Jan 14, 2011
2011 – another year of global economic uncertaintyBack
© Reuse this
South Africa had a successful soccer World Cup and received global admiration for this achievement. Unfortunately, we were too quickly sobered by the extent of job losses during the crisis, which may continue into 2011. The number of jobs lost in the financial sector and the retrenchment of managers and executives by the banks raise concerns not only about unem- ployment but also about whether our banks will be increasing their lending next year. We continue to live in a world with huge economic problems and uncertainty. We enter the New Year with this uncertainty.
The world of economic uncertainty that we live in today is a result of global financialisation. The widespread liberalisation and integration of global financial markets have created much new volatility and uncertainty. The failure of the advanced industrial countries to adequately regulate their financial institutions and ensure coordination and regulation of global financial markets means that we live in fear of the next crisis.
The uncontrolled flows of financial capital across borders does not support investment but creates macroeconomic instability and uncertainty, which discourages investments. In fact, the countries that have liberalised their financial markets and integrated into global financial markets have had declining levels of investment. There has been a preference for short- term returns that have increased specula- tive activities in financial markets and redirected financial capital away from investment. As a result, the major concern today should not be consumer price inflation but asset price inflation.
Unfortunately, most economic policy- makers and mainstream economists are still fixated on consumer price inflation, while the major instability in our economies is caused by bubbles and crashes in asset prices owing an increase in speculation. The major threat to economic growth, investment and employment is not upward pres- sure on prices from increased wages and investment – it is the fact that finance capital is diverted towards debt-driven consumption and financial speculation supported by increased speculative cross-border financial capital flows, the increasing use of derivatives and growing markets for securitised debt. Therefore, our macroeconomic policies should shift from the current fixation on consumer price inflation to protecting our economy from unregulated capital movements and unregulated financial activities that cause cycles of bubbles and crashes in asset markets. We should get rid of inflation targeting and focus on regulating domestic financial activity and putting in place controls and regulations to manage our cross-border financial capital flows.
We need to ensure long-term stability to promote investment and employment creation. The current approach to finance does not support that stability; instead, it opens us up to contagion and instability. The performance of our economy is left to the whims of speculators in global financial markets. Domestic holders of wealth choose to move their capital into financial speculation rather than investment. As a result, we lose jobs and valuable skills instead of increasing them. The negative environment for investment and job creation has an impact on education and the level of investment that people are willing to make in education.
Global economic problems become an opportunity to further shed labour and to move towards the casualisation of existing workers. The declining prospects for employment has structural implications for the development of skills and education in a country.
We can respond to global economic uncertainty. The solution for South African economic growth, investment and employment is to put in place economic policies and controls that create increasing stability and certainty in the domestic economy and protect us from external volatility and uncertainty.
This solution does not mean autarky and totally cutting ourselves off from international financial markets. As we try to join the league of the Bric countries (Brazil, Russia, India and China), we can learn a lot from their economic policies and controls used to reduce the impact of global financial volatility, while benefiting from increased foreign direct investment and international trade.
We can also learn how to support growth in productive investment and employment and how to increase skills and education levels in our economy from them.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other Seeraj Mohamed News
The Corporate Strategy and Industrial Development Research Programme (CSID) - the University of the Witwatersrand's (Wits') economics policy research unit of which I am director – hosted a launch of the Department of Trade and Industry’s (DTI's) capacity building...
We enter 2011 with much global economic uncertainty. South Africans should consider the country's economic policies and activities within the context of an uncertain and volatile global economy.
Updated 17 minutes ago Oil prices would probably need to rise to about $75 to $85 a barrel from around $60 currently for Tullow Oil and Africa Oil to go ahead with their Kenyan project, the chief executive of Africa Oil said. CEO Keith Hill told the Reuters Africa Investment Summit he was...
Updated 36 minutes ago Nuclear power plant (NPP) projects are, everywhere, politically important, complex and long-term programmes, World Nuclear University (WNU) lecturer Milt Caplan pointed out at the WNU One-Day Course at the University of Pretoria on Monday. "Nuclear decisions are...
Updated 58 minutes ago Nestle Nigeria's CE expects the firm's capital expenditure to slow to its lowest level in five years after a currency devaluation dampened customer spending in Africa's biggest economy. Dharnesh Gordhon told Reuters Africa Investment Summit that consumers in Africa's...
Recent Research Reports
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
This Week's Magazine
Subscribe to Engineering News and Mining Weekly for two years, but only pay for the first year. The weekly editions of Engineering News and Mining Weekly will be posted to your preferred postal address and also gain access to:
National flag carrier South African Airways (SAA) is in an advanced stage of renegotiating its deal with European airliner manufacturer Airbus to acquire A320 single-aisle (or narrow body) aircraft. The aim is to replace ten of the aircraft still on order with five...
Worldwide, the main thrust in the ports industry over the past decade or more has been to increase efficiency. Traditionally, ports have been run by engineers and mariners and, in the past, increasing a port’s capacity was achieved by expanding the harbour. “That has...
What do you do when an elephant has a toothache? You call Dr Gerhard Steenkamp from the University of Pretoria’s (UP’s) faculty of veterinary science, Onderstepoort, one of only two elephant ‘dentists’ in the world.
The 2015 Sanlam/Business Partners Entrepreneur of the Year (EOY) competition was launched earlier this month in Johannesburg, with the main focus on creating and inspiring entrepreneurs to create jobs and boost the economy.
Next ArticleStraight talk on the exchange rate debate