Why 2008 isn’t 1998

JP Landman

In 1998 a financial crisis broke out in southeast Asia which had major repercussions the world over. Here in South Africa, the rand went for a dive and economic growth stopped.

Ten years later it is happening again. It started with the financial crisis in the US which in turn spread to the rest of the world. This time the crisis is not limited to the monetary economy, but has also brought the real economy to a halt.

Again South Africa has been hit hard. The rand has taken a knock and growth has slowed down. Car dealers, estate agents and small businesses, to name but a few, are battling.

Retrenchments have started and will increase in months to come. Taking a closer look at the crisis of 1998 in South Africa, one realises that it was not much more than a speck on the radar.

For sure, we grew poorer in that year because population growth outpaced economic growth. But, from 1999 onwards, we started becoming wealthier again.

Will the impact of this year’s crisis be as short-lived?

Growth is much slower. After maintaining a pace of more than 5% over the past few years, growth has dropped to less than 4% this year. It is expected to be less than 3% next year while some have already voiced a figure of less than 2% for 2009.

Despite this, growth of 2% is still substantially better than the 0.25% with which we had to contend in 1998. And this growth is still more than the population growth.

As long as economic growth stays ahead of population growth, we are pushing forward. It is all about growth figures, and we will only know these figures this time next year.

But if one looks at the carnage taking place in the world stock markets, it would seem as if the suffering will be longer and worse than it was in 1998, especially in the west.

This is after all where the gluttony was most excessive; therefore also where most of the salvage efforts will need to focus.

This will indeed affect South Africa.

Politically we are in much the same boat as in 1998. Ten years ago we were also standing on the eve of an election and leadership changes – Thabo Mbeki took over from Nelson Mandela in 1999.

It feels as if there is more uncertainty. But is there?

Slap in the middle of the 1998 crisis South Africans learned that Tito Mboweni would take over from Chris Stals as governor of the Reserve Bank. A cacophony of voices spoke out, adding to the uncertainty. Two and a half years before the same thing happened when Trevor Manuel was appointed minister of finance.

So, is there really more uncertainty now than during that time?

By the way, we managed to get through the stormy waters unscathed with the three M – Mbeki, Manuel and Mboweni.

What is different this time round is the massive shortage South Africa shows on its balance sheet – about 7% of gross domestic product (GDP) or put simply, about R450-million a day! This is the amount of money invested every day in excess of what we save. As recently as 2000 this shortage was a mere 2% of GDP.

What has happened since 2000 is that the country is investing more. Roads are upgraded, power stations are built, new suburbs are developed, shopping centres and office blocks are built … all wonderful, and we will feel the benefit of this in the future.

But for now, these investments have to be paid for. And if you cannot save yourself, you depend on somebody else’s savings – better known as foreign capital, without which, no power stations will be built.

Indeed, we are the victims of our own ambition.

That is why poorly deliberated economic policy chasing foreign investment from our country is dangerous.

The real political discourse should be centred on the current polemic between some union leaders and Manuel.

Like 10 years ago, we need the three metaphorical Ms to take us through these stormy waters. But unlike 10 years ago, there is much less room for mistakes.

These are interesting times!

JP Landman is a self-employed political and trend analyst. He consults to SA largest private wealth business, BoE Private Clients, and works with several SA corporates on future scenario trends. His focus areas are trends in politics, economics and social capital.

Among some of the unique research projects his consultancy has undertaken was the role of public institutions in battling corruption (quoted by the UN in a report on corruption), the interplay of demographics and economic growth, and an overview of trends around poverty alleviation in SA. Whilst working as an analyst on the JSE in the 1990s he was voted the top analyst in political trends.

He is also a popular speaker who has addressed diverse audiences locally and internationally and enjoys consistently good ratings.

He has a BA and LLB degrees from Stellenbosch (1978), studied Economics and Development Economics at Unisa (1979 and 1980) and later at Harvard (1998 and 2005), and obtained an MPhil in Future Studies (cum laude) from Stellenbosch (2003).