Category Archives: economic growth

September 14, 2011

State swells ranks as job losses grow

By *media update*

Almost 50000 people joined South Africa’s growing ranks of the unemployed in the first six months of this year, as the embattled economy continued to bleed jobs in critical sectors like mining and manufacturing Adcorp reported yesterday.

But while employment in the private sector shrunk, government employment swelled by 6.2% in the same period.

“The public sector now accounts for all the job creation in the economy for 2011 as a whole,” says Adcorp labour market analyst Loane Sharp, adding that last month’s employment decline was sharpest in the manufacturing (19.9%), mining (19.3%) and construction (16%) sectors.

One glimmer of hope comes from the unofficial sector, which continued to create jobs, says Sharp.

In August the sector employed 16 917 additional people, enhancing the “informalisation” of the country’s workforce,” he says.

But the harsh reality is that each job lost by a breadwinner has a devastating knock-on effect on the people who depend on them, says Brait chief economist Colen Garrow.

“It is deeply hurting every time people lose their jobs because one lay-off may affect five to eight family members,” said

“For poor families the result of a lost job by a breadwinner will even derail the education of the young ones. Without any doubt, the deteriorating of job losses situation will push a number of families into deep poverty, added Garrow.

The continuing haemorrhaging of jobs in the SA economy is highlighted in the August Adcorp Employment Index.

It reveals that the mining, manufacturing and construction sectors, all key drivers of the economy, shed jobs at double-digit rates, leading to calls by economists for urgent corrective action.

The authoritative reports blame the crowding by government of private sector participation in the economy as one reason for SA’s dismal employment picture.

The loss of 50000 jobs within six months is seen as a catastrophe by economic observers, especially as it comes on top of the more than 1 million jobs already lost during the ongoing financial crisis.

The Adcorp index overall employment declined by 2.1% in August, the fourth consecutive monthly decline.

It warns that employment conditions remain “exceedingly weak”, suggesting that the prospect of an improvement in permanent jobs was a long way off.

Garrow said it was difficult to see how government could reach its ambitious target of creating 5million jobs by 2020.

While the New Growth Path (NGP) targeted unskilled and semiskilled workers, the sectors it targeted were precisely the ones that were shedding jobs, notably manufacturing and mining.

“It’s abundantly clear that for the economy to grow at a more respectable pace, a drastic rethink is required on the labour market,” he said.

“Scrapping the minimum wage to get more people actively involved in the economy, is a start and long overdue.”

Econometrix chief economist, Tony Twine, said that both the manufacturing and mining sectors had been through turbulent and uncertain times.

It was not surprising they were not rushing out to hire people and expanding their workforce, he said.

“We are faced with the paradox that these sectors have been identified to absorb labour, just at the time when their employment levels are falling.”

But, Chris Hart, Investment Solutions chief economist, argued that the main reason for the lack of job creation was that labour laws were too hostile to small business and “very obstructive” to creating jobs.

“One of the biggest problems is that there is too much policy uncertainty, particularly in the mining and agricultural sectors – something which investors shy away from.

“The solution for this problem is simple. The government must aim at creating 20 million jobs in five years, instead of the projected 5 million jobs in the next 10 years,” Hart said.

Article courtesy of The New Age – for the original article, please click here

Leave a comment | posted in economic growth, household, private sector, unemployment

September 13, 2011

Pushing up VAT ‘the least damaging way to fund NHI’

By *media update*

(this article got quite a few comments – please click here to link directly to the Mail & Guardian website to read the original article…)

An increase in Value Added Tax (VAT) would go a long way in helping to meet the government’s goal of funding an effective National Health Insurance (NHI) within 14 years, experts say. 

Several economists who spoke to the Mail & Guardian on Monday feel that raising the tax on all purchased goods would be the most effective way of financing the NHI.

“It is the least damaging way of funding the NHI as our income and company tax is already too high,” says Dawie Roodt, chief economist at the Efficient Group.

These thoughts are echoed by Stanlib chief economist Kevin Lings, who feels the cost burden of a comprehensive health scheme should be borne by the whole population.

“There is no doubt that the government needs to increase its coffers to pay for this and it’s not an unreasonable suggestion, seeing as though all will benefit from NHI — this way everyone will pay,” Lings says.

Consumption drives consumption
Chris Hart, chief economist at Investment Solutions, says the cost of NHI would be significantly offset by raising VAT: it would tie funding to the nation’s ability to spend.

“VAT is driven by consumption, which is exactly what the NHI is. The costs can be offset to a certain extent within the consumptive chain,” Hart tells the M&G.

The comments follow a report in the Times on Monday that the treasury’s is apparently warming to the idea of an increase in VAT.

The department’s chief director of economic tax analysis and tax policy, Cecil Morden is quoted as saying that “a higher VAT rate could be justified on efficiency grounds” and that at 14%, South Africa’s VAT rate is “relatively low when compared to the worldwide average of 16.4%”.

This is the first sign that government is seriously considering the idea of a higher VAT rate. Finance Minister Pravin Gordhan has so far remained mum as to how the scheme will be funded.

It is expected that NHI could cost in the region of R125-billion in 2012 and R214-billion by 2020, according to a government’s green policy paper on the issue released in August.

Based on recent financial data, this would equate to 6% of the country’s Gross Domestic Product (GDP) in 2012.

An NHI pilot project is expected to be launched across the country in 2012, following the conclusion of an audit currently being undertaken at the country’s about 4 200 health facilities. If VAT were to be increased, it would be the first time the tax has risen since 1993 after it was first introduced in 1990, at a rate of 10%, as a substitute to General Sales Tax (GST).

Don’t target the poor
The Congress of South African Trade Unions (Cosatu) is strongly against the idea of raising VAT, as this would put those who are most economically vulnerable at risk.

“It’s something we will continue to have an issue with. The NHI aims at accessibility and affordability but if you rely on VAT, it defeats the purpose by placing pressure on those with the least money. Those who are supposed to benefit will suffer the most,” Cosatu president Sdumo Dlamini tells the M&G.

Dlamini believes that although the NHI has become a non-negotiable goal for government, its cost must never “fall on the shoulders of the poor”.

Hart counters this argument with a suggestion that VAT should only be increased substantially on luxury or non-essential items.

“I don’t see anybody who buys a flat-screen TV having a problem with a portion of the VAT included on the item being increased to fund NHI — so the poor won’t be affected,” Hart says.

Article courtesy of Mail & Guardian – please click here to see original article

 

Leave a comment | posted in development, economic growth, fiscal policy, media update, taxation

September 13, 2011

Can Obama save US from double dip?

By *media update*

A quick economic rescue is not likely in the US says Investment Solutions chief economist Chris Hart, the US president paying mostly lip service to voters and business

The US has announced a $447billion jobs plan that’s going to involve tax cuts for workers and small businesses, but the end effect is unlikely to pull America out of a second recession.

That’s the view of Investment Analyst, Chris Hart, speaking on Summit TV.

“There are tax cuts for small businesses,” said Mr Hart, “but there aren’t regulatory cuts.”

They don’t want to cut down the protection Americans have enjoyed for a long time, adding that the number of rules and regulations which now dominate American business is seriously affecting growth.

“It goes from the sublime to the ridiculous where they regulate almost everything down to the size of a loaf of bread,” he said, “so there can’t be that much relief with R40billion in compliance costs.”

Mr Hart said that an enormous amount of money was being spent on compliance by companies, people effectively working for the government rather than the other way around.

“There’s a lot of detail that’s missing in Mr Obama’s plan,” said Mr Hart.

Issues the Obama government is grappling with is how to help home owners across the US, and prevent teachers getting laid off with the budget cuts.

“The plan looks to be reasonably uncontentious – in other words there is something in it for everyone, and a nice big fat compromise that in itself is often a sub-optimal solution anyway.”

Mr Hart felt that the plan would be passed at some stage, but in a different form.

“There is going to have to be some grand-standing and there could be some improvements – but there is going to be a little bit of robbing Peter to pay Paul because it has to be neutral on the budget where spending here is going to have to be taken away from somewhere else.

Mr Hart felt that what was going to be cut could be contentious, but also said that spending by Washington to create jobs and prosperity was a misnomer.

“Government spending typically has a much lower multiplier than investment spending by business – when governments spend money that reduces the amount of money that’s then available in the investment sector of the economy.”

Mr Hart said the unintended consequences of government spending were not often appreciated.

Leave a comment | posted in 1st world, economic growth, taxation, unemployment

August 30, 2011

Global crisis, strikes impede SA economy

By *media update*

This week, a major highlight of the local economic calendar would be the release by Statistics South Africa of the GDP data for the second quarter of 2011, where slower growth was expected, Brait economist Colin Garrow said.

He said while the jury might be out on the extent to which the economy slowed from the previous quarter, there was broad consensus that its momentum slowed drastically from the 4.8% it grew by in the first three months of the year.

He said reasons for the slowdown were abundant, considering the fact that supply sectors were under pressure, battling to cope not only with the strength of the rand was having on their export activities, but also with the impact of global market volatility.

“The source of problems arises not only from the soft patch in the US economy, which many believe is being tipped into a double-dip recession, but also from the crisis continuing in the euro zone.

“Trade with this bloc remains one of the most significant for South Africa. The euro accounts for the largest weighting in the SA Reserve Bank’s trade-weighted index, a basket of 15 currencies. What affects Europe, will inevitably affect South Africa,” Garrow said.

Using the Purchasing Managers Index (PMI) as a proxy for the manufacturing sector, Garrow said some disappointment in the value-added contribution to domestic output in Q2, would not be unreasonable.

However, said Garrow, the PMI had fallen for four straight months in a row and most recently to 44.2 in July, which was affected by numerous strike activities.

“In an environment in which GDP growth is slowing, the benefit of the credit multiplier isn’t fully exploited. Annual growth in credit extended to the private sector remains lethargic, with data for July expected to be little changed from the previous month, around 5.2%.

“Among its components, the largest, mortgage advances, is expected to remain near-static from the previous month. This reflects a number of economic concerns – the poor state of the labour market, weak consumer confidence, adjustments that have arisen from a number of more expensive administered prices, high levels of household debt, and a preference for consumers to postpone consumption in favour of winding down debt,” he said.

Chris Hart, chief economist at Investment Solution, predicted growth to be just under 2%. He also attributed the reason for slower growth to the current global economic crisis and a huge number of strikes locally.

“It is very difficult for one to start to predict when growth will start picking up again because the environment is currently hostile,” Hart said.

Article courtesy of The New Age – Please click here to see original article

Leave a comment | posted in economic growth, eurozone, inflation, labour, trade

August 12, 2011

Consumer revival ‘will help SA beat tough times’˝

By *media update*

Continuing global uncertainty would, however, harm gross fixed capital formation — vital to inject momentum into the economy’s growth trajectory

CAPE TOWN — A consumer-led economic upswing was already under way in SA and would continue in spite of turmoil on global markets that has wiped trillions off foreign bourses, a senior Reserve Bank official said yesterday.

“The patient is not dying, it is moving upward,” an upbeat Bank senior deputy chief economist Johan van den Heever told MPs.

Continuing global uncertainty would, however, harm gross fixed capital formation — vital to inject momentum into the economy’s growth trajectory. This uncertainty, arising from the US credit rating downgrade and the euro zone’s debt crisis, would probably see weak fixed capital formation delayed further, he said.

Business and consumer confidence would be hit hard by the “not wholly unexpected” global turbulence, Mr van den Heever told Parliament’s finance committee during a briefing on the Bank’s 2011 annual economic report and the June quarterly bulletin.

“It is quite clear that people will be more reluctant to enter into bold new ventures, big capital expenditure and heavily geared undertakings, and so that is not good news for short-term growth and probably longer-term investment,” he said.

“Things just might be delayed a bit further.

“One should recognise that … a consumer-led upswing which is not heavily credit dependent is a more sustainable animal.”

Mr van den Heever believed consumer-led growth would take the economy forward in spite of the international uncertainties. Household consumption expenditure had been growing solidly for the past seven quarters and was the backbone of the recovery.

His views gelled with those expressed by Finance Minister Pravin Gordhan and Bank governor Gill Marcus earlier this week. They said they remained confident in the growth forecast and fiscal projections outlined at the time of the budget.

Treasury officials would not comment on economic prospects ahead of the tabling of the medium-term budget policy statement in October .

Investment Solutions chief economist Chris Hart said yesterday that the Bank’s confidence in consumer-led growth could prove to be misplaced.

He said consumers were vulnerable to forces such as very high administered prices and the possibility that a weak rand would push up inflation, which would require the Bank to raise interest rates. But he was optimistic about growth this year.

Efficient Group chief economist Dawie Roodt said it was important to distinguish between financial market turmoil and economic fundamentals. SA would definitely not go into recession, Mr Roodt said, though growth might slow down.

Mr van den Heever noted that the strong rise in household consumption expenditure had not led to a higher debt to annual income ratio, which, while still high at 76,8%, had been trending downwards for two years. This was because consumers were not spending on credit but aligning spending with increases in real disposable income.

Low interest rates meant consumers were spending on average only 6,9% of their income on interest payments, which Mr van den Heever did not believe was high.

Another factor helping SA to weather the global crisis was that the higher level of investor uncertainty drove the gold price up to “juicy” levels — along with platinum and coal — boosting export earnings, Mr van den Heever said.

In addition, the Bank’s foreign currency reserve holdings were now very high at $50bn — a strong source of confidence as it meant SA could continue to pay for its imports.

While the decision of the US Federal Reserve to maintain low interest rates for longer might sustain the flow of short-term speculative capital into SA and boost the rand, this was “not a great concern”, he said. What was of real concern was the slow rate of growth in export volumes, which lagged far behind that of other emerging economies.

This was due to several factors including infrastructure bottlenecks, the lack of secure supplies of electricity, the cost of electricity and the rand’s strong real exchange rate.

Relatively low productivity in SA and the sluggishness in the economies of its traditional trading partners were also problems.

 

Article courtesy of Business Day – please click here to see the original article

Leave a comment | posted in commodites, economic growth, monetary policy, trade

August 11, 2011

SA growth will depend on global developments

By *media update*

External developments will be key for SA’s growth in the next five years, according to Investment Solutions’ Glenn Silverman and Chris Hart, who are chief investment officer and chief strategist respectively.

Factors assisting in economic growth prospects over the next five years were commodity prices, higher yields, sovereign solvency, corporates and shorter term capital inflows, Silverman said.

Rising union power, regulatory obstruction, administered prices, economic policy and government efficiency were identified among factors that could deteriorate growth prospects.

An Investment Solutions survey of asset managers for the seven months to July showed that asset managers expected SA’s growth to average between three and 3.5% in 2011.

It was highly likely for managers to downwardly revise their growth forecasts when the next survey is done early next year given the signs of a slowdown in the global economy and the weak performance by some local sectors, Silverman noted.

Closely linked to growth were inflation and interest rate developments. Investment Solutions said in case of a significant economic slowdown, there was “very little ammunition” for authorities in development nations to use given that they had already slashed interest rates to zero levels.

The picture was different in emerging market economies which, faced by rising inflation, were resorting to monetary policy tightening.

“The question is, are they [rates] going up enough in emerging markets,” Silverman said.

In SA, most local economists expected the SA Reserve Bank to keep lending rates on hold at 5.5% until early next year, given the sluggish growth and weaker than expected economic indicators.

Local and global equities came under significant pressure recently following the downgrading of US debt by Standard & Poor’s from AAA to AA+.

Silverman said that despite the volatility, equities were likely to “rally” in the short-term.

 

Article courtesy of BusinessLive.co.za – please click here to see full transcript

Leave a comment | posted in commodites, economic growth, inflation, monetary policy, politics

August 5, 2011

S.Africa better placed to meet external shocks than in ’08

By *media update*

JOHANNESBURG, Aug 4 (Reuters) – With foreigners holding 27 percent of all rand-denominated debt, South Africa is heavily exposed to an exodus of capital in the event of a eurozone debt default, as affected banks dump overseas assets to shore up their balance sheets.

However, this scenario — essentially a reprise of the 2008 financial crisis, which knocked 39 percent off the value of the rand — is far from certain given the growing view that risks in established markets may be just as high as in emerging ones.

“It’s not clear to me that a deterioration of the Europe situation will lead to a sell-off,” said Chris Hart, economist at Investment Solutions, a Johannesburg-based fund manager.

“If anything, investors will need to park their money somewhere and emerging markets, with their high yields, could be the place.”

South Africa’s budget deficit is 5 percent of GDP for 2011/12, which is too high, but the government has outlined a credible plan to cut that to 4 percent by 2013, and its total debt stock is just over a third of GDP, making it relatively attractive to investors fleeing, say, a Greek default.

The fact South African bonds are performing so strongly at present and the rand hit a two-month high of 6.625 to the dollar last week suggests some are already making this calculation.

“I’m not advocating that South Africa would continue to rally if things deteriorate but it would not be a crisis,” said Di Luo, regional fixed income strategist at HSBC, adding that real yields made South Africa an appealing option.

“I don’t think investors would punish South Africa indiscriminately.”

PREPARED FOR THE WORST

True to form, those overseeing Africa’s biggest economy are bracing for the worst, with Finance Minister Pravin Gordhan saying in a newspaper column last month that South Africa would not escape unscathed from a deeper euro crisis.

Similarly, new Treasury Director General Lungisa Fuzile warned this week of a spike in borrowing costs — now at 9-month lows — should the debt situation in Europe deteriorate.

Sharply higher bond yields would put pressure on the central bank to raise its benchmark lending rate from three-decade lows of 5.5 percent, potentially killing off an already sluggish economic recovery.

Analysts, however, think policymakers may be over-doing the doomsday scenario.

“The Reserve Bank and Finance Ministry are overplaying the risk. South Africa is much more of a safe haven than these other countries,” said Peter Attard Montalto, emerging markets analyst at Nomura International.

“I don’t think they’ll be selling their debt because of what happens in Europe,” he added. “The fiscal situation and debt levels make South Africa more of a safe haven.”

That is not to say Pretoria can relax.

As an economy, South Africa is far too reliant on foreign portfolio flows, the lion’s share of which goes into liquid assets such as stocks and bonds, which can easily be dumped, rather than bricks and mortar, which cannot.

For example, in 2010, offshore funds poured 107.9 billion rand ($16 billion) into South African stocks and bonds, compared to just 11.4 billion rand in direct investment.

“Unfortunately in this sort of global environment where South Africa — like other emerging markets — has been the beneficiary of sizeable foreign flows the risks are heightened because the country still faces this big mismatch of foreign direct investment and portfolio investment,” said Razia Khan, head of Africa research at Standard Chartered.

“Just because we have not seen a correction in recent times means that sell-off may be great in its magnitude when it does take place.” ($1 = 6.771 South African Rand) (Editing by Ed Cropley, Ron Askew)

Article courtesy of Reuters.com – please click here to see the original article

Leave a comment | posted in currency, economic growth, markets, media update, speculative

August 2, 2011

Wage talks aim to end South Africa gold, coal strikes

By *media update*

Striking South African coal and gold miners’ unions were set to meet employers for talks at the Chamber of Mines on Monday in a bid to end stoppages that have cost Africa’s largest economy tens of millions of dollars in lost output.

The mounting impact of the country’s yearly strike ‘season’, which has also hit the fuel, diamond and steel industries, was seen crimping growth in the quarter and possibly pushing an already stagnant economy into contraction.

Some 100,000 gold miners downed tools on Thursday, halting work at AngloGold Ashanti, Gold Fields and Harmony Gold at a time when bullion is at record highs. Tens of thousands of coal workers have been off for a week.

Analysts say gold mining groups are losing about $25 million a day in production.

Gold’s run has been driven by its safe-haven status in the debt crises in Europe and America and analysts have said a prolonged strike in South Africa, the No. 4 producer of the precious metal, would help push bullion prices higher.

Spot gold was $1,615.80 an ounce by 1042 GMT on Monday, compared with a record high of $1,632.30 on Friday.

Markets were also watching wage talks between unions and managers at Impala Platinum, the world’s No. 2 producer of the precious metal, which were due to start around midday.

Impala and its larger rival Anglo American Platinum , which is also engaged in negotiations, together account for around two-thirds of global platinum output, so if strikes started there platinum prices are likely to rise.

ECONOMIC IMPACT

Data on Monday highlighted the impact of strikes in South Africa as unions seeks increases of 10 to 15 percent, far above five percent inflation rate.

South Africa’s Purchasing Managers’ Index (PMI) fell for the fourth straight month in July, sponsor Kagiso Securities said on Monday. Kagiso said strike activity hit the business activity sub-index, which dropped nearly 20 points, and led to some of the PMI decline.

‘It’s very possible we’ll see negative growth in the third quarter because of these unbelievable strikes. Something in the order of -0.5 percent. Already the economy is in a stagnant position,’ said Chris Hart, an economist at Johannesburg-based Investment Solutions.

The economy grew by 4.8 percent in the first quarter but the central bank has already said that momentum will not be maintained in the second quarter. The current wave of strikes could slow things further in the third.

A fuel strike that interrupted business and sparked panic buying at the pumps ended last week, but when workers go back to their jobs in one industry, labour strife flares in another.

The series of strikes highlight the difficult position of the ruling African National Congress, which is keen to attract foreign investment but is in a governing alliance with unions.

Monday’s gold talks were set to start in the morning but were delayed to the afternoon. Negotiators have narrowed the gap on gold wage negotiations, raising hopes of more progress, though neither side is predicting a breakthrough.

The NUM wants a 14 percent pay rise while the gold mine companies have offered rises of 7-9 percent.

A new round of talks to try to end the coal miners’ strike may avert supply problems to utility Eskom, which provides almost all of South Africa’s power and almost exclusively runs on coal.

Eskom has said it has around five weeks of stocks.

Analysts have said if the coal strike persists for at least another week, exports to Asia and Europe could be disrupted.

Coal firms affected include Anglo Thermal Coal SA, Exxaro, Optimum Coal and Xstrata Coal.

Article courtesy of London South East – please click here for the original article

Leave a comment | posted in commodites, economic growth, labour

July 25, 2011

Despite the Greek bailout … It could be high noon

By *media update*

While many sighed with relief at news of a new bailout plan for Greece, which removes the immediate risks of a wider European crisis, local analysts warned that SA stood to be affected by the problems in Europe.

Before a deal was reached late on Thursday, finance minister Pravin Gordhan said SA would not escape unscathed from an escalated European crisis, although its exposure to countries in the current turmoil is reasonably low.

EU leaders agreed to a bail-out package of à109-billion for Greece and a temporary, orderly Greek default.

According to John Cairns, currency strategist at Rand Merchant Bank, the bailout is comprehensive, sensible and better than anyone had expected. He said that while it does not resolve long-term solvency problems in Greece or other EU states, it removes immediate risks. Risks of a complete blow-out of the rand would also dissipate, he said.

“It is important to know that this week’s bailout is very temporary,” said Chris Hart, economist at Investment Solutions.

Gordhan said that, as a small, open economy, SA would be hit by trouble in Europe and analysts agreed.

“We cannot avoid a fallout (in Europe). We are no longer an isolated island, we are part of the global village,” said Ian Cruickshanks, head of treasury strategic research at Nedbank Capital.

“But there has not been a failure as such and it has been shown that the European community cannot allow any member to fail, because if it does the risk is that the sovereign debt held by the banking sector would be written down close to zero, closing down their new business potential and strangling the economy.

“(A sovereign default) will not happen, that has been demonstrated with this bailout package and the actions of the US Fed and the Bank of England who have all pumped money into the system to ensure that there is not a domino effect on the banking sector like there was after the collapse of Lehman Brothers.”

Cruickshanks said that as the EU accounted for 35% of SA’s international trade, a scenario of failures in the EU – which he did not expect – would lead to a fall in imports from SA.

“In such a scenario we would find our trade account going into a deficit, and that would negatively affect the current account and then risk the currency being downgraded.

“If the EU rescue package was not there we’d have severe trade problems, which would mean severe current-account problems and would have very negative long-term ripple effects.”

Gill Marcus, the governor of the Reserve Bank, said at Thursday’s interest rate announcement – where rates were kept unchanged – that as long as the sovereign debt crisis was unresolved, confidence would not be restored and periodic bouts of risk aversion could contribute to a high degree of volatility in financial markets.

The Reserve Bank and the treasury were discussing options to protect SA’s banking system, she said.

“The challenge in the nature of the crisis in the eurozone is that it can be triggered by a number of things and it can take different forms.

“The best scenario would be no disorderly default.”

Marcus said even if Europe and the US solved their debt problems, they faced a long period of recovery and difficult economic times.

“This is heightening the risk issues and we as a country need to pay attention to just how grave the situation is.”

Ulrich Joubert, an economist at Kruger International, said the current stimulus and possible lifting of the debt ceiling in the US, as well as the return to fiscal discipline the Europe, would eventually mean lower economic growth, which would continue to affect SA’s exports.

This could be exacerbated by the underlying risks in the Chinese economy and possible overheating of the country’s property market, he said.

The message from the problems in the EU and US is that SA has no choice but to keep its fiscal house in order.

“The most recent budget led to some alarm bells if the money spent on public sector wages and social grants is considered compared to the money spent on fixed investment,” Joubert said.

“For a country like SA to retain or improve its credit rating, long-term risks like rising public sector wages and social grants should be brought under control and the emphasis should be on investing.”

Cruickshanks said with a sovereign debt-to-GDP ratio of about 35% SA is not over-indebted relative to the size of the economy. Greece was hopelessly over-indebted with a ratio of 130%, which caused the market to stop lending it money.

“SA is seen as a well-managed economy with strong monetary and fiscal discipline, therefore we will continue to attract funding,” he said.

Hart said investors would continue to be attracted to SA. “The only problems are the own-goals that SA scores, like the strikes and the nationalisation debate,” he said.

Article courtesy of Business Live – please click here to see the original article

Leave a comment | posted in economic growth, eurozone, monetary policy

July 20, 2011

Striking workers start to lose money

By *media update*

Johannesburg – The strike season in SA is in full swing but a tipping point is within reach when it comes to the loss to the strikers themselves, according to analysts.

Dawie Roodt, an economist at Efficient Group, said: “If there are 50 working weeks in a year, then one week is about 2% of the year. So if I want an additional 2%, I can afford to strike and provided I get the 2%, I’m not worse off and not better off, I am at break-even point. However, if I want 2% and I strike for two weeks, it doesn’t make sense because I’ve essentially lost 2%.

“Right now, it’s been about two weeks since the strike began and the unions have lost 4%, so they have roughly reached break-even point. If they strike for another week, it becomes irrational to strike,” Roodt said.

The National Union of Metalworkers (Num) kicked off strike season two weeks ago on Monday July 4, and an increase of 8% to 10% was agreed upon which would run for the next year.

The Chemical, Energy, Paper, Printing, Wood and Allied Workers Union (Ceppwawu) as well as the General Industries Workers Union of SA (Giwusa), who together represent about 70 000 workers, began strike action last week also demanding better wages and employee benefits.

Unions are pushing for an increase of between 11% and 13%, whereas employers are offering between 4% and 7%. Some of the more visible effects of the strike include fuel shortages in some areas and Investment Solutions economist Chris Hart predicts a 0.2% reduction in economic growth from the strike action.

Independent Research obtained by BusinessLive/I-Net Bridge has estimated how much it costs the average striker to participate in the strike and how much time it would take to recover the loss of earnings, even if the increase the unions are fighting for is accepted.

According to the research, if one assumes that a striking worker earns an average of R48 000 per annum before tax and he or she works nine hours a day for 250 days out of the year, their average daily rate is about R192.

With the Ceppwawu strike now in its sixth day, that worker has already lost R1 152, and it would take 55 days to recover that loss even with an 11% hike. This is because the increase that the striker will receive does not make up for the loss incurred while striking.

If a striker earns R192 per day and receives an 11% increase, the rise in earnings per day is R21.12. So, to make up for the amount lost while striking, they would have to work an additional 55 days.

Sacrifice

John Appolis, national policy coordinator for Ceppwawu, said that the strike is continuing and that the union is still negotiating with the pharmaceutical, industrial chemicals as well as the petroleum industries.

“At the moment industrial chemicals is offering 7.5% and the petroleum industry is offering 8%. We are going to take the offers back to our members and hear their response,” he said.

He added that while the unions don’t calculate how much money is lost during a strike, the members know that they have to make a sacrifice.

“Our members know that no work means no pay and they also know that in the long term they will have improved wages as well as benefits. However, to enjoy these benefits they have to make a sacrifice in the short term, and they know that,” he said.

Article courtesy of Fin24.com. Please click here to see the original article

Leave a comment | posted in 3rd world, economic growth, labour

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