Reports at the recent World Economic Forum in Davos, Switzerland, highlighted signs that the world economy is slowly recovering from the recession. But there are also obstacles that may result in a so-called double-dip in the recovery.
The initial reaction of governments to stall economic decline with massive bailouts, and government funding of projects had the desired effect.
The recession ended and most analysts agree that the world economy will probably grow by 3% or more in 2010, much better than the dismal growth of -2,5% in 2009. Much will depend on the decisions taken by governments on further financial stimulus packages. But governments’ exit from financial support should be timed correctly. If they stop support too soon, recovery won’t take place.
Sustainable growth depends on private-sector investment. As the sector is currently heavily credit-averse, this is a slow process. Consumers in the US are still very highly leveraged and their ability to take up credit is severely limited. Fiscal deficits created by massive government spending are a serious problem that will have to be addressed before we will see sustainable growth.
Developing countries were not as vulnerable to the global credit market as developed countries and generally didn’t suffer as much. In South Africa, the growth decreased by 2,8%, compared to 6,7% in Germany, 6% in the UK and 3,8% in the US and Brazil. Africa even managed an average growth of +1% in 2009, compared to the global -2,5%. An average growth of +4,5% is expected for African countries by 2014. The South African economy will probably share in this economic growth.
Despite the recession, the South African economy performed well over the last decade. Trade with other African countries, as well as with India, China and Brazil provided export growth. South Africa’s capital market performed well in 2009.
The Johannesburg Securities Exchange (JSE) outperformed most large stock exchanges in 2009.
The JSE All Share Index (ALSI) increased in dollar terms by 64% in 2009. It’s no longer a small exchange and currently ranks eighteenth in size in the world.
International investors are aware that the our financial market is a liquid and safe one. According to the recent World Economic Forum, it ranks second out of 133 countries in terms of regulation of securities exchanges, sixth in terms if the soundness of its banks and financial-market sophistication and ninth in terms of investor protection.
Since mid-2009, foreign investment in South Africa increased to a record-breaking US billion (R93 billion). The rand also outperformed most other currencies in 2009.
How sustainable is SA’s recovery?
As in other countries, unemployment increased sharply during 2009 with an estimated 24% unemployed – developed countries are concerned if they have more than 6% unemployment. It’s a serious problem that needs a multi-dimensional approach. The first step is to create an environment attractive to investors and entrepreneurs to develop and expand production facilities. A less rigid labour dispensation would also help.
Talks about the nationalisation of private assets discourage further investment. While foreign investment did increase in 2009, it was largely in the form of portfolio investments, which are mobile and can flee at the first sign of nationalisation. If we don’t succeed in providing an environment in which industry feels safe to develop, unemployment will increase.
Increasing our competitiveness Developed countries do a lot to protect their markets, and especially their agricultural markets, against foreign competition. As the world slowly moves towards a trading environment that’s less protected with import tariffs, the focus will shift to the use of sanitary and phytosanitary measures to protect markets.
There are many cases of regulations in the EU and even in countries like Thailand that have the sole purpose of limiting imports from South Africa. We’ll need a more aggressive approach to these and other unfair trade practices.
Service delivery and the cost of doing business here also limit our international competitiveness. If one studies the performance of local companies and institutions, it’s clear that the closer an entity is linked to government, the worse its performance and service delivery.
Indications are that we may experience slow economic growth in 2010. But this growth is still weak and vulnerable and can be easily killed off by unproductive intervention.
The politicians must keep their hands off the economy.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. |fw
Source: farmersweekly.co.za
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