With imports outpacing exports and a growth rate=20 that’s just not good enough, South Africa has to face real economic challenges, reports Reg Rumney Old Mutual chief economist Dave Mohr injected a note of realism=20 into the economic outlook recently by pointing to the revealing=20 example of South Africa’s share of total exports from developing=20
That share continued to drift down during the early 1990s despite=20 the demise of sanctions. It should come as no surprise that the annualised growth rate of=20 more than six percent achieved in the second half of last year, as a=20 successful election spurred business and consumer confidence, has=20 fizzled out.=20 The forecast growth rate for this year is a welcome, but still=20 modest, real or adjusted-for-inflation three percent, as measured=20 by gross domestic product. That is by no means enough. Chairman of the giant Anglo American Corporation conglomerate=20 Julian Ogilvie Thompson sketched the economic challenge in his=20 recent annual chairman’s statement. Not only must the rate of economic growth increase above the rate=20 of population growth of around 2,5 percent a year, but it must be=20 done in ways which gradually absorb the large pool of those=20 already jobless as well as new entrants to the job market. ”Indications are that the current upturn has also yet to make=20 serious inroads into the number of new job seekers coming on to=20 the market, let alone reduce the existing pool of the=20
The problem can be shown by reference to the rate of labour=20 absorption achieved in past phases of economic growth. If the capacity of the economy to absorb labour in an upswing=20 remains the same as it was in the 1980s and early 1990s, a growth=20 rate of three percent would mean that the number of employees in=20 the formal sector would increase by the year 2000 from just under =20 eight million now to only about 8,5-million. A five percent=20 growth rate would increase formal employment to only around=20 * ine million. Ogilvie Thompson says flexible labour markets, further=20 deregulation and encouragement of small business could increase=20 * abour absorption by 30 to 40 percent. If so, a five percent growth=20 rate could increase the number in formal employment to perhaps=20
Ogilvie Thompson’s remarks coincide with the moderate=20 approach to labour now being advocated by no less a free-market=20 oriented organisation than the World Bank (see page B5).=20 In South Africa the union movement has been pushing for less=20 flexibility, through its proposed amendments to the draft labour=20 bill, specifically the insistence on compulsory centralised=20
The other problem that has popped up has been the re-emergence,=20 for the first time since=20 PW Botha’s finger-wagging Rubicon speech, of a deficit on the=20 current account of the balance of payments. That was followed by big surpluses, as growth was curtailed=20 through the remainder of the 1980s to keep imports in check, so=20 that export revenue could finance the continuous capital outflow. Export surpluses have easily been turned into import surpluses. Without the barrier of sanctions and the need to run a siege=20 economy, South Africa’s export performance can now be seen for=20 what it is. For two months this year so far the trade balance has=20 been in the red as the value of imports outpaced exports.=20 Moreover, imports rose 28 percent from R60-million in 1993 to=20 R76-million in 1994: exports rose only around 11 percent to R89- million. The pattern looks set to continue this year. The result is a deficit on the current account of the balance of=20 payments, estimated by First National Bank economists at R10- billion, or two percent of GDP, balanced by a capital account R15- billion in the black. Nedcor forecasts a deficit of R8-billion. A reason for hope here is that, according to Nedcor economist=20 Kevin Lings, the deterioration in the trade balance last year was=20 mostly linked to the revival in fixed investment spending. In the absence of higher national savings, First National reckons=20 annual foreign capital inflow of $4-billion, or three percent of=20 GDP, may be necessary for some years. While this itself is not a=20 dangerous proposition, such foreign funding should be used to=20 strengthen the economic structure through productive investment.=20 FNB notes limited reason for optimism that favourable structural=20 changes are being achieved. The good news is that the nature of the problems economists and=20 businessmen now contemplate has changed. After the unbanning=20 of the ANC, business fears centred=20 on nationalisation and a populist explosion of government=20
Government spending remains a problem, but it is a mediocre=20 economic performance and an apparent reluctance by some ANC=20 politicians to be seen to embrace too openly market-friendly,=20 rather than espousing anti-business, policies which cause most=20
A case in point is Telecommunications Minister Pallo Jordan,=20 who ruled out competition with State monopoly Telkom this=20 week, as well as privatisation. In Telkom’s own annual report its=20 management admits to preparing itself for competition, perhaps=20 showing more realism.