Mhambi has been redeployed.

Tuesday, December 12, 2006

SA grows - to grow faster we need more skills more roads

The Business Day reports that the South African economy is in record breaking territory. One worry is the high debt house hold ratios, and the low levels of saving. And to sustain and even better it, the country needs better infrastructure and skills - that it does not have now.

THIS year, SA’s economy made history, reaching record highs and long-time lows measured by a range of rates and ratios.

The “making history” idea was the starting point in a paper on SA’s economy by Harvard economist Jeffrey Frankel and colleagues at Stellenbosch University. They commented that by early this year, economic growth, consumer spending, household debt, the gold price and the current account deficit were at levels not seen since the early 1980s, while inflation and interest rates were at lows not seen in more than three decades.

Since they presented their paper, a few more records have been broken. The budget surplus (now expected next year) would be the first on record (though the records go back only to 1960); household debt has risen even higher; interest rates and inflation are no longer at the lows seen in the first half of this year; but SA’s equity and bond markets have seen an unprecedented R102bn of foreign investment so far this year. Household debt is at a historic high and national savings at a historic low. But investment spending has risen to 18,7% of gross domestic product — the kind of level last seen in 1990. We’re still some way off the 25% that government has targeted as the level needed for SA to sustain growth of 6% or more, but it’s headed in that direction. And raising the rate of investment, public and private, is core to the Accelerated and Shared Growth Initiative (Asgi-SA).


But is it too late? The question is raised by Nedbank economist Dennis Dykes in the bank’s latest Guide to the Economy. There is evidence, he argues, that the investment drive has come too late and economic growth is likely to be constrained in the short to medium term. Dykes points to the lack of efficient transport and energy infrastructure and capacity. That is being addressed, but will take time.

But the problem is not only public infrastructure; Dykes notes the private sector also lacks effective productive capacity, hence the shortages. Net domestic investment (after depreciation) has been below 6% of gross domestic product (GDP) for over two decades; under the circumstances, it’s surprising the economy has grown as well as it has.

Read more.

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