South Africa Inc applies capitalism with conscience
What does ‘bad’ politics do for an economy? You can answer this question by taking a quick look at South Africa’s northern neighbour, Zimbabwe. South Africa has also suffered through periods of ‘bad’ politics. In the mid-1980s our economy crimped as the world imposed sanctions on an objectionable system of government. The minute South Africa emerged from Apartheid rule the economic shackles lifted.
These thoughts were shared with the audience at a Swiss RE annual function held in Johannesburg, 10 November 2009. In his presentation titled Economics: Yesterday, Today and Beyond Dr Roelof Botha glossed over the past to focus on prospects afforded by “socio-political stability in a non-militaristic democracy.” Botha is the managing director of a multi-disciplinary company that specialises in development facilitation and an economic adviser to PriceWaterhouseCoopers for the past 17 years.
No thanks to socialism
The South African economy was supercharged the minute the country held its first democratic election. The country achieved 16 consecutive years of real GDP as politics normalised through the mid-1990s. And this superb run was only halted by a global economic meltdown triggered by ridiculous lending practices in the developed world. Botha believes recent economic performance proves that “nationalisation is no longer a policy option!” He questions how certain elements can bay for a return to communism against a backdrop of world growth since the fall of the Berlin wall.
The world has grown at a phenomenal pace since Russia and the old East Germany abandoned this economic doctrine. Today’s growth is deeply routed in the doctrines of capitalism. “It’s capitalism with a conscience that works,” says Botha, adding that “you don’t need to return to the totalitarianism that led to the construction of the Berlin wall” to succeed. In the absence of a free market economy the South African government would never have been able to extend social services to so many of the country’s citizens!
Finding the funds for social expenditure is easier during the boom years. Outgoing finance minister Trevor Manuel had things easy as Treasury raked in R80bn in excess of budgeted revenue collections in the three years ending 2007/2008. But Manuel’s successor, Prabin Gordhan, could find the coffers ‘short’ that amount in just one year, the 2008/2009 period. Dwindling corporate profits and massive job losses mean the country’s income tax collections will fall sharply. And tax revenue will only recover when the economy does.
Celebrate – the recession is over
Economic prosperity and the consumer go hand in hand. Referring to slides of recent durable and semi-durable sales statistics Botha warns against doom and gloom conclusions. Although the sales of cars and other white goods slid through recession, South Africa’s expenditure on services and non-durables (food and clothing) remained robust. And Botha believes the moderate decline in expenditure on food and clothing is due to consumers shopping more frugally. Consumers have shifted from the “Woolies rotisserie chicken to the Checkers ‘Farmer Brown’ chicken,” says Botha.
Commenting on the sharp decline in expenditure on cars and other durable goods Botha opines: “On a broad-based level consumption has been depressed by sentiment.” In other words, despite having more disposable income in the wake of successive interest rate cuts, consumers are extremely cautious. It’s difficult to motivate purchasing a new car when the threat of retrenchment looms! The good news is the recession is over. A quick look at the South African Reserve Bank leading indicator confirms this. The measure, comprising 97 major measures of economic activity, has been on the rise for five consecutive months!
South Africa can grow faster than 5% per annum
Although many economists argue South Africa cannot sustain 5% per annum real GDP growth for more than a year or two, Botha believes this growth rate represents the norm. He says we could see 6% per annum before 2012. One of the reasons for this is the massive capital expenditure by both government and the private sector in recent years! As a result the country now boasts a fixed capital to GDP ratio of some 24%. Investment of this magnitude always boosts GDP in the following years!
Another is the Southern African Development Community (SADC). This grouping of 15 countries (as at January 2009) has the third largest population (after China and India) in the emerging world. Provided the region can sort problems in Zimbabwe and the Democratic Republic of Congo it will attract major investor interest. Botha reckons “it’s going to become – probably within the next decade – a magnet for foreign direct investment.” The world economy is on the verge of the biggest shake-up in 100-years and is fast becoming a numbers game. The rand is likely to remain strong too! There are two reasons. The first is that the economic slowdown impacted imports more than exports, with the result South Africa has run repeated monthly trade surpluses. And the second is the foreign investor appetite for everything South African!
Botha expects the country to return to positive GDP growth in the third quarter of this year and for South Africa Inc to return to its 5% per annum GDP growth rate as early as 2011!
Editor’s thoughts: Botha’s optimistic take on growth prospects for South Africa makes no mention of the country’s power crisis. We believe cheap and consistent electricity supply is an imperative for continued economic growth through the recovery. Do you think South Africa can achieve 6% per annum GDP growth by 2011/2? Add your comments below, or send them to [email protected]
