The 

economy of South Africa has a two tiered economy; one rivaling other developed countries and the
other with only the most basicinfrastructure. It is therefore a productive and industrialised economy that
exhibits many characteristics associated with developing countries, including a division of labour between
formal and informal sectors and an uneven distribution of wealth and income. The primary sector, based
on manufacturing, services, mining, and agriculture, is well developed.

The South African economy is in a healthy state and indications are that this will be
sustained for the foreseeable future. Annual growth rates of 6% are being predicted -
something that is almost unheard of in our country. These growth rates can be achieved
through the commitment of both public and private sectors. In this context, the new
National Freight Logistics Strategy, published recently by the Department of Transport,
must
be welcomed. This positive step towards establishing an efficient national logistics
infrastructure is essential in supporting national developmental strategies. There is no doubt
that the growth challenges are going to be dependent on how well the overall logistics
infrastructure can cope with the demands placed on it and how well it will be able to
support the envisaged growth. The South African industry needs to strive towards
worldclass
supply chains within the country, but especially when operating in the global market.

South Africa is a country of vast potential whose economy is only just beginning to crawl out
of four years of recession. The recession capped a decade-long stagnation resulting from
global recession, loss of business confidence, double-digit inflation, global economic
sanctions, structural inefficiencies, and irrational economic policies rooted in apartheid.

Calculation of road tonnages

The CTO yearbooks are compendiums of traffic information obtained at CTO stations on
primary roads, highlighting traffic characteristics. The CTO stations are placed on selected
links of the national and primary road network. To obtain trends since deregulation, data for
1990, 1993, 1997 and 2003 was analysed – the number of CTO stations per year is shown in
Table 2.
Year Number of stations
1990 344
1993 367
1997 236
2003 622
2004 720
Table 2: Number of CTO stations per year analysed

Political Situation In South Africa

It does not take a rocket scientist to predict the outcome of that election, at least in broad
strokes. The ruling ANC will defend its outright majority. A little more interesting is the
question whether the ANC will gain a two third majority in parliament, which is necessary to
change the constitution. As a growing number of black South Africans appear to be getting
disenchanted with the ruling party, they may abstain from voting and thus prevent a two
third majority for the ANC in parliament.
The South African Economy

The economic situation in South Africa appears to be as ambiguous as the political situation.
Even in the old days South Africa did not enjoy a reputation for being a country with low
taxation and a truly deregulated business environment. Things seemed to improve a little
after the first democratic election. Perhaps not very surprisingly, the ANC dumped the “n”
word (nationalization) and embarked instead on a cautious course with the “p” word
(privatization). It included a little of South African Airways here and a little more of Telkom
there. 

However, during the past few years, the trend has been gradually changing. South African
Airways is under government control again. Even though the “n” word is nowhere explicitly
mentioned, it has effectively returned. Mineral rights and water rights have been
nationalized. When nationalization is not feasible, other sorts of control are being imposed.
For example, commercial websites are going to have to be registered. As the special edition
of “The Economist” “The World in 2004” points out, because of black empowerment the
mining, energy and financial sectors already have “charters”, which define how much capital
should go to non – whites.

Putting all this into context – historically and geographically – we may be reminded of
developments in other African countries, whose economic policies led them straight to the
economic rubbish bin. It looks as if the new leadership in South Africa may have to learn a
few economic lessons the hard way. The consequences of these trends are already
unfolding. The number of stocks on the Johannesburg Securities Exchange is tanking.
Professionals continue the “chicken run”. “Chicken run” is a term in South Africa for people
who leave the country permanently. South African corporates make an effort to expand out
of South Africa, where the business environment is less regulated.

On the other hand, the South African economy may at least indirectly benefit from
international economic developments. While the US dollar is cratering, the three golds – real
gold, black gold (crude oil) and protein gold (soybeans) have been recently the best
performing investments. It looks as if (real) gold is in the process of becoming the next big
investment theme, which contrarian investment advisors have been predicting for quite
some time already. As South Africa produces a significant amount of gold, its economy and
especially the gold mining industry there may benefit from that new investment theme.

Moreover, R.E. McMaster notes in the lead article of “The Reaper” last November that
commodity currencies “have been the rage”. By commodity currencies he primarily means
the Canadian, Australian and New Zealand dollars. To a certain degree, the South African
Rand is also a commodity currency. However, in my humble opinion, it is not a good idea to
include the Rand into that category with the three dollars. There are too many particularities
that justify to deal with the Rand separately. They may be summarized with “TAB”. That’s
Africa, Baby. Anyway, assuming that the gold price is indeed climbing to the stars, South
Africa’s economy may benefit from it, no matter whether or not the Rand should be
considered a commodity currency.

After several years of sustained growth, for the first time since 1992 South Africa’s economy fell into recession with
GDP contracting by 1.8% in 2009. The economic slowdown had started already in 2008 with the weakening of
domestic demand and was exacerbated when the global crisis led to a sharp fall in exports. Growth is expected to
recover gradually to 2.4% in 2010, helped by the recovery of global demand and boosted by the FIFA World Cup, and
to accelerate further in 2011 to 3.3%.

Output in manufacturing and mining declined in 2009 as a result of lower exports and agriculture contracted because
of adverse climatic conditions. The only sector that showed sustained growth was construction, boosted by a public
investment programme and by the forthcoming football World Cup.
Thanks to its prudent macroeconomic policies, South Africa was one of the few countries on the continent able to
implement strong and coordinated countercyclical fiscal and monetary policies. Fiscal stimulus measures together
with cyclical revenue shortfalls resulted in a sharp deterioration of the fiscal position by 6.2 percentage points of GDP,
culminating in a deficit 7.3% of GDP in 2009/10. The Central Bank responded to the recession by cutting the repo
rate by 500 base points. Weak demand and the appreciation of the currency helped reduce inflation from its peak of
11.5% in 2008 to 7.1% in 2009. A sharp increase in electricity prices and wage cost pressures prevented a further
decline of inflation into the target range of 3-6%. This made the trade-off between fighting the recession and
achieving low inflation more delicate, causing public debate over the mandate of the Bank. Inflation is expected to
decrease in 2010, falling back into the target range.
In the coming years, the main policy challenge will be to strike a good balance between fostering growth, while
preserving fiscal sustainability and low inflation.
South Africa‘s economic and social outlook remains shadowed by huge structural challenges, notably deficiencies in
transport and energy infrastructure, which raise production costs and limit growth potential. Public service delivery,
also a severe bottleneck to growth, has proven inadequate in a period of severe economic distress and has led to
significant social discontent. Demonstrations took place throughout 2009 and if the government fails to improve basic
service delivery social instability could continue.
President Zuma, elected in April 2009, must achieve a delicate balancing act: reassuring the international and
domestic business community by upholding market friendly policies, while delivering on his promises to alleviate
poverty, against a backdrop of sharply increased unemployment.
Public resource mobilisation has improved, as shown by the rising number of registered taxpayers, both individuals
and corporations. However, the recession resulted in significant revenue shortfalls in 2009. Further simplification of
the tax code and of filing procedures will meet business expectations and free staff within the tax administration to
strengthen auditing in sectors where evasion is still widespread. Here again, voter satisfaction with public service
delivery must be improved in order to broaden and strengthen the direct tax base and to increase its contribution to
public financing.  

A Consumer View of the Current Economic Situation

When consumers read headlines like “The South African Banks latest quarterly bulletin indicates that
the country’s outlook is deteriorating rapidly” they turn to the sport pages in search of some good
news. In this article we provide a consumer summary of the current economic situation and some
practical advice for 2009.
Consumers are bombarded with economic statements that have very little practical meaning:
•
The change in consumer behaviour reduced the ratio of household debt to disposable income by 75.3
percent.
•
The widening in the current account deficit in the third quarter, to 7.9 percent of gross domestic
product from 7.3 percent in the second quarter, could persuade the MPC to keep the bank's official
repo rate at 12 percent to support the Rand.
•
The current account deficit has been financed comfortably by inflows on the financial account since it
emerged in 2003, but the problems in global financial markets make this source of funding less
reliable than in the past.
•
The depreciation in the local currency makes imported goods more expensive, putting upward
pressure on inflation, which topped 12 percent in October.
•
Economic growth was sustained in the third quarter by government consumption spending, which rose
9.6 percent; and growth in capital spending by both the government and the private sector, which
rose 10 percent.
•
Household consumption fell in the third quarter - for the first time since the fourth quarter of 1998 -
by nearly 1 percent.

The South African economy has grown well over the last seven years. Consumers benefited from this
growth period. Jobs were not difficult to find and salary increases were slightly higher than the
inflation rate. The effect of this was that consumers started to believe that they were better off and
this in turn made them more confident about the future.

Then in 2008 a number of things happened. The global economic crises caught most people by
surprise and shocked world economic systems. The cost of living increased by more than 15 percent
and the average salary increase was substantially lower than the increase in the cost of living. Add to
this the 10 consecutive interest rate increases and all of a sudden, consumers’ monthly budget was
under pressure.
This resulted in many consumers falling into arrears. There are currently 17.17 million credit
active consumers and 6.79 million consumers or 40 percent are currently more than two months in
arrears. This is why so many credit providers reported a substantial increase in bad debt.
All this action shocked consumers into action. They stopped applying for new loans and reduced
spending where possible. Less money was spent of food and clothes. Plans for holidays were amended
and consumers refrained from buying big ticket items.
In a matter of months consumers became less optimistic about the future and many consumers are
now pessimistic about 2009. Added to this more and more companies started to reduce jobs.
Internationally governments introduced massive rescue packages. All of a sudden the world recession
is mentioned by more and more people although this is not strictly true for South Africa.

In 2009 you can expect the following:

•

International and local sales could decline.

This will force companies to reduce jobs and they will spend less on investments.

The SA Government will continue to spend money on infrastructure development

and consumers linked to this sector should be fine.

Uncertainty will continue to be in the air during next year and this could have an impact on exchange
rates.
•

Exports may well decline and the reduction of international income could affect the trade balance of
the country. This means that it is more difficult for the Reserve Bank to balance the country’s bank
balance.

Share prices have reduced substantially during 2008 and it will take longer to recover.

Companies are normally first to take action. On the other hand consumers are slow to react. It is
however a fact that consumers will have to steer their own boat through the rough seas ahead. This
boat will be hit by a number of events - some positive and some negative.

On the positive side consumers can look forward to:

•

Interest rate cuts.

Lower inflation.

Lower fuel cost if the exchange rate does not deteriorate.

Retailers with unsold stock will offer reduced prices to sell goods.

It is expected that our economy will continue to grow.

Spending on infrastructure will have positive spin offs on tourism ahead of 2010.

On the negative side consumers can expect:

•

Reduction in the number of jobs.

Access to more credit will become more difficult.

Salary increases will be under pressure.

Consumers who are scheduled to go on retirement next year might find that the amount available for
pension is not enough.
•

Your budget will continue to be tight and you will have less money to spend.

It might take many years for our economy and th

This is a chart of the trend of South Africa's gross domestic product at market prices estimated by
the International Monetary Fund with figures in millions of South African rand

Yea Per Capita Income

Gross Domestic Product US Dollar Exchange
r (as % of USA)

1980 62,730 0.77 Rand 22.55

1985 127,598 1.47 Rand 9.80

1990 289,816 2.58 Rand 13.09

1995 1,548,100 3.62 Rand 13.27

2000 922,148 6.93 Rand 8.58

2005 1,523,254 6.36 Rand 12.32

Inflation targeting and GDP growth

In the February 2000 Speech, the Minister of Finance, announced a policy of inflation targeting, helping to
bring consumer inflation, which had been running in the double digits for over 20 years, under control.
Inflation declined from 6.9% in 1998 to less than 6.0% in 2000. The target was set to keep the South
African consumer price index (CPIX) — a key indicator of inflation — between 3% and 6% average per
annum. Although initially successful, the rand's rapid depreciation in late 2001 led to greater inflationary
pressure and the South African Reserve Bank missed the target during the course of 2002, with inflation
coming in at an average of 9.3% for the year.

From September 2003 to 2005, however, the CPIX inflation rate has remained consistently within the
target range. The average annual rates of CPIX since 2001 were: 2001 - 6.6%, 2002 - 9.3%, 2003 - 6.8%,
2004 - 4.3%, 2005 - 4.3%.

Success in keeping inflation down allowed the Reserve Bank to reduce the prime lending rate — that
determines the interest rate. During 2003 alone interest rates were cut by 550 basis points (5.5%), while
between 2002 and 2006 interest rates were cut by a total 650 basis points (6.5%).

The cut in interest rates saw consumer spending rise, the construction sector boom and the sale of new
vehicles reach record levels. This in turn generated much needed growth in gross domestic
product (GDP). Ironically enough, GDP growth started to gather steam just as the end of the GEAR
period neared. Since 1999, quarterly GDP growth has been consistently positive and annual GDP growth
consistently above 2%. Between 1996 and 2004, GDP growth averaged 3.1%, rising to 4.5% (based on
2005 market prices) in 2004.

Not all economist agree with inflation targeting and the dogmatic adherence to this policy in 2006 led an
successive increases in the prime lending rate that totalled 5.5%. These increases were in response to
rising consumers prices, but critically consumer prices increased due to external factors (2007–2008
world food price crisis and rising oil prices). No increase in the prime lending rate could counteract these
external factors and while inflation remained high the housing market and the motor manufacturing and
retail sector suffered heavy losses which in turn led to heavy job losses. Even though the prime lending
rate had returned to 2006 levels by mid-2009 amid the global Financial crisis of 2007–2010, it still remains
high at 7%. In 2009 the Nobel Prize winning economist Joseph Stiglitz warned South Africa that inflation
targeting should be a secondary concern amid the global financial crisis of 2007–2009.[17]

Although economic growth has improved, the growth has been largely jobless, and quicker growth is still
needed. The South African Government estimates that the economy must achieve growth at an average
of 4.5% until 2010 and 6% thereafter to reach its goal of halving South Africa's high levels of
unemployment, estimated at 26.5% (March 2005 - Stats SA), by 2014.

Macroeconomic trends in the world economy

In the wake of numerous challenges, the world economy is teetering on the brink of a severe global economic
downturn. The deepening credit crisis in major developed market economies, triggered by the continuing housing
slump, the declining value of the United States dollar vis-à-vis other major currencies, persisting global imbalances,
and soaring oil and non-oil commodity prices all pose considerable risks to economic growth in both developed and
developing economies.
 Additionally, the unfolding food crisis, which is not only a grave humanitarian issue, but also a
serious threat to social and political stability in some developing economies, endangers the achievement of the
millennium development goals (MDGs) by reversing some of the progress towards those goals made so far.
In the face of these uncertainties, the growth of the world economy, which registered a rate of 3.8 per cent in
2007, is expected to decline markedly, to 1.8 and 2.1 per cent in the outlook for 2008 and 2009, respectively. The
prospects remain surrounded by much uncertainty. It is not clear whether the monetary and fiscal policy stimuli
implemented in the United States will take effect any time soon or whether more protracted problems in financial and
housing markets will push the major economy into a deeper recession with worldwide consequences. Based on conditions
of the second quarter of 2008, the baseline scenario seems the most probable of the three scenarios presented, with less
likelihood of the occurrence of the better or worse outcomes that are presented in Table 1.
The baseline forecast projects a pace for world economic growth of 1.8 per cent in 2008, which is a
downward adjustment from the baseline forecast of the World Economic Situation and Prospects 2008 published in
January, but close to the pessimistic scenario presented in that report.1 The revision is informed by further deterioration in
the housing and financial sectors of the United States in the first quarter of 2008; this is expected to continue to be a major
drag for the world economy, extending into 2009. The contagion effects of the sub-prime mortgage market turmoil on
developing countries and economies in transition have so far been limited, but as the downturn in the United States
protracts, a more adverse impact should be expected and which would dim the prospects for reaching the MDGs by 2015.
A more benign outcome is possible, if the monetary and fiscal policy stimuli taken by the United
States take effect in the course of 2008 by boosting consumer spending and restoring confidence in the
business and banking sector. In this case, the world economy is expected to experience a moderate slowdown
to 2.8 per cent in 2008 and a slight recovery in 2009 as growth improves to 2.9 per cent. In the pessimistic
scenario, the world economy would slow to 0.8 per cent in 2008, followed by a sluggish recovery of 1.4 per
cent in 2009.

Growth of world output, baseline and optimistic scenarios, 2003-2009

2003 2004 2005 2006 2007 Baseline Optimistic Scenario Pessimistic Scenario

2 2 2 2009 2008 2009

0 0 0
0 0 0
8 9 8
World 2.7 4.0 3.5 3.9 3.8 1.8 2.1 2.8 2.9 0.8 1.4
Output
Growt
h
Develo 1.9 3.0 2.4 2.8 2.5 0.6 0.9 1.4 1.6 -0.3 0.7
ped
econom
ies
United 2.5 3.6 3.1 2.9 2.2 -0.2 0.2 1.0 1.2 -1.3 0.3
States
Euro 0.8 2.0 1.5 2.8 2.6 1.1 1.2 1.7 1.7 0.4 0.9
zone
Japan 1.4 2.7 1.9 2.2 2.1 0.9 1.2 1.3 1.5 0.3 0.9
Econo 7.2 7.6 6.6 7.9 8.4 6.4 6.1 7.3 6.6 4.5 3.0
mies in
transitio
n
Develo 5.2 7.0 6.7 7.1 7.3 5.0 4.8 6.3 6.0 3.5 3.3
ping
econom
ies
Africa 4.6 5.0 5.3 5.6 5.8 4.9 4.6 6.2 6.1 2.2 1.1
East 6.9 7.6 7.9 8.1 8.5 5.9 5.7 7.3 6.9 5.0 5.5
and
South
Asia
Wester 4.7 6.8 6.6 5.9 5.2 4.0 4.1 5.4 5.1 2.9 1.7
n Asia
 Latin 2.2 6.2 4.8 5.7 5.7 3.1 2.6 4.2 4.0 -0.3 0.9
Americ
a and
the
Caribbe
an
Memo: 6.6 7.9 8.5 8.2 6.5 5.2 6.4 6.8 6.3 3.3 2.5
Least
develop
ed
countrie
s
World 5.8 10.7 7.0 9.9 7.2 4.7 5.1 6.0 6.1 2.5 4.5
trade
growth
(volum
e)
US -12.3 -8.2 -1.9 -1.5 -5.6 -15.0 0.0 -10.0 2.0 -11.5 -9.2
dollar
exchan
ge-rate
index
(annual
percent
age
change)
Interest 4.0 4.3 4.3 4.8 4.6 3.7 5.2 3.4 3.7 - -
rate on
10-year
US
Treasur
y notes
United -522 -640 -755 -811 -739 -636 -544 -666 -605 -562 -418
States
current-
account
balance
(billion
US
dollars)

World Economic Situation and Prospects 2008 In other developed economies, growth in New Zealand and
Australia is expected to slow in 2008, owing to weaker consumer demand; while Canada’s economic activity is
also expected to slow due to weaker external demand, impacted by the United States’ recession and the
appreciation of the Canadian dollar.

Regional outlook
Developed economies
In the baseline scenario, GDP in the United States is expected to contract by 3.5 per cent in
2009 and to only recover to a meagre rate of 1 per cent in 2010, well below what is needed
for recovery from the downturn. The slump in the housing sector that started in 2006
is still ongoing, while the credit crunch, asset price deflation and rising unemployment
underpin sharp retrenchment of business investment and household consumption. Policy
measures have been scaled up significantly in 2009, including a continuous expansion of
Nicaragua and 7 per cent in Honduras in the absence of the crisis. For Brazil, Chile and Costa Rica,
the required additional spending caused by the expected impact of the crisis would be between
0.5 and 1.5 per cent of GDP per annum. Clearly, additional costs of this magnitude may stretch
government finances, lead to unsustainable increases in public debt and become a source of macroeconomic
instability in the future, if recovery and sustained growth do not set in swiftly.
Further analysis shows that increased social spending would contribute to growth
recovery. However, countries would not return swiftly to pre-crisis levels of economic growth and
employment, as spending on Millennium Development Goal-related services represents relatively
low shares of aggregate demand in those countries (figure B). Stronger growth effects are likely to
emerge over time as improved education and health outcomes underpin stronger productivity
growth. The counter-cyclical response becomes much stronger if the Millennium Development
Goal strategy is complemented by needed investments in public infrastructure. For a full recovery,
however, other factors need to contribute as well, especially the resumption of external demand.
This will require globally concerted stimulus measures to take effect.
Box 1 (cont’d)
Average annual rate of growth in per cent
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Costa Rica
Chile
Brazil
Honduras
Bolivia
Nicaragua
Crisis baseline
MDG plus infrastructure
MDG strategy
Gap to full recovery
Figure B
Simulated countercyclical impact of increased
MDG spending on GDP growth, 2010-2015
Source: Marco V. Sánchez
and Rob Vos (2009), ibid.
Update as of mid-2009 7
the balance sheet of the United States Federal Reserve Bank, a new fiscal stimulus package
of $787 billion, and the Public-Private Investment Programme of more than $1 trillion to
dispose of non-performing bank assets. However, it will take time for these measures to
unclog the financial system and to restore economic growth. Uncertainties remain about
the effectiveness of these measures. With unemployment rising sharply and financial deleveraging
continuing, the risk of the economy falling into a protracted deflation is still
increasing. In the optimistic scenario in which things would fall into place by the third
quarter of 2009, the United States economy could recover in the second half of the year
and there would be post growth of about 1.5 per cent in 2010.
Japan’s economy is falling into a deep recession. The severe downturn in global
demand, particularly for automobiles, information technology and machinery, has led to a
collapse of Japanese exports, causing sharply falling corporate profits, tightening financial
conditions, rising unemployment, declining household wealth, and weakening domestic
demand. In response, the central bank reduced interest rates, along with a number of other
measures, to stabilize financial markets and ease corporate financing. The Government has
adopted a series of fiscal stimulus packages, with additional government spending totalling
about 5 per cent of GDP. In the outlook, GDP is expected to fall by 7.1 per cent in 2009. A
mild recovery is possible in 2010, but this will be highly dependent on global recovery.
Western European economies have been hard hit by the crisis. GDP in the
euro area is expected to fall by 3.7 per cent in 2009, having registered 0.8 per cent growth
in 2008. Despite the assumption that current fiscal and monetary stimuli gain some traction
over the course of 2009, the European Union economies should expect no more
than a gradual stabilization of activity with an expected near zero growth in GDP in
2010. Economic woes differ across Western Europe, as countries face differing degrees of
exposure to downturns in housing markets, construction sectors, manufacturing exports
and banking sectors. Across the region, though, unemployment rates are surging and are
expected to continue to increase even after the decline in output has stopped. On average,
the unemployment rate in the euro area is expected to increase to 10 per cent in 2009, up
from 7.5 per cent in 2008.
The economies of the new member States of the European Union have steadily
deteriorated in 2008, with growth entering negative territory in the Baltic States and Hungary,
and declining to nearly zero in the other countries in the last quarter of 2008. The
sluggishness continued through the first half of 2009, reflected in double-digit declines in
industrial production, a heavy drop in exports and retail trade and depressed consumer
and business confidence. While the recession in the 15 member States of the European
Union can be considered as the primary reason for this contraction, the region is also affected
by the contagion effect of the global financial crisis causing sharply increased costs
of external borrowing and the sudden closure of access to international bank lending.
GDP of the new member States of the European Union is expected to shrink by 1.7 per
cent in 2009 and to recover modestly by 1.5 per cent in 2010. In a more pessimistic scenario
of no global recovery, these countries should expect economic stagnation in 2010.
The economies of Australia, Canada and New Zealand are also expected to
shrink in 2009, suffering from falling global demand and commodity prices. In Australia,
the unemployment rate is expected to jump from the 4.2 per cent of 2008 to over 6 per
cent in 2009, and to 8 per cent in 2010. In Canada, the rate is expected to surge to 9 per
cent in 2009. Despite fiscal and monetary stimuli, only a mild recovery is expected in
2010, however, mainly on the back of the moderate recovery of the global economy, if the
baseline conditions prevail