This is an extract from the South African Chamber of Commerce and Industry Business Confidence Index January 2013, February 7 2013:
ECONOMIC COMMENTARY
Salvaging Business Confidence
Dramatic response measures will be necessary to restore trust and predictability to the business environment. The business environment experienced a difficult period in January 2013, but despite the ongoing labour protest activity, business confidence carried forward the positive momentum from the end of last year.
The anarchy and irresponsible actions that have recently characterized the labour environment gathered momentum and has raised the probability of retrenchments and of the closure of unviable/unprofitable businesses in the mining sector. Illegal behaviour by some striking workers in the Western Cape has left a trail of destruction with serious consequences for output, exports and employment..
Further interventionism in the economy, contemplated by the state, fuelled policy uncertainty. Various recent announcements by government spokespersons against the mining industry were poorly timed and constructed given the need to urgently attract investment into this industry. The resilience of the private sector, despite developments that tarnished South Africa's attractiveness as an investment destination, mitigated a contraction in business confidence.
From the Outside Looking In
Fitch Ratings downgraded South Africa's investment rating taking account of South Africa's weak growth prospects and possible social and political disturbances. This downgrade was met with dismay in South Africa but the problem areas identified by Fitch Ratings were nevertheless acknowledged for remedy. Sustainable improved business confidence levels are an imperative to restoring investor confidence.
Therefore it is important that the current short-term recovery in business confidence be encouraged for a longer period. Business confidence must be enhanced by concrete steps to restore certainty amongst local and foreign investors by embarking on processes of response and redress.
The important role of private fixed investment, private business operations and real return on investment commensurate with international competitiveness must be recognized by government. Chart 1 suggests that South Africa is a popular investment destination although a large part of the total investment is indirect in the form of portfolio investment. Europe remains the largest investor in SA followed by the USA.
Graph 1
South Africa also remains a popular trading partner despite the global economic slowdown. South Africa's largest exports of merchandise goods in 2012 was to Asia (comprising 35% of exports), followed by Europe (23%), and Africa (18%). Most of South Africa's merchandise imports also came from Asia (46%), Europe (30%) and the USA (12%). From a trade balance perspective South Africa's most beneficial trading partner was Africa with a trade surplus of R46 billion for 2012 while the largest trade deficit in 2012 was with Asia to the amount of R131 billion - see Table 1.
Merchandise trade with Africa grew substantially in 2012 with exports increasing by 20% and imports rising by 43%. Imports from Asia increased by some 18% while exports to Oceania increased by about 18%.
Table 1
Easier Global Economic Environment
World growth is forecast to increase to 3.5% in 2013 from 3.2% in 2012. Although growth in Europe (negative) and the USA (2%) will be slow, emerging market growth is expected at about 5.5% in 2013 with Sub-Saharan Africa at 5.8%. Growth in China is to accelerate by about ½ percentage point to 8.2%. Exports by emerging markets and developing economies could see an increase of 5.5% in 2013 compared to 3.6% in 2012. The global economy will be under less strain in 2013 than was the case in 2012 and with South Africa's evolving international trading pattern (see Table 1), the country stands to benefit from global developments in 2013.
Conclusion
At the 2013 annual meeting of the World Economic Forum in Davos, the theme was ‘Resilient Dynamism'. The world has become intricate, inter-reliant and interrelated and is more and more challenged by volatile prospects.
Emerging market and developing economies continue to be regarded as the driving force for world economic growth in 2013. By fostering fixed investment and an improved business climate, South Africa could benefit substantially from global investor and trade interest.
Issued by SACCI, February 7 2013
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