

Among the key challenges in coming years will be to ensure that the growth in South Africa has the proper shape. Although a strategy which focuses on infrastructure and neglects human capital will, for example, generate growth, it will diminish possibilities for sustainable growth and impact on the magnitude of growth achieved.

As such, Moleketi identifies three major pillars on which the economy will be built in the next decade. These are employment, investment in human capital and investment capital. In our view the economy will be best served through a focus on employment. Higher levels of employment will lift living standard across the board and should contribute to improved life expectancy, nutrition and literacy. Reducing unemployment is essential to the future of the domestic economy.

Thinking BIG is best

Moleketi believes that "South Africa should not be afraid to think BIG." The country has the potential to significantly improve GDP growth and by association the living standard of all its citizens. Government realises that macroeconomic stability is not sufficient to guarantee economic growth. They know that innovation in the fields of productivity, employment of capital and technology are essential.

The answer, says Moleketi, is simple: "South Africa must continue to experience economic growth for this is the means through which all South Africans will achieve a sustained better income level and also register declining levels of poverty."

Editor's thoughts:
The Deputy Minister of Finance identified a number of areas that government will have to focus on to ensure that South Africa's economy prospers in the next decade. These include creating employment, investing in infrastructure and investing in human capital. Which of these do you believe will be the most important driver of economic growth going forward? Send your comments to
gareth@fanews.co.za

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