Address by Deputy President Kgalema Motlanthe at the Economist Conference, Johannesburg
30 March 2010
I am honoured to address this seminal gathering, the Economist Conference.
Indeed this eminently valuable conference comes at an auspicious time in South Africaâ€™s history.
We have come through the sharpest recession in many decades with all our institutions intact.
We did not escape damage â€" many thousands of families are still suffering the effects of the recession.
But we can offer them real hope because we know that our basic economic institutions are sound and strong, and ready to move forward with confidence.
We have just experienced one of the most dangerous worldwide economic recessions in recent history.
Several countries that no-one would have expected to be vulnerable have essentially been declared insolvent.
They are now negotiating terms with their creditors, and seeking financial assistance from multilateral agencies and neighbours.
Many countries suddenly found that their policies were not sound, that they were over-borrowed, or that their regulatory mechanisms were poorly designed or poorly managed.
We did not have those weaknesses. We did not have unmanageable excesses of credit; we did not overindulge in international borrowing, and we did not allow our private financial institutions to pursue unsustainable strategies.
We did not have a debt crisis and we did not have a banking crisis.
Certainly, the crisis exposed some weaknesses in South Africa: we lost many more jobs and faster than we expected; we did not have in place enough mechanisms to counteract the impact of the fall in demand on our companies; and we understood better than ever that an employment boom must be built on a more diverse economy.
An economy that simply exports raw materials and provides services to local consumers is not diverse enough to underwrite long term growth and insulation from crises. I will say more about this later.
The fundamental point is that we emerged not only with our institutions still soundly in place, but with an enormous vote of confidence from international investors.
According to a recent bulletin of the South African Reserve Bank, South Africa received a net inflow of R113.4 billion from foreign investors during 2009. In other words, over $15 billion net foreign investment flowed into South Africa in 2009.
I am proud to say that South Africa was seen as a safe haven in times of crisis, a refuge for investors seeking the most secure investments.
Sixteen years ago South Africa was the first country to lose money in an international crisis.
Wherever the crisis was â€" Indonesia, Russia, Mexico or Brazil â€" the instinct of investors was to evacuate â€śdodgy marketsâ€ť like South Africa.
Sixteen years ago we were pariahs in the world economy. Today South Africa is the only African country that is a full member of the G20 Finance Ministers meeting and even more importantly of the G20 Summit structure.
Our role as an emerging and stable market has been valued by many.
Similarly, South Africaâ€™s contribution to the G20 and other international economic forums has not been inconsiderable.
The Purchasing Managers Index (PMI), which has proved to be a very reliable indicator in South Africa, is now over 60 points.
This indicates that the demand for manufactured products is growing rapidly in South Africa. The PMI is now at the highest level since March 2007 which was almost the peak of our boom.
Inflation is now in the South African Reserve Bankâ€™s designated target zone, and it is expected to continue to fall for a while.
This has allowed the Reserve Bank to cut interest rates by half a point, bringing our prime overdraft rate to 10%.
It is 29 years since the prime interest rate was as low as 10%. In this connection we should, programme director, note that our interest rate cut last week was not a panic cut like many of the cuts in interest rates elsewhere in the world. We can, therefore, make so bold as to say we are cutting because we can, not because we have to.
Our balance of trade is now quite strong. Even though we are importing capital goods for our massive government capital investment programme in transport and electricity, our exports have compensated.
We are in the fortunate position now, economically speaking, to be growing quite well, without an excessive demand for imported consumer goods.
Our official forecasts of our gross domestic product are 2.3% growth in 2010 rising to 3.6% growth in 2012. We do not hide the fact that these are conservative forecasts.
We are aware that most academic and private sector estimates of our expected growth over the next few years are considerably higher than governmentâ€™s forecast.
We would all be happy if that were the case, and perhaps not all that surprised.
It would allow us to devote more revenue to our priorities, especially in education and health, and perhaps it would allow us to begin to scale back our debt sooner than we have predicted.
We believe that it is better to have surprises on the upside than on the downside.
We have learned a great deal from the recession. I have talked about some of those lessons already.
On this account, the fact that we ran a deliberate budget surplus in 2007 in spite of its unpopularity is now unquestionably vindicated.
The macroeconomic lessons were that growth far above capacity is not sustainable, and we must make provision for rainy days, especially when the sun shines brightly.
Another positive thing we learned is that, in the worst of times, a crisis brings the people together.
Accordingly, The Presidency called a meeting of our labour, community and business leaders in early December 2008, before the crisis fully hit us.
We agreed at that meeting that we would work together as a social partnership to mitigate the crisis and soften the impact of the crisis on our people.
By mid February we had an agreement: the â€śFramework for South Africaâ€™s Response to the International Economic Crisisâ€ť.
We agreed collectively to this Framework, and we implemented it collectively.
The social partnership team continues to meet to review the situation as we are not yet out of the woods. We have by no means yet made up the jobs we lost during 2009.
But we instituted a range of measures to provide finance to firms in distress and measures to fund training layoffs as an alternative to retrenchment.
We set aside more than R10 billion to assist firms and workers in need.
We persuaded the banks to consider catering to the needs of their clients in trouble before it was too late.
We all agreed that governmentâ€™s already planned massive infrastructure investment programme would be the centrepiece of our strategy to lessen the effects of the crisis and turn the economy around.
The partnership we built to counteract the crisis is a remarkable legacy, and a platform to build on for the future.
We also learned, I am afraid, that we need to think more about the nature of our economic growth path.
Indeed, losing nearly a million jobs in one year showed that many of the jobs created were in sectors that are sensitive to consumer demand. Too much of our boom in the period up to 2008 was based on the expansion of consumer credit, and not enough of it was based on the real expansion of our productive capacity.
This is why we have introduced the second iteration of our Industrial Policy Action Plan, and that is why we are thinking about how our growth path could be more firmly based on the expansion of production.
You will have heard earlier today from Minister Davies and Minister Patel on these matters, so I will not repeat their presentations, though I echo and affirm their approaches.
In the Presidency we have made significant reforms to underwrite a more carefully developed economic development strategy for the future.
Minister Collins Chabane heads a team whose job it is to monitor and evaluate the effective implementation of priority government programmes.
Minister Trevor Manuel has accepted the challenge to establish a National Planning Commission in the Presidency.
The role of the planning commission is to think about the long term issues that should preoccupy government: what environmental constraints will influence our growth in twenty years and how do we address them; how many skilled people will we need in 2030 and how will we train them to the highest internationally benchmarked levels; how will we ensure that all our of people receive good health care at reasonable cost?
These are the questions we need to focus on if we are to move forward. We want all of our people to live in conditions free of the scourge of poverty and under-development in the not so distant future.
How will we get there in a sustainable way? This is the question that we have asked Trevor Manuel and the National Planning Commission to answer.
Like South Africa, the rest of Africa has come through the international recession quite well. Many African countries avoided entering recession.
In their recent world economic forecasts, the IMF noted that the growth prospects for Africa were amongst the best in the world, behind only China and India.
As shown by the November 2008 African Ministerial Conference on the global financial crisis, this positive view did not mean that Africa did not see the need to contrive ways to tackle the worst effects of global financial crisis Tunis.
Jointly organised by the African Development Bank (ADB), the African Union (AU) and the Economic Commission for Africa (ECA), the event brought together African finance ministers, central bank governors and finance experts from across the continent to reflect on the impact of the global financial crisis on the African economy.
Furthermore, as Africans we have always put a premium on the economic value of regional integration as a springboard to development.
To this end, the Tripartite Summit of the Regional Economic Committees (RECs), agreed on a programme of harmonisation of trading arrangements amongst the three RECs, free movement of business persons, joint implementation of inter-regional infrastructure programmes as well as institutional arrangements on the basis of which the three RECs would foster cooperation.
I need hardly point out to this audience the significance of African growth prospects for South Africa.
We have already proved our ability to provide many much-needed, top-quality goods and services in African markets.
Our top firms are competing more effectively in Africa, and with greater determination, ingenuity and commitment than ever before.
Deepening democracy and rising growth in Africa are close to our hearts. But they are also very much in our interests.
On average, we are an advanced country in many waysâ€"we are about to host a memorable FIFA World Cup.
Yet, we still have much to do to address poverty and inequality.
We have a lot of growing to do, and a lot of work still is needed to reduce our severe inequalities. But we have the competence and the confidence to do it.
In Africa, as in South Africa, there are great challenges. But we have more and more capacity and knowledge about how to get it right. We have learnt a great deal about what we can do right in the past 16 years.
The lessons are deeply learned in our society, even though, as it is to be expected in any normal democracy, you may hear some discordant voices from time to time.
As in China and India, our people now understand the benefits of economic reform and development. This is increasingly true in many other African countries.
Ladies and gentlemen
We are fully aware of the rugged terrain we have to trudge both as a country, in regionally. Nevertheless, we believe we are equal to the task. Collective effort is our rock of dependability, and thus we will not fail.
We dare not fail.
Issued by: The Presidency
30 March 2010
Source: The Presidency (http://www.thepresidency.gov.za/)