JMCCI and Reservebank - August 2001

Posted On Saturday, 01 January 2000 03:01 Published by
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Private fixed capital formation has been growing - and property's % of this investment is growing.

· Private fixed capital formation has been growing - and property's % of this investment is growing.
· Commercial oversupply has to be worked out of the market for investment returns to improve.
· Continued Formal sector employment decline has consequences for commercial space demand: More accurate informal employment statistics in the future may spark opportunities to tap into new markets
· A stable Repo rate/interest rate environment makes debt financing more attractive
· Low inflation and oversupply will continue to put pressure on rentals in particular


James Cross, the Deputy Governor of the Reserve Bank addressed a formidable gathering of members of the Johannesburg Metropolitan Chamber of Commerce and Industry (JMCCI) on Wednesday 29 August 2001. Some insights into the Bank's thinking were presented and implications for the SA Economy from a fiscal and monetary perspective were positively interpreted.
Emphasis was placed on the favourable debt exposure position of SA compared to it's long period of higher exposure dating back to the mid 80's. In particular the reduction in the forward book (uncovered foreign debt exposure) is viewed in a significant light.
Other issues of note recorded by JHI Research includes:
· The repo rate: has come down significantly - it is still recovering from the high experienced in the lat 80s, as a response to the gold crisis and subsequent capital outflows - (investor preferred to borrow from international sources such as the USA at a lower rate than at home and government ended up effectively underwriting private capital). Significantly, interest rate volatility is expected to be low in the future and primarily as a result of a sustained macro-economic environment driven by the benefits of low inflation and 'sound fundamentals'.
· Gross Fixed Capital Formation: has gradually increased, especially from the private sector.
· Formal sector employment: has declined radically. The survey is based on a total figure of 4.7 million. The October household survey has total employment at 10 million, which includes aspects of the informal sector. Foreign assistance will be brought in to measure this sector more accurately (The flower industry for example is apparently not recorded but accounts for some 200 000 income earners)
· Inflation: expected to be at 5% at the end of 2002; according to Greenspan, a 5% inflation rate does not influence investment decision i.e. it becomes a neutral factor. (Perhaps read this as a signal of the Bank's forthcoming inflation target announcement in October and one to be adopted in the government's Medium Term Expenditure Framework)
· Gross Domestic Expenditure: savings on the whole are up; private savings are up marginally while government saving has increased consistently. This has had the effect of reducing government debt from 55% five years ago to 40% (current account)
· X?rate: the fundamentals are still in place. Some of the volatility results from concern over the NOFP (i.e. debt as % of GDP - degree to which liabilities exceed assets). In the past, the Bank borrowed almost R20 bn Rands worth of dollars to cover the fall of the Rand. These were not bought directly, but were absorbed through the economy - existing dollars injected mainly from large once off privatisations. Of note is that debt as a percentage of GDP will be below 40%; more importantly only 10% of this is external debt and well below many countries having a similar grade to SA. Most of the recent exchange volatility was influenced by external factors - e.g. Bredell land invasions, Zimbabwe etc. In the words of the deputy governor, 'it is hard to see why the exchange rate will not stabilise' - in particular a lower inflation will assist real exchange rates (of course they would be biased!)
· Once privatization takes off, it will have a further positive impact on the NOFP. In fact most global Foreign Direct Investment (FDI) is on account of privatisation. What is of most concern in relation to this issue is the timing of a world economic growth slowdown and the local political situation. Privatising the 'crown jewels' should not occur on an abnormally accelerated basis - international experience has shown that this leads to high levels of short-term imports, thereby defeating some of the benefits of capital inflow.
· Governance: It was encouraging to hear that SA is one of only 6 countries that on a monthly basis send all reserve and treasury statements to the IMF. Apparently, our compliance with such bodies is steadily improving and set to rise to 100% in the near term.

JHI Research Tel 441-0377/0331

Publisher: JHI Research
Source: JHI Research

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