30 January 2009
No country will escape the effects of the global financial crisis, with the IMF expecting the lowest growth in 60 years and the ILO projecting 50-million job losses globally, South African President Kgalema Motlanthe said on Tuesday.
At the same, Motlanthe said, the government was optimistic about the country’s ability to “ride out the tough period ahead”.
The President was addressing a dinner at the World Economic Forum in Davos, Switzerland, where world business and political leaders have gathered against the backdrop of an extremely gloomy global economic outlook.
All countries would be affected negatively by the crisis, though to different degrees, Motlanthe said, noting that South Africa had already been affected in a number of ways.
“Though our banking system escaped turmoil internally, their global operating environment has been all but decimated, with very little capital available for investment.
“Close to 60% of our exports were destined for the US, EU and Japan, and the contraction of demand in those economies is going to have a direct impact on our manufacturers and the labour they employ. The decline in commodity demand and prices also has a negative impact on those sectors in South Africa.”
The economy inherited from apartheid
While it would not be easy, however, South Africa had survived more difficult times than these, Motlanthe said, referring to the state of the economy inherited from the former apartheid state in 1994.
This, Motlanthe reminded his audience, was “an economy in decline, with high debt and high unemployment. It was an isolated state with few diplomatic and trading partners in the world. The largest contribution to GDP came from the extraction industries, with little or no manufacturing footprint to speak of. The social condition of the country was in absolute dire straits as a consequence of apartheid policies.”
By contrast, Motlanthe said, the South Africa of today was an integrated and responsible member of the global community, enjoying preferential market access into traditional markets like the EU and US, but also into emerging poles of demand like India and China.
The economy today
The economy of the country had, since 1994, been transformed through fundamental macroeconomic reforms that had enabled the majority of South Africans to participate in the mainstream economy.
“Today, we are debt free and over 70% of GDP is now derived from manufacturing and services. Direct mining now contributes around 6% to GDP. We have created 3-million new jobs since 2004,” Motlanthe said – while admitting that the country had “a long way to go still in the area of unemployment.”
South Africa’s social and economic recovery had been achieved through sound fiscal management, and consistent and coherent policy formulation and implementation – and the same approach “will ensure that we emerge from this global economic crisis.”
It was critical, however, that South Africa, and the global community, “absorb the lessons from this experience”.
On the domestic front, South Africa was in a “difficult but very different” position to other emerging economies, Motlanthe said.
Massive state investment
“We envisage a strong public sector investment in infrastructure projects – valued at around US$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 stadiums 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.”
Industry support programmes
The government was working with the manufacturing sector to develop sustainable support programmes, such as the one recently introduced for the ailing automotive sector.
“Though growth figures have to be revised, we are confident that we could realise 4% growth if we implement our programmes of actions properly,” Motlanthe said.
At the same time, South Africa remains a global leader in the resources sector, and the government’s industrial policy will seek to enhance beneficiation, with special emphasis on labour-intensive sectors and on diversifying competition.
“Now is a very good time to position and prepare for the upswing,” the President said. “The African continent has been the least affected by the global financial crisis. The new global economic order must see Africa at the centre and not on the periphery.”
New world order
In the global context, Motlanthe said, it was critical for the world community to agree on new and higher standards of global governance, particularly in the financial arena.
“We need more transparency and accountability – especially due to the deeply integrated nature of the world economy today. We also need to ensure that all nations are involved in this process as the time has passed where a few nations can dictate to the many.”
At the same time, the President said, it would be a mistake “to retreat and become protectionist. The developing world is our best chance for recovery, and in this regard the terms of engagement between the developed and developing world needs to be revisited. The Doha development round of talks should be prioritized for conclusion on terms that are just, equitable and development oriented.
“I am certain that the world economy will not be same again – even after recovery. There will be a new order, and we hope that this development is embraced constructively by the developed world.”
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