Economy: looking forward to 2005
11 January 2005
"Excellent", "positive", "upbeat" were the buzzwords for many South Africans in 2004 as business and consumer optimism rocketed to new levels. It's a trend that is expected to flow over into 2005. In particular, the banking, telecommunications and mining sectors can expect an eventful year.
Economic boom
South Africa goes into 2005 with the blessing from the International Monetary Fund (IMF). In its country report released towards the end of 2004, the IMF praised the country's economic policies, giving the thumbs-up to the government's increased spending plans, efforts to consolidate foreign exchange reserves, and the fight against HIV/Aids.
2004 was also an excellent year for the rand, which has grown bolder against the mighty dollar. In the dying embers of 2004, it rallied to a six-year best of R5.665 against the greenback.
As the world's most actively traded emerging market currency, the rand goes into 2005 in the company of princes, having joined an elite club of 15 currencies where forex transactions are settled immediately, lowering the risks of transacting across time zones.
A number of surveys showed business confidence booming in 2004. The most recent, by the Cape Town Chamber of
Commerce and Industry, reports that even the manufacturing sector has shown improvements, despite the strong rand and competition from cheap Chinese imports.
Of the 4 500 business surveyed by the chamber, 16% of the respondents said trading conditions were excellent, while 43% said they were good.
Key improvements have been felt in tax breaks and tax incentives to create jobs, reduced interest rates, and accelerated skills development programmes. Less red tape and fewer restrictive labour laws for small businesses have also helped.
Analysts say
interest rates are likely to remain on hold for much of 2005, and that the inflation targets of 3-6% are well within reach.
In its last meeting for 2004, the monetary policy committee (MPC) left the Reserve Bank's repurchase rate unchanged at 7.5% - a move interpreted by many as reflecting a wait-and-see attitude, with consumer spending expected to spike during the Christmas season.
The MPC was upbeat about the long-term prospects for inflation, expecting the CPIX (consumer price index excluding mortgages) to peak lower than expected, at about 5% in 2005.
Trade relations
2004 saw some pivotal bi-lateral agreements signed and sealed. One of the most significant deals was the breakthrough in global trade talks at the World Trade Organisation, which saw developed countries promising to cut debilitating farmer
subsidies.
South Africa recently signed a trade pact with Swaziland regulating political, economic, social and cultural relations.
Although a minnow compared to other trading partners, the Swaziland deal is just one example of an outward-looking foreign trade agenda that is expected to continue through 2005.
Banking
2005 is looking good for the financial sector - in particular the banking industry.
Analysts predict the move by major UK banking group Barclays to acquire South Africa's biggest retail bank, Absa, will spark a scramble by foreign banks for a piece of the lucrative local banking pie.
Should Barclays succeed - and suggestions are that regulators will give the deal the thumbs up - analysts say it will pave the way for other foreign
acquisitions in the sector.
Telecommunications
2004 saw the South Africa's telecommunications industry shaken up by what industry pundits called the most significant development in the country's telecommunications history.
The "big bang" liberalisation, expected to kick in February 2005, will shake the monopoly of Telkom, South Africa's only national fixed-line operator - and could spell cheaper phone calls for consumers and create new opportunities in the Internet industry.
A key change to the current regulations is that value-added network service providers will be permitted to carry Voice Over Internet Protocol (VoIP). As a result, consumers will be able to make international calls for significantly less than a Telkom call.
At the same time, moves to ease restrictions on commercial radio ownership, new assets becoming available with the unbundling of media group New Africa Investments Limited, and buoyant advertising revenues means the radio industry moves into exciting times in 2005.
The easing of ownership restrictions is expected to pass into law in Parliament's first session of the year, which analysts say could stimulate more mergers and acquisitions.
Communications authority Icasa's recommendations include raising the limit on foreign ownership of commercial radio stations from 20% to 25%, and limiting a single entity to owning no more than 35% of all licensed commercial radio stations and controlling no more than two stations in overlapping licence areas.
Mining
2004 was a good year for bullion, even
though some of the lustre was wiped from the precious metal towards the end of the year. Gold saw increased investor interest amid global conflict, high energy prices and a weak dollar.
But steel also showed its mettle, and should continue to into 2005.
According to UK steel consultant Meps, 2004 has been the most tumultuous year that the world's steel markets have ever seen. Production of crude steel exceeded one billion tons for the first time, with steel consumption at record levels.
The year ended with the average price for flat rolled steel products at an all-time high of US$724 a ton.
One of the most significant moves in the sector this year saw steel producer Ispat Iscor bought up by newly formed Mittal Steel, resulting in the world's biggest steel maker.
SouthAfrica.info reporter
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