Economy


SA 'must strengthen industrial base'

19 June 2012

South Africa must strengthen the industrial arm of its economy if it is to successfully weather the fallout from the Eurozone crisis, Trade and Industry Director-General Lionel October said at the first in a series of dialogues on the economy to be held around the country.

The first quarterly Economic Policy Dialogue was hosted by the Department of Trade and Industry (DTI) and the University of the Witwatersrand (Wits) in Johannesburg on Monday.

October said the crisis unfolding in the European Union (EU) - SA's largest trading partner - made having a robust industrial sector all the more important.

"Why is there differential performance in the Eurozone? Why are some countries doing well and others failing? ... Those who are surviving are those who have a robust industrial base," October said.

SA 'must have a coherent response'

"South Africa must have a coherent response so as not to suffer a knock as we did [in the last global recession]."

October said the DTI hoped the dialogue would spark meaningful and relevant debate that would forge a deeper understanding of the situation in the Eurozone.

"We need to understand the real causes of this crisis," October said, adding that the analysis of the situation to date had been tantamount to a "blame game", in which the finger was pointed at external factors.

The session comes as the country and the international community formulate responses to the Eurozone crisis, with the results of Greece's parliamentary elections being welcomed as a show of that nation's desire to stay in the Eurozone.

Greece's New Democracy party, led by Antonis Samaras, claimed victory in Sunday's parliamentary vote by 29.66%, beating the 26.89% of the radical left Syriza, which is strongly opposed to the austerity measures that are to be imposed as part of that country's debt bailout.

Citing the case of Germany, the leader of the Northern European creditor nations, whose economy has a strong industrial base, October said South Africa had to be prudent in the steps it took to cushion itself from the imminent ripple effect.

South Africa lost approximately one million jobs following the global financial crisis of 2008-09, the bulk of which were in the manufacturing sector, which remains the country's second-largest, contributing over 15% of total output and 13% of non-farming jobs.

'The world has become a village'

Globally, over 30-million people have lost access to a secure income as a result of financial instability - a cause of great concern for chief economist and Global Head of Research for the Standard Bank Group, Goolam Ballim.

Addressing Monday's session, Ballim partly attributed the current crisis to several factors, chiefly high levels of indebtedness in developed nations, trade imbalances, and an ageing population in European countries leading to a shrinking workforce.

Ballim said there were key lessons for South Africa to take from this economic crisis. He noted the extent to which decision-makers in the global financial system inadequately took into account what experts often referred to as "network externalities".

"We failed to understand the manner in which the world has become a village ... Over the last 40 years, the movement of goods, money and services has become more fluid," Ballim said.

He said the extent of "imperfect and incomplete" information accessible to market participants exacerbated the situation, often leading to risks being miscalculated.

SA 'must strengthen trade links with Africa'

In order to strengthen its position in an ever increasingly competitive global market, Ballim urged South Africa to strengthen its trade links with the rest of the continent.

He said that over the last 10 years, South Africa's trade with the rest of Africa had surged from around R70-billion to R220-billion, with a trade surplus of R40-billion (excluding the Southern African Customs Union countries).

However, he noted that South Africa had great scope for exporting value-added products, as over half of the country's exports to the continent were industrial based.

Domestic investment 'as important as FDI'

Echoing Ballim's sentiments, Professor Gabriel Palma, a senior lecturer at the Faculty of Economics at Cambridge University, said South Africa had to foster a culture of home-grown development before looking to external sources of stimuli.

He cautioned against a heavy reliance on foreign direct investment (FDI) while the domestic investment rate remained low.

"Don't expect FDI to do what you cannot do domestically," Palma said, adding that it was an uncertain source of funding.

He said the Eurozone crisis had forced the world to look at the global financial system with a fresh set of eyes, as the "boundless" manner in which institutions were willing to lend - and cheaply - made it possible for a country like Greece to borrow at unsustainable levels.

"Finance only works when it's linked to the real economy. When that link is broken, you have [the situation] we have today," said Palma.

Source: BuaNews

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