Of course the adage of 'when the US sneezes, the world catches cold' will hold true, but the severity of the influenza will vary from one country to the next. From reading up on what the experts have had to say, it appears a confluence of factors in our favour will mean that we will be spared the worst. South Africa is insulated, but not immune to the germs.
These are the factors in our favour:
Exchange controls
These relics from our apartheid past are still around, but have been slowly and systematically relaxed over the past 14 years. They have shielded us from the worst of the global financial crisis by trapping liquidity within South Africa that may otherwise have been exposed off shore. Often perceived as a negative impediment on the free flow of money, these controls have played nicely in our favour.
"Thank goodness for exchange controls," Remgro chairman Johann Rupert said recently.
The National Credit Act
According to I-Net Bridge, investment expert David Shapiro says the authorities in South Africa need to be commended for implementing the National Credit Act (NCA) when they did, as the country can now manage credit better than many of their global counterparts. The NCA was designed to regulate the South African credit industry and to protect consumers from unscrupulous credit providers.
"Our NCA came into force ahead of the market crisis - if the US had such an Act they would never have been in this position," Shapiro was quoted as saying earlier this month.
We have had a budget surplus
The economy that the Government inherited in 1994 was running an unsustainable budget deficit of around 9% of GDP. This has been addressed over the past 14 years and in 2007, South Africa achieved its first ever budget surplus. A surplus means that the state has to borrow less and can make money available for investments. It also protects a country from inflationary pressures and provides a cushion against turbulence in international financial markets.
Although South Africa expected to maintain this surplus until 2010, the downturn in the global economy has forced this to be reviewed and it now appears that there will be a budget deficit next year as the Government increases spending to maintain economic growth.
Infrastructure investment
In his mid-term budget speech this week, Finance Minister Trevor Manuel announced a rise in Government borrowing to fund vast infrastructure projects that are aimed at attracting investment and reducing unemployment. Over the past few years, the country has moved from consumer-led growth to investment-led growth, which is far more sustainable in the long term.
In fact, it is the prudence that has been shown by Minister Manuel and the Treasury that will keep the economy growing over the next few years. The cautious approach that Manuel followed during the recent 15 years of global economic growth has enabled him to give the economy a boost when it was needed.
With countries such as Britain entering a recession (identified as a fall in GDP in two successive quarters), South Africa is expected to continue to enjoy economic growth of 3.7% this year. "Next year, we expect to grow by three percent, accelerating moderately in 2010 and beyond, as the global economy begins to recover," estimates Manuel.
Manuel also expects our inflation to drop to 6.2% next year, 5.3 percent in 2010, and 4.7 percent in 2011 which could lead to lower interest rates over the next few years.
Our banking system is world-class
According to the World Economic Forum, our banks are more sound than the Swiss (and the German, the British and the American banks)! The International Monetary Fund said this week that our South African banks are well capitalised and well regulated.
"The banking system in South Africa is boring and safe, which is a wonderful thing to have," Michael Power, an investment strategist at Cape Town-based Investec Asset Management, is quoted on Bloomberg.com. "There is little or no over-leveraged lending. Our banks didn't get involved in the geared shenanigans that U.S. investment banks got involved in."
Our property market is strong
According to Absa CEO Steve Booysen , our property market is in no danger of collapsing like the US real estate industry. Contrary to some international property markets bubbles that have burst, house prices in South Africa rose by 1.5% in September.
What about the Rand?
Our current account (trade) deficit is the main cause for concern as this has to financed with foreign capital inflows. The current global financial turbulence has placed the foreign capital inflows that are needed to fund the deficit at risk and this makes the Rand more vulnerable.
The Rand has taking a pounding recently, but not only as a result of the current account deficit. Almost all emerging market economies have been under pressure as investors have pulled their funds from countries with a perceived higher risk and repatriated the money within their own countries.
The depreciation of the Rand is not a reflection on the economic fundamentals of the country. Conversely, the US dollar, as the major international currency reserve, has strengthened - despite the dire outlook for the US economy.
If America enters another Great Depression, it would probably sweep through the rest of the World. That is beyond our control. The next two years are going to be tough, but at least we have done almost all we could have done to protect ourselves from America's financial germs. Far from catching pneumonia, we could just end up having a bad case of the sniffles.
By Ian Macdonald
Share it!
