South Africa: Economy might feel chill from Greek crisis

Currently, the biggest concern haunting the Middle East and North Africa (MENA) region is the ongoing European crisis. Since MENA depends heavily on exports to Europe, the crisis is now expected to negatively impact the region. To counteract the fallout, South Africa will focus on stepping up its foreign direct investments.

Meanwhile, both the Egyptian and Moroccan economies positively performed in the first quarter, with Egypt’s GDP expanding 5.8% and Morocco’s GDP increasing 4.6%

It appears the foul winds of the ongoing European economic crisis might blow over to South Africa as well. According to Finance Minister Pravin Gordhan, the country “will no doubt feel some of the effects of the uncertainty in financial markets and possible downturn in trade again over the period ahead.” To counteract the fallout from the recession, Gordhan said that Foreign Direct Investments (FDI) to South Africa should be given a boost. This will result in development of infrastructure, manufacturing industries and employment opportunities. To encourage a recovering economy, South Africa is seeking $16 billion worth of FDI by 2013. “Targeted potential sources of FDI will include China, India, Russia, Brazil, Japan, the USA and Middle East,” said Rob Davies, Trade and Industry Minister.

 

To compound South Africa’s worries, a transport strike has been holding the country in its grip since May 10, paralyzing the everyday workings of the country. The members of the South African Transport and Allied Workers Union (SATAWU) and the United Transport and Allied Trade Union (UTATU) represent 85% of the state-owned transport group, Transnet. Transnet’s conciliatory offer of an 11% hike has been turned down by the workers, who are demanding a 13% pay hike. With port, freight and rail operations coming to a standstill as the strike continues indefinitely, exports of metal, fruit, wine and other goods to key markets like Europe and Asia have been badly hit.

Still, South Africa posted a trade surplus of $62.5 million in March, showing signs that the economy has incredibly rebounded from the recession. Trade was boosted as vehicle exports were on the rise, and South Africa stepped up coal supplies to China and India. Asian economies are building more power plants, which are fueling the demand for coal. India’s purchases increased 27% in the first quarter of 2010 year-on-year, while China’s bill was 38% more. Overall exports went up 28% in March compared to the previous month, as mineral products shipments including coal shot up along with vehicles, aircraft and precious metals. Imports rose 11% due to demand for machinery, chemical and rubber products.

The Purchasing Managers Index (PMI) dipped marginally for the second consecutive month in April to 55.2 from 55.6. Most importantly, the PMI remained above the 50 mark, which indicates that industrial production on the whole has not been much hampered.

Consumer inflation dipped to 5.1% year-on-year in March compared to 5.7% in February, the lowest in nearly four years. A strong rand and a healthy harvest helped curb the increase in prices to a mere 0.8%. South Africa will likely reap its biggest corn harvest in 28 years, amounting to 12.96 million tons. Backed by a surging rand that has kept inflation within the government’s target range of 3% to 6%, the Reserve Bank is expected to leave the benchmark interest rate at the current 6.5% for now, according to Governor Gill Marcus.

However, a rise in unemployment has pushed up hopes for a rate cut. South Africa shed 171 000 jobs in the first quarter of 2010, with the majority of the losses in the construction industry, as projects were reaching completion before the upcoming football World Cup, beginning in June.

Πηγή : thomaswhite.co

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