Lee-Roy Chetty
Lee-Roy Chetty

SA’s woes will ripple through region

Growth in sub-Saharan Africa has remained generally robust against the backdrop of a sluggish global economy. Regional output is projected to expand by at least 5% in 2012 to 2013, a similar pace to that recorded in 2010 to 2011.

That being said, there is significant variation across the region, with solid expansion being recorded in most low-income countries, but growth slowing in middle-income countries that are tracking the global economy and in some countries affected by drought and political instability.

The regional outlook for the region is subject to downside risks, stemming from the uncertain global economic environment.

Against this backdrop, the regional importance of a strong and robust South African economy will prove paramount to the future growth of the region in the coming decade.

South Africa is the largest economy in sub-Saharan Africa, accounting for nearly 30% of the regions gross domestic product (GDP).

Our country is also an essential export destination for a large number of countries in sub-Saharan Africa. For example, according to a 2011 International Monetary Fund (IMF) report, merchandise exports to South Africa in 2010 amounted to more than 1% of GDP for 13 countries.

In addition South Africa’s partners in the Southern African Customs Union (Sacu) are the most reliant on South African markets as an export destination. The South African market is also important for several countries further afield, mainly in the broader Southern African Development Community (SADC) region.

South Africa also features significantly as a supplier of imports than as a destination for exports for almost all sub-Saharan African countries. On average South African exports to sub-Saharan African countries amount to 6.4% of South Africa’s GDP, approximately double its imports from the region.

In nearly half of the SADC region economies, imports from South Africa amount to more than 1% of the importer’s GDP.

Imports from South Africa account for the bulk of imports in other Sacu members, which include Botswana, Lesotho, Namibia and Swaziland as well as to at least 10% of domestic GDP in Malawi, Zambia, and Zimbabwe.

Exports to the rest of sub-Saharan Africa account for roughly 25% of South Africa’s merchandise exports, consisting in large part of manufactures.

South Africa also plays a fundamental role in the source of foreign direct investment in sub-Saharan Africa.

In 2011, the value of South Africa’s direct investment in the region had reached 6% of South African GDP — almost one-fourth of total recorded foreign investment by South Africa. Investments in Mauritius (in large part as a gateway to other countries) and Nigeria have been particularly important in increasing South Africa’s exposure in sub-Saharan Africa.

South African-based banks have opened subsidiaries in 16 countries in sub-Saharan Africa. In 11 of those countries, South African subsidiaries are among the five largest banks. Most of these banks fund their operations with local deposits; cross-border loans are typically modest, with a few exceptions.

Non-bank financial services, including insurance and wealth management, are also provided across the region by South African firms, while the spread of large South African retail companies has provided a significant conduit for goods and services from South Africa, mainly in the SADC region.

South African-based mining companies have also expanded operations into several countries in the region, in part reflecting declining mineral stocks in South Africa itself. Ownership in these firms, typically listed on several exchanges, including elsewhere in sub-Saharan Africa, is highly diversified.

South Africa also provides refuge and access to opportunities to a large amount of immigrants and temporary workers from sub-Saharan Africa.

However, growth in South Africa is set to slow to about 2.5% in 2012.

Deteriorating conditions in the world economy could have a further knock-on effect on South Africa’s growth forecasts and could quickly spill over into slower growth in sub-Saharan Africa.

Assessment of the potential impact of a global slowdown on the region points to a likely reduction in the regional growth rate of about 1% a year, depending on both the severity and the duration of the global downturn.

The impact could be more severe on individual countries, especially those where exports are un-diversified and policy buffers are low. Although most sub-Saharan African countries have rebounded from the recession, many of them have been slow in rebuilding fiscal positions that weakened during the downturn. If growth remains as robust as envisaged, policymakers in fast-growing economies should move to rebuild fiscal and external buffers, without unduly affecting key social and capital spending. One route to strengthening fiscal positions would be to initiate actions to reduce costly and poorly targeted energy subsidies.

Were the global economy to experience a significant downturn, with knock-on effects on sub-Saharan Africa, policymakers in many countries would be constrained by limited policy space to respond.

Avoiding pro-cyclical fiscal contraction is imperative if the slippage in deficit levels can be financed; official external financing, from both bilateral and multilateral sources, may be needed to help low-income countries facing tight financing constraints as budget and export revenues fall.

But there are also many countries that will be able to manage a downturn via a mix of fiscal, monetary and exchange rate measures — the appropriate mix dependent on exchange-rate arrangements, the ability to finance wider deficits and the inflation situation.

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  • 4 Responses to “SA’s woes will ripple through region”

    1. Yaj #

      Given that we are firmly in the era of Peak Oil i.e the permanent end of cheap oil -a global downturn in business-as-usual is inevitable. Economic growth as we knowit is no longer sustainable.

      http://www.aspo.org.za

      November 6, 2012 at 1:04 pm
    2. Mandela and Mbeki were Communist Pan Africanists – Zuma inherited their mess

      All the Opposition Parties are hypocrites. Zuma acts on instructions of his mentor, Mandela. Eulogising Mandela and Condemning Zuma is hypocritical.

      Mandela’s version of Ubuntu IS exactly the same as Communism (all peasants are “equal” to all landlords), and not surprisingly has had the same result of a corrupt elite and a corrupt society. What is more Mandela told P W Botha and F W De Klerk that he was STILL a Communist! He told the whole world the same thing in his very first speech on his release from prison.

      Ubuntu simply means MY Family/Clan/Tribe/Nation First and is universal human nature. Without a belief system like the 10 commandments it leads to exactly what we have now.

      Thabo Mbeki never said “I am a South African” did he? He said “I am an African” – except that as a detribalised Fingo he knew absolutely nothing about Africa, its Tribes, its History, or its Cultures. His version of an “African” was based entirely on Black American History and the mythical version of Africa fantasised by Black American authors.

      November 10, 2012 at 6:48 am
    3. The detribalised Fingo, like Mbeki and Bishop Tutu, have no tribal holiday/retirement homes like the Xhosa tribalist Mandela at Qunu, and the Zulu tribalist Zuma at Nkandla.

      They have no identity, don’t know what their tribal customs were, and have lost their languages, because their tribes were killed by the Zulu Kings Shaka and Dingaan in the Mfecane. They bitterly resented the Afrikaner for taking away the land the British had given them and telling them they were Xhosa – especially since they had fled to the Brits for refuge from slavery under the Xhosa. The reason they were called Fingo was that the tip of the little finger of the left hand was cut off to mark them as slaves/servants of the Xhosa. The Xhosa King Hinza called them “the Hungry People”.

      November 10, 2012 at 7:14 am
    4. Buthelezi, like Mbeki,also does not identify as South African
      Like Mbeki identifies as African and not South African, Buthelezi identifies as Zulu and not South African.

      Both in 1979 when Buthelezi refused to join the armed struggle, and recently when he withdrew from contesting the position as leader of the Traditional leaders, Buthelezi gave as one of his reasons that he did not “want to divide the Zulu Nation”. Never once has he identified with a South African nation.

      Coloured, Indian and White South Africans see themselves first as South Africans. And I would not be surprised if this lack of national identity is one of the main causes of Africa’s problems.

      November 10, 2012 at 8:44 am

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