WE ASK
MON€Y
Through the
LOOKING GLASS
What are the prospects for SA’s economic
growth? I BY RUTH REHBOCK
ALTHOUGH BRILLIANT AND KNOWLEDGEABLE
individuals try to predict how world economies will grow and change, there is always the possibility that things will take a
different turn. In South Africa, where
there are so many variables that play a role
in our development, including that we are
a young democracy, there is always the
possibility of change. While the future of
our economy sometimes seems rather
gloomy, South Africa has a lot going for it.
Sadly, experts predict SA’s growth prospects are likely not to be all that promising
for the next while, which is in line with
First World growth predictions. Our economy should only grow at a rate of around
2.5% to 3.5% per annum for the next couple of years. But there are some reasons to
remain hopeful, say economists.
What’s critical, they say, is that SA
should be doing whatever it can to grow
as fast as possible. “We need to make up
the socioeconomic ground required to
create a sustainable and stable society,”
says Frank Blackmore, associate director
in the Financial Risk Management division at KPMG, in Johannesburg.
In other words, if we can straighten out
our social and political woes, the private
sector would be able to channel its energy
and resources into industrial development. Blackmore adds that government
and business leaders need to work together to achieve this, as all political and economic policies are interlinked. “Their common goal for South Africa ought to be
broad-based economic growth.”
WHAT CAN SA DO TO ATTRACT
FOREIGN DIRECT INVESTMENT?
Well-known South African economist,
Dawie Roodt, director and chief economist
50 JEWISH LIFE
ISSUE 72
at Efficient Group, in Pretoria, says SA
must sort out its political issues to engender business confidence. “Currently, potential investors are confused by political
strife, mining unrest, rising debts and an
environment that appears to be hostile to
foreign direct investment (FDI).”
On the other hand, economists also say
there isn’t just one determining factor
when it comes to attracting FDI. “Companies are by nature risk-taking machines
that will invest as long as there will be
compensation for the risks in the broader
scheme of things; that is, in the long
term,” says Blackmore.
In other words, SA wouldn’t have to be
the best on each variable in order to attract FDI; it only has to be consistent and
offer rewards commensurate with the
risks taken.
“If SA becomes more of an incubator
for the private sector to grow and flourish, we have many unique endowments,
such as natural resources, a solid infrastructure and the fact that we are located
on a continent set to enter its rapid
growth phase,” says Blackmore.
SA is consistently placed in the top
three countries with regard to foreign investment flowing into Africa, say the experts. However, Blackmore adds that we
should be attracting much more investment, given that our economy is much
more sophisticated than those of other
emerging markets.
For instance, we have a solid political
and social infrastructure, well-established
institutions, and an extremely robust financial system. However, Roodt emphasises that without a stable currency, SA
will lose its appeal. “We need a stable currency – not a strong or weak one, but a
What investments in SA are close to zero
risk regardless of the country’s economic
and political future (Gold/property etc)?
There really are no investments in South
Africa that are close to zero risk. Of course, it
depends on how one defines risk. That being
said cash will at least maintain its capital
value with the only true nominal risk being
tax, which is uniquely dependent on an individual’s tax regime. However, even cash has
risks, particularly on a real basis when one
takes inflation into consideration, even
though the real rate of return for cash over
the last 13 years has been around 2.4%.
What can we expect re: interest rates
in the next 5 years?
International and domestic overnight rates
are expected to normalise to the long term
real repo rate plus inflation, over the next
couple of years. The South African normalised rate would thus be about 8.5%, with a
long-term real repo rate of around 2.5% and
inflation of around 6%. The underlying
assumption is of course that we are able to
stick to the inflation target. This response
refers to the overnight rate.
– Bradley Mitchell, Research Manager, Sasfin
Securities (Pty) Ltd.
stable one which is less disruptive to economic growth.”
In terms of SA’s membership in BRICS,
economists say it is always a positive
thing to diversify when it comes to broadening a base of trading partners. “SA
won’t substitute BRICS nations for the
EU; however, given the growth rates of
China and countries like India, aligning
ourselves with countries like them is a
good strategy for growing our economy,”
says Blackmore. Especially when economic growth in the US and EU is also somewhat stunted at present.
What we have to bear in mind when SA
gets negative reviews in the media at
home and abroad is that we have the most
sophistic ]Y[