The star Online
Wednesday, November 29, 2006
Revisions to South Africa's growth numbers show a whole lot of things are better than we thought they were yesterday.
Finance minister Trevor Manuel's more upbeat take on the economy comes after Statistics SA's annual benchmark audit showed the economy was on a higher growth path than was originally estimated.
Manuel said yesterday that his October estimate of 4.7 percent growth this year may have been "on the low side". His comment reflected the fact that the benchmark audit showed that real growth in gross domestic product (GDP) in the first half was 4.4 percent and not 3.8 percent as originally estimated. And growth last year was 5.1 percent, higher than the original 4.9 percent estimated in February.
The benchmark audit takes place in November each year to revise growth for the past three years. While original figures are based on monthly surveys, the revision incorporates the latest audited financial data. The growth rate for 2004 was revised to 4.8 percent from a previous 4.5 percent, while the 2003 growth was 3.1 percent from 3 percent.
Economists say the revisions show that the economy is firmly on track to reach the government's 6 percent target by 2010. But the good news doesn't stop there.
The higher growth rate means that a whole raft of critical ratios, which reflect the country's economic wellbeing, are better than we thought, such as real GDP per capita, for instance.
Also looking better are ratios based on nominal GDP, which we now know was R13 billion higher last year, to bring the total to R1.4 trillion, according to Stats SA.
As a result, household spending as a percentage of GDP will look better, as will government spending, government revenue, the fiscal deficit, government debt, the country's total foreign debt and - wait for it - the dreaded current account deficit. All are measured against nominal GDP.
These ratios are used by, for instance, rating agencies and potential investors to gauge the country's resilience. That the ratios look better than they did improves South Africa's chances of getting equity capital and cheaper loan finance, and will help stabilise the rand.
INGWE COAL It will be interesting to see who buys BHP Billiton subsidiary Ingwe Coal's Optimum mine. Newly formed Exxaro Resources and Anglo Coal both appear disinterested.
It appears that Optimum is viewed as a struggling asset in light of Ingwe Coal's drastic decline in profit in the year to June.
However, for an emerging player that wants to make a significant entry into coal, it might make sense to buy a declining asset that the major mining companies do not want.
It will be interesting to see what price tag Optimum will attract.
The last mine that Ingwe Coal sold was Zululand Anthracite Collieries, which was sold to a small Australian mining company in February 2005 for R91 million.
However, the mine was much smaller than Optimum, at 561 000 tons of saleable anthracite in the 12 months to June 2004.
It also appears Ingwe is gearing up to sell its last three remaining coal mining assets and will ultimately bail out of its shareholding in the Richards Bay coal terminal.
While it is never good when a major mining company such as BHP Billiton appears to be exiting South Africa, in this case, it is not too much of a problem.
South Africa has huge coal resources and some other mining company will seize the opportunity.
BUSINESS RISKS A survey by consulting firm PricewaterhouseCoopers (PwC) into perceptions at private companies shows that 27 percent of more than 700 respondents see government regulation and black economic empowerment (BEE) to be the biggest risks to their growth.
Smaller businesses are inherently less tolerant of regulations because they do not have the resources and expertise to comply with complex legislation.
On the BEE front, the PwC survey shows that companies are willing to bring in new partners, but would rather bring on board individuals or entities that can actively participate in their businesses.
This is understandable because a business partner has to be able to add value to the company to justify the financial rewards it will get.
The high ranking of BEE as a threat to business growth may come from uncertainty and a perceived lack of clarity on the BEE codes, notwithstanding the fact that there has been progress on that front this year.
Despite the progress, the pool of potential black partners is still quite small and it is the big firms, with their deep pockets, that are able to attract the best prospects.
Empowerment, however, presents opportunities for private companies. BEE partners may bring a different dimension to businesses, in terms of new markets, expanding their product range and improving these companies' marketability.
The government has long argued that BEE presents more opportunities than it does risks, and companies that apply it properly and select the right partners, do get more opportunities than those that do not.
One cannot help feeling that firms complaining about BEE in South Africa are a bit like farmers trying to grow wet weather crops in a desert. Their model is simply wrong for the prevailing conditions.
And, unlike firms that complain about BEE rather than adjust to it, the policy appears to be here to stay.