Limpopo Leader - University of Limpopo

World economic crisisMBOWENI SPEAKS ON TURFLOOP CAMPUScrude oil futures prices are currently around US$54per barrel for delivery in the second quarter of 2009.South Africa’s export commodity price indexcontinued to recover through February 2009, althoughit remains much lower than the record highs registeredin early 2008. Inflation projections for advancedeconomies as well as emerging-market and developingeconomies were revised downwards for 2009 in theforecasts released by the IMF in January 2009,moving up again only in 2010.Meanwhile, South African banks had recordedstrong asset growth in recent years. Total bank assetsamounted to R3,2-trillion in January 2009, rising fromR2,7-trillion in January 2008, reflecting a growth rateof 20 percent over twelve months. This rate had nowslowed. Government revenue, boosted in recent yearsby improved tax compliance and administration, willalso decrease as economic activity slows, unemploymentrises and disposable income drops.Against this general background 1 of short-termgloom with brighter prospects for 2010, Mboweniprovided a set of specific interpretations to guide hisaudience to a more practical grasp of the crisis.He started by stressing that the global economywas inextricably integrated. What happened in onepart of the world affected other parts. He gave asan example the case of South Korea. That heavilyindustrialised country depended for its economicstability on the export of manufactured goods. If theUnited States, one of South Korea’s major exportmarkets, goes into recession, then demand for SouthKorea’s products lessens. Now add to this lesson incause and effect the fact that South Korea buys a lotof its raw materials from South Africa. Inevitably,South Korea’s raw-material demand is reduced, whichin turn means that South Africa will need to reduceraw-material production, which ultimately willtranslate into job losses in South Africa.‘We’re living in a connected world,’ Mbowenisaid. ‘There is no exclusively South African way ofdealing with the crisis. We’re part of hugeinterdependencies. That’s what it means to be partof the global economy.’In consequence of these interdependencies,developing countries will not be able to escape theeffects of the crisis. African countries will definitely notescape, Mboweni said. However, they could alleviatesome of their vulnerability by reducing their relianceon development aid and by fighting the corruption intheir governments. He referred, as an example, toNigeria as ‘a potentially rich economy’, but thenalluded to the recent theft in a Nigerian port of anentire oil tanker.‘There’s a lot to be done in Africa,’ he told hisaudience. ‘Budgets and currencies in circulationshould relate to production levels. Corruption acrossthe continent will have to be stamped out, and selfsufficiencyaimed at. The continent must stopdepending on handouts from the developed world.’Mboweni said that the bulk of South Africa’snational budget was increasingly becomingindependent of remittances by forgeign donors.Budget deficits were not funded by the InternationalMonetary Fund, but by borrowing through openmarket transactions. The point, however, was not toallow large budgetary deficits. That meant livingwithin one’s means. Over recent years, South Africahad moved from large deficits to small deficits, and toa target of breaking even, or even to a small surplusas had occurred in the last financial year (2007/08).‘To run a big deficit now would not be sensible,’ hesaid. ‘It’s not a good time to go to the Sovereign BondMarkets: the recession has pushed up interest rates.’A member of the audience asked whether it wasa good idea to bale out industries such as the automobilemanufacturers. Mboweni replied by saying that‘no amount of state money will reverse shrinking orderbooks’. The industries themselves – management andlabour – should make their own arrangements to copewith reduced production. Shortened hours of work, jobsharing, and other solutions needed to be developedbefore actual job losses were incurred.‘Instead of trying to support ailing industries weneed to improve consumer confidence,’ Mboweniasserted. ‘This will take a while, and in the interim joblosses will be inevitable. Fortunately, in South Africa,the current high levels of public works – for example,the construction of the Gautrain and other 2010 infrastructure– will help with employment for a time. Butthe world economic crisis will be accompanied by1 Dorcas Manzini of the University of Limpopo Communications Department collated the background facts used in this coverage of GovernorMboweni’s lecture.P A G E 1 2