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You are here: Home Features The Latest Features Featured March 2010 The year of tightened belts
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The year of tightened belts

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The year of tightened beltsThe annual Econometrix conference is an important one for South Africa’s business community. STUART MOIR was there to find out what the experts make of Pravin Gordhan’s budget speech and the year ahead.

Like so many other countries, South Africa experienced a reduced investment rating last year with the Rand depreciating by 3.9%. According to Dr Azar Jammine, director and chief economist at Econometrix, South Africa’s budget deficit is now the biggest in 17 years.

For Jammine, skills development remains crucial to economic stability. However, he warns that this cannot be rectified simply by creating jobs. “First, the employee needs to be worth employing,” he maintains. With companies required by law to set aside the equivalent of one percent of their payroll for skills development, Jammine believes they should implement training programmes from which they will eventually benefit, investing the levy in-house.

Jammine was quick to praise Finance Minister Pravin Gordhan and Government for the way in which they have handled the recession. “South Africa’s debt situation is still preferable to that of many more advanced economies,” he said, adding that the budget has strengthened confidence in South Africa’s macro economic policies. Yet we continue to import a lot of what we consume. “This means that the manufacturing sector is thriving on the export market rather than on local consumption,” says Jammine. Unfortunately, due to widespread corruption private sector investment has collapsed, which naturally affects local markets.

2010 will see the implementation of a carbon emissions tax, set to come into effect in September. According to Tony Twine, director and senior economist at Econometrix, although this tax will initially be placed on passenger cars, commercial vehicles will follow. There will also be an increase in the fuel levy to cover, amongst other things, higher contributions towards the Road Accident Fund. Jammine predicts that this will impact significantly upon the petrol price, which is expected to rise by 25.5 cents/litre on 7 April 2010.

According to Twine, while the vehicle manufacturing sector is showing signs of recovery with improved employment levels and an in-flow of foreign capital, it is nevertheless still vulnerable. According to Jammine, lower interest rates in the Chinese vehicle finance market have driven a 76% increase in car sales in that country as part of a strategy to speed up economic recovery. South Africa, on the other hand, has tended to follow trends in the United States, both during the boom period, when consumer confidence was at its highest peak, as well as when the bubble burst.

In the view of George Glynos, managing director of ETM, budgets are not a snapshot but a process. “And this is a political process not an economic one,” he elaborates. “Revenue is determined economically, but spending is determined politically.” Glynos believes we can expect more of the same this year although, on a plus note, a lot of the country’s spending has been on roads and infrastructure: good news for the transport industry.

While the Rand is driven largely by offshore rather than local events, Jammine believes that South Africa - like many emerging economies - is actually under-borrowed. “Our country’s sound macro-economic policies have placed us in a position where we have very little foreign debt when compared to other countries,” he asserts. Now, according to Glynos, South Africa will need to borrow in order to complete projects and remain on course with infrastructural developments.
 

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