SA Economy: What happens after 2010?

Although the economy has grown strongly since 2003 and may perform well in the next three years, the actual economic boom period will probably only start after 2010, says prof. Chris Harmse, Chief Economist of Dynamic Wealth.

The main reason for this positive viewpoint is because the private sector bought into the country’s future – for the first time in decades. This is clearly evident from the numerous investment plans totaling hundreds of billions of rands which are and will be used to increase production capacity. And although some of the investment is aimed at the preparation for the Soccer World Cup in 2010, plans stretch further than 2010, says Harmse.

He says if the private sector investments are viewed in conjunction with the massive investments of the state after 2010, it will increase the country’s sustainable economic growth potential to at least 5% from the current 4%. The prerequisite, however, is for the country’s socio-economic problems to be successfully addressed, and for skills to be acquired and improve in large numbers.

However, Harmse says the focus of South Africans is shifting towards another question ‘What will happen beyond 2010?’ Dynamic Wealth has therefore done research on all the announcements made by government and private sector in this regard.

It shows that 2010 never was the government’s focus. In fact, the government set numerous goals to be reached by 2014. This includes an economic growth rate of 6%, halving of the unemployment and poverty rates, increase in the investment rate to 25% of gross domestic product (GDP) and the creation of 400 000 to 500 000 jobs per year.

What the hosting of the Soccer World Cup has done, is to accelerate the prospective plans for 2014. And it forced the government to focus better.

Concerning all the announcements, Harmse mentions that it can be misleading, as it is not viewed collectively. Seen individually, it does not seem like much, but added together, it indicates an economy that will perform impressively after 2010. Of note, is that the private sector plans large investment in almost every sector in order to prepare for the strong economic growth expected after 2010.

Apart from the R480 billion that the state will invest over the next three years (especially Eskom and Transnet), the construction, property, information technology and communication, mining, production and tourism sectors announced massive investment plans which amounts to more than a trillion rand in the run up to 2014.

Harmse however states that the ride will not be smooth. A lot of stumbling blocks and up and down cycles will be experienced on the road to prosperity. For example, South Africans will have to brace themselves against electricity cuts. And shortages of, among others, skills, steel, petrol, gas, cement and many more will emerge from time to time. The shortages will also put upward pressure on prices, which in turn will keep interest rates at relatively high levels.

In addition, the government does not have a good track record when it comes to reaching targets. The Reconstruction and Development Programme (RDP) and Gear were never fully implemented and as such, their targets stayed out of reach. Furthermore, crime also remains a problem which cannot be afforded.

Harmse, however, is optimistic that this time around it will be different. Firstly, because a sound economic basis has been created from where operations are launched. Secondly, the state and private sector are both investing on a large scale. And thirdly, even though the government did not reach its targets in the past, consistency remained as its goals, namely faster economic growth, reduction of poverty and lower unemployment stayed the same in all of its economic programmes.

‘As South Africa is now a better place than two decades ago, the country will in the same way be a better place in 2014’ Harmse said.