February 2009 in South Africa

In the final months of 2008, the South African economy continued to falter as the global economic meltdown affected the country's resource-based economy. The only good news coming out of the slowdown was that both inflation and interest rates began to fall. As 2009 began, the stock market had dropped over a third during the previous twelve months and the price of platinum had dropped by 50%. The mining, manufacturing and retail trade sectors had contracted during the final quarter of 2008 and were beginning to shed jobs. The unemployment rate, which had crept slowly downward over the past several years, reached a low of 23% during 2008 but is likely to move upward in the year ahead. As a result of the continuing trade deficit and the largest current account deficit in 35 years (8%), the currency has depreciated by 25% over the past six months. GDP growth for 2008 was 3.1%, well below the 4% projected in the 2008/9 budget presentation, which resulted in a small deficit of 1% rather than the small surplus projected.

The 2009/10 budget presented February 11, 2009 was Finance Minister Trevor Manuel's thirteenth. It was the first time it was delivered in the midst of so much doom and gloom. Nevertheless, South Africa is probably in better shape to weather the storm than many other countries. It had already embarked on an ambitious and urgently needed public spending programme on infrastructure and preparations for the 2010 Soccer World Cup. The banking system remained sound and generally unaffected by the global financial crisis generated by the sub-prime fiasco. The budget is expansionary and generally applauded as being the right kind of budget for the current economic climate in South Africa. But, as the Minister said, the government did not indulge in reckless spending and stuck to the prudent principles that had guided the country through twelve years of economic growth. Government expenditure will increase by 16.5% in 2009. Taxes remained essentially unchanged except adjustments to compensate for inflation. The Secondary Tax on Companies (10%) will be replaced by a 10% tax on dividends received by individuals. Economic growth is projected at 1.2%, the lowest in years, and the budget deficit is projected at 3.9%. Both inflation and interest rates are expected to fall in 2009 and both the trade and current account deficits are projected to narrow.

On the political side, the country is in pre-election mode. National elections will be held on April 22 amidst the most uncertainty since the first democratic elections in 1994. Jacob Zuma, as president of the ANC, is the aspiring and presumptive next president of the country. However, he is facing charges on corruption that will not be heard in court until August. There is the distinct possibility that South Africa's next president, after several months in office, will have to appear in court to face corruption charges. Presumably, he and his legal advisors will continue to try to forego that eventuality.

Also coming up is the trial of the suspended Commissioner of Police on charges of collaborating with criminals, which could implicate other leading political figures. The break-away ANC group that has formed a new political party, Congress of the People, is up and running and will almost certainly siphon off votes from the ANC. The question is how many. And how many might they siphon off from other opposition parties. In any case, is seems unlikely that the ANC can maintain its two-thirds majority, which most observers see as a healthy development for democracy in South Africa. Watch this space.

Key Indicators (February 17, 2009)