3 July 2008
Despite a global economic slowdown resulting largely from rising food and fuel prices, South Africa’s economy is resilient enough to deal with the unfolding economic climate.
“We have a much stronger economy today then we did 10 years ago and increasingly we are showing resilience to global economic dips,” Trade and Industry Minister Mandisi Mpahlwa said in Johannesburg this week.
“We do not believe our economy has reached a cul-de-sac.”
He added that investment was increasingly was playing a greater role in the economic growth of South Africa.
Speaking from the headquarters of Business Unity South Africa (Busa), Mpahlwa said South Africa was recently identified by a professor at the London School of Economics as one of four key emerging economies in the world, placing it alongside China, India and Brazil.
Regionally significant and diverse
Since the 1990s, South Africa has emerged as one of the most important developing economies within the global economy.
“We might not have the size of China, India and Brazil, but we are regionally significant with a diverse and growing economy,” Mpahlwa said. “We need to make sure that we remain in the stream of fast-growing economies despite the challenging global economic environment.”
To ensure diversification of exports, South Africa is currently in discussions with China to find ways in which to increase the market penetration of value-added goods into the Chinese economy.
He added that South Africa was in the process of trying to change from being a majority exporter of raw materials to a supplier of value-added goods on a greater scale.
Shifting trade patterns
Mpahlwa said that trade patterns were shifting at the moment, noting that Africa-Asia trade was starting to surpass Africa-European trade. “The trade balance is shifting more toward Asia, with an increase in trade between developing countries,” he said.
Among the challenges facing the South African economy were insufficient energy to meet rising demand, a shortage of skills, and the need to increase productivity and boost infrastructure development.
He pointed out that while the short-term solution was to import skills, this practice was not sustainable in the longer term and skills had to be developed locally.
“The issue of insufficient energy, skills shortages, and infrastructure challenges is not unique to South Africa but is a global problem,” Mpahlwa added.
Current account deficit
South Africa’s widening account deficit came as a result of South African manufacturers already running at capacity and therefore not being able to deal with increased demand ahead of the massive infrastructure drive for the 2010 Fifa World Cup.
South Africa was therefore forced to import goods to cover the local output shortage, Mpahlwa said, adding that local manufacturers needed to reinvest in capacity in order to meet the growing demand in the country.
Another factor greatly affecting the current account deficit was the current record prices for crude oil.
In the prevailing economic slowdown, it was imperative that South Africa did not lose focus of what it had set out to achieve. “Now is the time to commit ourselves to more vigorously pursue these objectives,” he said.
Taking down barriers
Mpahlwa said the government’s response to the tightening economic conditions was to speed up industrial development, continue promoting small, medium and micro enterprises (SMMEs), and further strengthen the state’s capacity to unlock the country’s economic potential.
He added that regional integration within the Southern African Development Community also needed greater impetus, as all countries within the bloc needed to take advantage of the almost free trade environment that existed in order to maximise regional trade.