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SA stares down the recession abyss

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Investec’s chief economist Annabel Bishop caused a stir when she told an audience of treasury finance experts on Tuesday SA faced a 45% chance of another recession next year.

The only snippet of good news, though, was that SA’s prospects looked a lot better than those elsewhere in the world.

Bishop and Stanlib chief economist Kevin Lings took to the podium at a EuroFinance seminar and proceeded to tell a large international audience of professionals that while SA had its problems, it was fortunate in that it did not have to undergo austerity or other severe constraints to its ability to make decisions.

But that does not mean there are no risks due to the interlinkages in the global economy and high trade dependance, as well as the fact Asia would also slow if a global recession struck as they rely on the US and Europe for exports too.

Lings gives SA less than 10 years to “make the right choices”, or else it will no longer be seen as the gateway to Africa, with the consequent benefits of centre stage at the Brics and G20 clubs.

Bishop, who believes there could be another rate cut next year due to the economic malaise, says substantial rand weakness could lead to skyrocketing debt and lead to a ratings downgrade for SA.

This is why, she said, the central bank and Treasury were not as keen as many others for a weaker rand — the weak rand would also lead to very high inflation.

But what then are the solutions, the moderator from EuroFinance wanted to know.

Lings called for a “catalyst” that would spur private sector investment and job creation from the government in the form of incentives to invest in infrastructure to eradicate bottlenecks and for “quick wins” by allowing private sector investment to come in at local and provincial government level, meaning a shrinking of the bloated civil service.

He also wants to see a youth wage subsidy that provides subsidies to the private sector in two-year contract form that brings unskilled youngsters in to the work force for just that period. A two-tier labour market if you will, which would of course require flexibility in labour laws over that period.

Bishop feels there is “too much hierarchy” in the government for it to be able to spend despite it having the money, while “corruption sucks money out of the system”.

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