South Africa’s economy is bleeding jobs as the powerful commodity-driven rand hurts exports and cuts growth, analysts say.
”The strength of the rand and a global economy that is not yet back at full steam leads us to caution against expectations of a speedy return to GDP growth in excess of three percent in 2004,” said John Loos, an economist with Absa bank.
According to the official Statistics South Africa (Stats SA), gross domestic product (GDP) — the output of the country’s goods and services — rose 1,1% in the third quarter, compared with 0,5% in the second and 0,9% in the first.
Growth was likely to remain weak in 2004, analysts warn.
The economy shed about 57 000 non-farm jobs between March and June, with about 37 000 jobs lost in construction, government figures showed last week.
The commodity-driven rand, which hit a 44-month high of 6,39 to the dollar last Wednesday, is worrying local producers, who are not only earning less export income, but also facing stiffer competition from importers who are able to offer their products at cheaper prices.
Two of the latest companies to feel the rand’s pinch on profit margins are industrial group Tongaat-Hulett and Anglovaal Mining.
Tongaat warned that it expects to report a loss when it releases its annual results in February next year, while Avmin made a similar warning.
South Africa’s mining industry, which makes up 40% or R480-billion ($75-billion) of the Johannesburg stock exchange and contributed 8,1% to GDP in 2002, has warned that the rand’s continued strength could put an
estimated 120 000 mining jobs at risk.
Labour-intensive industries such as the export-biased manufacturing sector, which contributes 18,2% to GDP, also continued to contract in the third quarter.
Manufacturing contracted by 1,7%, after contracting by 4,5% and 4,7% in the two previous quarters.
Another labour-intensive area, agriculture, also continued to slump, driven weaker by drought conditions in northern South Africa.
Growth in this sector contracted by 21,8%, after contractions of 5,6% and 19,4% in the previous two quarters.
South Africa has experienced a steady rise in jobless workers in recent years. According to Stats SA, the number of unemployed grew by 2,4-million between 1995 and 2002. About 30% of the country’s potential work force are unemployed.
The effects of the stronger rand, however, have helped curb inflation, which had rocketed after the rand reached a record low of 13,85 to the dollar in December 2001, and led to interest rate cuts.
Stats SA said inflation dropped to an annual rate of 1,5% in October, from 3,7% in September.
Iraj Abedian, an economist with Standard Bank, said inflation had been driven downwards in October by lower fuel and vehicle costs.
”Thanks to lower fuel costs and subdued vehicle pricing, transport costs subtracted pressure from consumer inflation last month,” he said.
The main inflation drivers were food prices, which rose 2,4% in October from September.
With the decline in inflation, South Africa’s central bank has slashed five percentage points off its lending rate this year in four moves that have put the rate at a 17-year low of 8,5%.
Economists expect the bank will lop off another percentage point before the end of the year.
”We can see from the effect the lower rate is having from the improved quarter three growth figures, but another cut would do a lot to stimulate economic activity, which is what South Africa needs at the moment,” said a Cape Town-based economist, who asked not to be identified. – Sapa-AFP