Tomorrow’s so-called mini-budget should be an opportunity to curtail state expenditure more, Cope finance spokesman Nick Koornhof said yesterday. “It is time to stop kicking the cans down the street and pick them up.”
He noted: “Under President Jacob Zuma’s administration, South Africa has sustained its first credit rating downgrade, public debt has doubled… we struggle with a double (current account and fiscal) deficit, our state wage bill is too high, the auditor-general is not a happy man because of bad audits… service delivery protest is the norm… and we have just had another record year for strike durations and our currency is volatile
Finance Minister Pravin Gordhan, who presents the medium-term budget policy statement and 2013/14 Budget adjustments tomorrow, had run out of fiscal space.
Koornhof suggested that “this hold on spending”, announced last year, should remain strong. In the run-up to the 2014 national election, Gordhan should not allow any room for expenditure to increase. “In fact, it must be curtailed”.
His decisive leadership on this issue must be clear in the mini-budget, Koornhof said. “Out debt is just manageable, but higher than the other emerging markets… our fiscal deficit is the second highest among emerging markets. These two factors should make the finance minister very cautious as it makes investors not… consider us as an investment destination. The finance minister must address this head on.”
Gordhan should – as he had done in the February Budget – once again show leadership and put real emphasis on the National Development Plan. He should not “slip in a few cheap policies for votes”. South Africa would pay the price if that happened, Koornhof warned.
New Growth Path
A Cope MP, Graham MacKenzie, has asked Trade and Industry Minister Rob Davies whether his department had any plans in place to improve exports in line with the recommendations of the New Growth Path, which called for a weaker rand so that exports could grow
In a written reply, Davies said the New Growth Path acknowledged that the previous strong rand permitted reductions in the interest rate, contributing to rapid credit creation, as well as cheaper imports, “but it also contributed to lower profitability and lower competitiveness in manufacturing, agriculture and other tradable goods sectors”. It had generated a consumption boom that was “largely restricted to South Africans in the upper income group”, Davies argued. “The New Growth Path also acknowledges the persistent balance of trade deficit funded with capital inflows,” he noted.
The central bank had earlier this month noted that South Africa was vulnerable to capital reversals because of “persistent current account and fiscal deficits”. Thus it was stressed that there was “an urgent need for South Africa to increase its exports if it were to address its balance of payments problem as bond flows into emerging markets had become more fickle”.
The Department of Trade and Industry had a critical role to play “in ensuring that exports are increased in key labour absorbing sectors such as agro-processing, infrastructure and construction, mining, the green economy and manufacturing sectors, as highlighted in the Industrial Policy Action Plan”.
While Davies expected that the traditional export markets of Europe and the US would remain “subdued in the years to come”, the focus had shifted to Africa, the Bric countries, Asia and the Middle East.
The department was working with the Japan External Trade Organisation to roll out exports of food products, the Hong Kong trade and development council to showcase South African jewellery and precious stones, the South Korean trade and investment promotion agency to promote the luxury boat sector, and with China to “shift away from commodity-related products to value-added goods and services”.
Former US Federal Reserve chairman Alan Greenspan told the BBC in a recent interview that he had been shocked that the “Fed’s very sophisticated model completely missed [the crash on] September 15, 2008”.
That was the date on which the fourth largest US bank, Lehman Brothers, filed for bankruptcy. Stock markets fell after the collapse, with the Dow Jones industrial average tumbling from 11 422 ahead of the event to a trough of 6 547 on March 9, 2009.
Greenspan said he was not alone in missing the signs. “So did the International Monetary Fund (IMF), and JPMorgan, which was forecasting American economic growth three days before the crisis hit, going up all through 2009 and 2010.”
Though Greenspan had warned of looming trouble, he explained to the BBC that his words of warning had to be carefully couched. “I was very worried about what the impact would be.”
Greenspan had been issuing warnings since December 1996. In an after dinner speech, he asked: “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?”
Stock markets fell the next day, on fears that the Fed might hike interest rates. The site PBS.org recounts: “In Japan, the Nikkei index dropped 3.2 percent; in Hong Kong, the Hang Seng dropped 2.9 percent; and in Germany, the DAX dropped 4 percent. In London, the FTSE 100 index was down 4 percent at one point during the day, and in the US, the Dow Jones industrial average was down 2.3 percent near the beginning of trading.”
However, investors soon regained their equilibrium, driving stock markets into the tech bubble that burst early in 2000 and the banking crisis of 2008.
Speaking to the BBC, Greenspan observed ruefully that there was a difference between predicting economic bubbles, and predicting when they might burst.
Edited by Peter DeIonno. With contributions from Donwald Pressly and Ethel Hazelhurst.