Surviving the Storm: What enabled South Africa to weather the global financial crisis relatively smoothly and how well is it positioned going forward?
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Surviving the Storm: What enabled South Africa to weather the global financial crisis relatively smoothly and how well is it positioned going forward?
- 1. Surviving the Storm What enabled South Africa to weather the global financial crisis relatively smoothly and how well is it positioned going forward? Rafael Burde
- 2. What I looked At Real Trade Top 10 Export Partners by Value Growth Comparison Below ave. pre-crisis; above ave. post Above ave. pre- & post-crisis 100% ZAMBIA 90% 10 CHINESE TAIPAI 80% 8 Share Within the Top 10 Post-Crisi Ave Real Growth (%) ('08-'12) 12 BRIIC Average(s) 6 4 2 0 2 4 6 8 10 12 INDIA 60% ZIMBABWE 50% AUSTRALIA SPAIN 40% BELGIUM 30% SWITZERLAND 20% ITALY 10% Above ave. pre-crisis; below ave. post Below ave. pre- & post-crisis KOREA 70% CHINA, PR MAINLAND 14 NETHERLANDS 0% Pre-Crisis Ave Real Growth (%) ('04-'07) 2004 2007 2011 Bubble size represents average nominal GDP from 2004-2012 FDI vs. Por olio flows 25 60 50 20 50 % of GDP 10 5 0 $US Billion 40 15 $US Billion Foreign Reserves Size and Composi on of Public Debt 30 20 10 -5 0 2004 -10 2006 2007 2008 2009 Por olio investment (net) 2010 2011 2012 CA Deficit(Exp.) 30 20 10 2005 2006 2007 2008 2009 2010 2011 -15 2004 2005 FDI (net) 40 Public Debt o.w. External Debt Ext. Debt o.w. Short-term 2012 (Exp.) 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 (Exp.) Financial Debt Dynamics I didn’t look at: Domestic economic issues (incl. capacity constraints & labor unrest)
- 3. What I’ve Found So Far Avoided a major financial crisis but was not immune to the contagion and it has not bounced back as quick as major emerging markets Large variation amongst the BRIICs but that doesn’t excuse SA’s poor performance Real sector most closely tracked Russia & Brazil Weak growth prospects: under 3% in the short-term Should continue rebalancing trade relationships Will be faced with monetary policy dilemma Outward controls, conservative regulation and supervision were pivotal and must be maintained Prudently managed fiscal policy, fortunate fiscal cushion exists and debt dynamics remain stable Unfortunately: The outlook is significantly worse when you include domestic factors
Editor's Notes
- Talking points for each sectionReal sector comparison (graphs 1, 2)- Its really hard to compete against these guys (+7% growth before and after the crisis)External sectorTrade account (3)CA deficits throughout, worsening at the peak of the crisis, still at nearly 4% todayFinancial account (4)- Debt dynamics (5, 6)
- Crisis experience:Not immuneTipped into recessionLagged BRIICs pre- and post-crisis (sluggish recovery)But avoided a major crisis (financial, banking or currency)And remains a relative safe haven for investment on the continentPeak to trough contraction was actually relatively low compared to a widen set of advanced and emerging economiesMembership amongst the BRICs is questionableGrowth:BRIIC prospects of 5.5-6% (minus SA’s 3% lag) = 2.5-3%Latest data is worrying: 1.2% GDP growth vs. 2.7% in USMining and farming strikes are serious and their full effects aren’t overTrade:Trade balance didn’t drive CA deficit as much as I hadexpected (<50%)Net income (remittances) mattersNonetheless, exports are sizable and thereistradechannelvulnerabilitysoitshould continue rebalancingtraderelationshipsMonetary policydilemna:- Closely related to financial account, the country is still highly dependent on foreign investors to finance CA deficitsCapitalcontrolsrelated to monetary policy as inflation remains uncomfortably close to the high end of the official target range yet growth remains stalled. Maintaining some outward capital controls is a way to address this tension and try maintain exchange rate stability.0.82 vs 0.42 on the indexExamples include: R2M cap, R30K cap on lending, minimum 25% stake in company for outward FDIFiscal management:Accumulated reserves and paid down debt during surplus yearsCurrent levels @ 40% which leaves some cushion but it should contain excessive social spending despite it being desperate neededNot mentioned here: upcoming elections in April 2014End on a bitter note… the macroeconomic perspective is the much shinier side of an otherwise damaged and quite frail coin. The internal domestic factors are much more concerning and global investors are already beginning to take note and price them into their outlook for the country. During the recent mining strikes bond spreads spiked to near crisis levels.