Getting SA through the global economic crisis - Zille
Address delivered by Helen Zille at the Democratic Alliance's Economic Breakfast Summit in Rosebank, Johannesburg, January 15 2009
Ensuring South Africa's prosperity in the face of the global economic crisis
I would like to thank you all for joining us here today at the DA's Economic Breakfast Summit, and to extend a particularly warm welcome to our three main speakers. They are Chris Hart, chief economist at Investment Solutions; Jacques Laubscher, group economist at Sanlam; and Dawie Roodt, chief economist at the Efficient Group.
The DA has convened this summit to discuss a sustainable local response to the global economic crisis in consultation with leading economists. That is because South Africa desperately needs clear leadership on how we should respond.
Unfortunately, the government has failed to provide direction. Instead, we have a fight over the tiller of local economic policy in the high seas of global recession. The "prudents" in the tripartite alliance are pulling in one direction; the "populists" are pulling in another. There is no-one at the helm.
On the one hand, Finance Minister Trevor Manuel has said that there will be no change to macroeconomic policy.
On the other hand, Cosatu and the SACP are manoeuvring the ANC to the left, and threatening fundamental policy shifts. That is reflected in the ANC's election manifesto, which envisages all sorts of new interventionist mandates for the Reserve Bank.
The manifesto also plans to place tighter restrictions on the labour market after the election, by introducing laws to regulate contract work, subcontracting and outsourcing. That will make it harder for job-seekers to enter the market and disincline employers to hire new workers.
We can not afford confusion and contradiction at this time of crisis. Given the risk-aversion of the current investment climate, we will be punished by the markets.
We don't need a fight over the direction of economic policy. We need to secure the ballast. We need a map to steer by, so that we can chart our way through the stormy waters of the global economic crisis.
We need to determine what instruments, in terms of fiscal and monetary policy, we can use to offset the worst effects of the crisis.
The global and local context
We all know the reasons for the global downturn: The credit crisis of 2007 started in the US sub-prime mortgage industry, and the effects of the sub-prime collapse quickly spread throughout the US economy and into global markets.
In 2008, a series of bank and insurance company failures triggered a financial crisis that effectively strangled global credit markets.
Around the world stock markets have collapsed; large financial institutions have gone under or been bought out; and in the United States and Europe, governments had to come up with rescue packages to bail out their financial systems.
There are several reasons why South Africa has been spared the first-round effects of the ensuing global meltdown.
Firstly, unlike some of their international counterparts, South African banks have played it safe. They have not engaged in over-leveraged lending. They have few direct holdings in US sub-prime-related assets.
Our banking system is well regulated. It was ranked 15th in the world in the latest World Economic Forum Global Competitiveness Report. We were placed higher than the UK, the USA, Switzerland, and France.
Our banks are well capitalised. They do not need a government bailout.
Secondly, our system of exchange controls, introduced during apartheid to avoid capital flight, have shielded our banks by trapping liquidity that may otherwise have been exposed offshore.
Thirdly, our credit industry is managed better than its global counterparts. The National Credit Act, for example, protects consumers from unscrupulous credit providers. If the United States had had a similar law, it would never be in the position that it is now.
Fourthly, our property market is relatively strong. There is little danger of it collapsing like the US real estate industry. Whatever current weaknesses there are in the local property market are more cyclical than structural. Higher interest rates, together with the boom in house prices over the last few years, were already taking a toll on the property market before the financial crisis hit.
Referring to the crisis earlier this month, the Nobel Prize-winning economist, Paul Krugman said: "This looks like the start of a second Great Depression".
Just as South Africa experienced the aftershocks of the credit crisis that led to the Wall Street Crash of 1929, so will we be shaken by the credit crisis of the last two years. We will not be immune from its second-round effects, and nor will the regional economy.
International Monetary Fund forecasts for sub-Saharan African growth for 2008 and 2009 were recently downgraded by between 1-2 percentage points to 5.5% in 2008 and 5.1% in 2009. This represents a reduction of up to USD 20 per head in sub-Saharan Africa due to the financial crisis.
Already, South Africa's major trading partners are struggling and this has resulted in a decrease in international trade. The demand for South African commodities is on the wane. Our manufacturing output has declined for five consecutive months and had its steepest fall in a decade. The meltdown in commodity prices has slashed jobs in the labour-intensive mineral sector.
The JSE has lost R56bn in outflows, and market capitalisation is down by a third.
Foreign investors are less likely to invest in emerging market currencies. Several emerging market currencies fell in double digits in 2008. For example, the Korean won fell 36%. The rand dropped 38%.
All of this creates a negative portent for economic growth. And that is why we have invited our three distinguished guests to share with us their expertise in crafting local solutions to a global problem.
The DA's main and overarching concern is the threat of job losses. 74 000 South Africans lost their jobs in the third quarter of 2008. Some trade union analysts predict that 310 000 jobs will be lost in 2009. Given that on average every wage earner provides for 8 to 10 dependents, these job losses will have a significant impact on our social and political fabric.
The DA's core economic objective remains the same: we want to create opportunity. That guides our response to the crisis. It is the focus of all our policies, because the only way to eradicate poverty is by expanding opportunity through sustained job-creating economic growth and a significantly improved education system.
We have clear policy alternatives designed to achieve this. Our economic policy promotes low inflation, a minimal budget deficit, lower taxation, a deregulated labour market, enterprise zones, and opportunity vouchers.
We also have a range of innovative proposals. For example, to assist new entrants into the labour market, we will provide all grade-12 school leavers with a wage subsidy of R3600 to subsidise employment for 12 months.
As we steer through the global economic crisis, the need to create opportunity must at all times be our compass.
The DA believes that any leftward lurch is bound to throw us off course. It will increase - not lessen - the fallout from the crisis.
I look forward to hearing our speakers' views.
Article by: www.politicsweb.co.za