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SA should be optimistic about weathering economic crisis

by BuaNews Online
on 30 Jan 2009
BuaNews Online
BuaNews Online

While the International Monetary Fund has projected the worst economic prospects for 60 years and the International Labour Organisation projects 50 million job losses globally, South Africa will remain relatively unscathed by the global economic crisis.

"We are optimistic about our ability to ride out the tough period ahead. It will not be easy - let's not be naive, however, as South Africans, we have come through more difficult times," said President Kgalema Motlanthe.

The President was addressing a dinner at the World Economic Forum in Davos, Switzerland on Thursday, where world leaders have gathered against the backdrop of a financial crisis and gloomy economic outlook.

He described the scale of the financial crisis is unprecedented and said it came as a result of greed, self interest and recklessness. "It cannot and should not be tolerated for reasons we now very well understand."

South Africa's banking system has escaped the global economic crisis, but the global operating environment has been devastated leaving little capital available for investment.

The narrowing of the demand for South Africa's imports in the United States, European Union and Japan is expected to have a direct impact on the country's manufacturers and the labour force. Around 60 percent of the country's exports were headed for these regions.

Further to this, the decline in commodity demand and prices also has a negative impact on those sectors in South Africa.

However, President Motlanthe said in 1994 South Africa's economy was in a decline, with high debt and high unemployment. It was also an isolated state with few trading partners in the world.

The largest contribution to Gross Domestic Product came from the extraction industries with little or no manufacturing footprint to speak of.

"Today, South Africa is an integrated and responsible member of the global community. South Africa enjoys preferential market access into traditional markets like the EU and US, but also into emerging new poles of demand like India and China.

"We transformed the economy through fundamental macroeconomic reforms and created the enabling environment for the majority of South Africans to participate in the mainstream economy."

Mr Motlanthe said government had been able to reverse the country's debt to zero and now over 70 percent of the GDP was derived from manufacturing and services. "Direct mining now contributes around 6 percent to GDP. We have created three million new jobs since 2004."

The President conceded that government still had a long way to go in terms of employment.

He attributed the country's success to sound fiscal management, consistent and coherent policy formulation and implementation. However, he said the lessons from the current crisis must be absorbed.

It is critical for the world community to get together and agree on new and higher standards of global governance, particularly in the financial arena and there needs to be more transparency and accountability, said the President, adding that there was a need to ensure that all nations are involved in the process as the time has passed where a few nations can dictate to the many.

"South Africa is in a difficult but very different position to other emerging economies. We envisage a strong public sector investment in infrastructure projects valued around $69 billion in transport, construction, roads, ports, energy and ICT over three years to be a major stimulus to growth and development.

"This will be funded from the state and does not depend on borrowing. The large investment into the 2010 FIFA World Cup for stadia and related infrastructure is also on track and not dependent on borrowing.

"We have also encouraged our Development Finance Institutions to use their very healthy balance sheets to invest in projects where traditional credit is no longer available. We are working with the manufacturing sector to develop programs to assist them on a sustainable basis.

"We recently introduced a support program for the ailing automotive sector. Though growth figures have to be revised, we are confident that we could realize 4 percent growth if we implement our programs of actions properly."

Mr Motlanthe said South Africa remained a global leader in the resources sector and its industrial policy would seek to enhance beneficiation. Special emphasis is being placed on labour intensive sectors and in diversifying competition. We are prioritizing those sectors that will maximize the multiplier effect on downstream industries.

"Now is a very good time to position and prepare for the upswing. The African continent has been the least affected by the global financial crisis," he said, adding that after the global recovery, there would be a new order.

"We hope that this development is embraced constructively by the developed world...The new global economic order must see Africa at the centre and not on the periphery. As the richest continent on the planet in terms of resources, it is an economic and social imperative that Africa be an integral player in turning the global fortunes around," said President Motlanthe. - BuaNews

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