Economy can grow with business ease

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IOL economy arrows Filomena Scalise

Johannesburg - South Africa's economy can grow if the ease of doing business in the country improves, Investec said on Tuesday.

“The ease of doing business in South Africa has deteriorated...(with) heightened strike action and proliferating regulations, resulting in the falling growth trend since 2012,” group economist Annabel Bishop said in a statement.

“Domestically, political and state focus needs to return to economic growth, and so a reduction in work stoppages caused by strikes and insufficient electricity.”

According to Statistics SA, the country's economy grew by 0.6 percent in the second quarter of 2014.

This was compared to a 0.6 percent decrease in the real Gross Domestic Product (GDP) in the first quarter of the year.

The GDP is the total value of goods and services produced in an economy in a certain time period.

Main contributors to the increase in the second quarter of 2014 were general government services and the transport, storage, and communication industry, each contributing 0.4 of a percentage point, and finance, real estate, and business services with 0.3 of a percentage point.

Sectors which experienced declines included the mining and quarrying industry, with a 0.4 percentage point decrease and the manufacturing industry, with a 0.3 of a percentage point decrease.

Nominal GDP at market prices in the second quarter of 2014 was R891 billion, which was R17bn more than the first quarter of 2014.

Bishop said regulatory reform, specifically a reduction in red tape and reduced state intervention in, and ownership of, the economy was needed to triple the size of the private business sector.

“Only through improving the ease of doing business in South Africa, including adding the vital component of flexibility to the labour market, will South Africa be able to triple the size of the private business sector and sustainably raise economic growth above five percent.”

Sanlam economist Arthur Kamp said the improvement in real GDP reflected the fact that both mining and manufacturing production fell at slower rates in the quarter - as opposed to a meaningful improvement in underlying growth dynamics.

“Apart from agriculture, construction, transport, storage and communication, the softness in growth was broad-based among industries,” Kamp said.

“Looking ahead, hopes for an improvement in the level of real economic activity into 2015 are pinned on an expected improvement in real net exports, given the sharp fall in South Africa's real effective exchange rate since its peak in late 2010.”

He said that amid “labour disputes, soft profits growth, modest productivity outcomes and depressed terms of trade”, the economy was likely to be constrained to growth of around 1.5 percent in 2014.

Nedbank said that although South Africa avoided a recession, by having the GDP shrink in two consecutive quarters, conditions remained weak and confidence was still very fragile.

“The risk to the growth outlook therefore remains firmly on the downside. At the same time, inflation has turned the corner, helped by a slightly firmer rand and falling food prices,” it said.

“Consumers are generally expected to remain cautious given pressure on household income, rising debt service costs and a deteriorating job market.” - Sapa



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