‘Focus on exports to weather economic crisis’ - Manuel

South Africa should be under no illusions that our economy will not suffer along with the rest of the world, Finance Minister Trevor Manuel told the National Assembly last week. “Declining commodity prices and lower growth in major trading partners will lower demand for South African exports and reduce the income we derive from them,” he said. “In the long-term we need to ensure that our firms and our people are more productive, more export-oriented, and have higher saving and investment rates.” He warned that strong rates of growth in recent years were at risk as commodity prices fell and countries were forced to pay back capital. One of the great sources of ballast in the world economy has been the rapid economic growth of China, which has contributed on average 20% of world growth in the past five years, he said. “China’s demand for commodities contributed to the commodity price boom the world has experienced over the past six years. “But growth in China has begun to moderate, resulting in lower imports and putting downward pressure on commodity prices.” According to his figures, Chinese GDP growth slowed to 9% in the third quarter of 2008 from 11.9% in 2007 and 11.6% in 2006. The IMF forecasts Chinese growth of 8.3% in 2009. Commodity prices have responded quickly. The price of platinum has dropped 47% since January 1. Gold prices have fallen by over 13% and oil by 31%. Coal prices remain 40% higher than they were in January, but have declined by 31% since October 1. All of which indicates that we have entered a new phase of the global crisis, in Manuel’s view. While in advanced economies GDP growth will fall from 1.4% in 2008 to -0.3% in 2009, African growth is pegged at 5.2% for 2008 and 4.7% for 2009. Attracting foreign investment remains a priority, he added, and that implies the need to maintain confidence in our macroeconomic policies and raise the growth rate of the economy. “Our dependence on foreign savings can be reduced over the long-term, but the only way to do this sustainably is to export more – to produce goods and services more productively and at lower cost than before and sell them abroad. “This is where economic reform needs serious engagement by South Africa to make good long-term decisions,” he said.