1. The global financial crisis and economic policy Presentation to Bishops Trevor A Manuel, MP Minister of Finance 3 November 2008

2. 2 Global public goods We live in a world that is increasingly integrated Globalisation provides opportunities for trade and development… –… but it also contains risks –Not everyone benefits equally from globalisation Globalisation needs rules and values Priority global public goods include: –Achieving peace and security –Preventing the emergence and spread of infectious diseases –Tackling global climate change –Enhancing international financial stability –Strengthening the international trading system –Generating knowledge

3. 3 The global economic crisis The epicentre of the present crisis lies in the USA The main causes are: –Excessive lending by banks –Extending housing loans, initially at low interest rates and when interest rates increased, many people got into trouble –Increased use of credit cards –Complex financial instrument that hide the real risks The impact of the present crisis –Lending has dried up –House prices have fallen sharply –Lending between banks have ground to a halt –Insurance companies such as AIG have got into serious trouble –Difficulty in obtaining vehicle finance is affecting the auto industry –Business investment, which slowed after the dot-com bubble burst has slowed further

4. 4 The US is the epicentre of the present crisis

5. 5 The responses by various countries In total, over US$4 trillion dollars have been injected into the world’s banks US –Cut interest rates 1 per cent –Provided US$700 billion into the banking system, of which: US$125 billion is to buy shares directly in the banks –Guaranteed bank deposits up to US$250 000 EU –Cut interest rates too –Governments have provided €2182 billion into the financial system –Increased guarantees on bank deposits UK –Nationalised Northern Rock –Injected £300 billion into the banking system £50 billion to buy shares in the big banks –Cut interest rates Japan, Australia, South Korea and several other countries have also announced bailout packages These measures are necessary in the short term, but they will increase public debt, which has to be paid back over time

6. 6 USA China SA US sells US$65 billion of goods a year to China China sells US$322 billion of goods a year to US SA sells US$10 billion of goods a year to China China sells US$19 billion of goods a year to SA If the US slows down, China will have no place to sell the goods it produces If that happens, they have to produce less If that happens, they will demand less steel, coal and platinum from South Africa So demand for our exports slows and the price of these commodities fall

7. 7 Policy is Choice Governments are responsible for setting policy – elections are fought for the right to implement policy Different choices have different outcomes Policy is implemented through laws and regulations The mandate of our economic policy is –To build a prosperous and equitable society, reducing unemployment and expanding opportunities for especially disadvantaged SAns

8. 8 Policy choices The RDP 6 basic principles An integrated and sustainable programme A people centred process Peace and security for all Nation building Link reconstruction with development Democratise South Africa Key programmes Meeting basic needs Developing human resources Building the economy Democratising the state and society Implementing the RDP AsgiSA Faster and more shared growth Stable and competitive exchange rate Improve cost efficiency of infrastructure and logistics system Improve skills development Reduce barriers to entry and enhance competition Reduce deficiencies in the state’s performance GEAR Reduce interest burden to release funds for development Competitive and stable exchange rate Reduce trade tariffs Tax changes to support growth Improve performance of the state Invest in infrastructure Expand trade flows Reducing poverty, expanding opportunities and building a better life for all

9. 9 Skills shortages In the past six years, our economy has created over 2 million jobs –Most of these have been in skills intensive sectors Key challenge for our country –Over one million job vacancies for skilled people Doctors, engineers, nurses, teachers, artisans, IT professionals etc –Over 4 million people unemployed School education –While access to education has improved, in many schools the quality still leaves much to be desired Tertiary education –Enrolment is growing, but only about 10% of learners get to university FET –Still small but growing, only about 4% of students in on FET course Major challenge is the school to work transition –Almost half of black school leavers do not find work within a year –The world of work itself is changing and so skills learnt in school becomes outdated if people are not working –Initiatives such as JIPSA, internships, skills levy funding and FET recapitalisation are aimed at addressing this

10. 10 Reversing the spatial distortions of Apartheid After bantu education, the second biggest legacy of apartheid is the spatial distortions it introduced –Within cities, poor people and black people generally live far from where the jobs are –The homeland system put millions of people in areas with low economic potential Investment in better public transport is meant to address the first legacy Spatial corridors, rural roads and investment in rural development is aimed at addressing this second dimension

11. 11 Industrial development zones Many countries have used IDZs to focus investment in areas that can attract exporters South Africa has several IDZs –Coega, Joburg container terminal, Richards Bay, East London IDZ The idea is for the state to invest in the heavy infrastructure (ports, rail, high voltage electricity, roads and services) to attract investors that would use these services at a lower costs, to export Investors in these zones have also been provided with tax incentives

12. 12 The Port of Ngqura at Coega

13. 13 The Coega IDZ

14. 14 MAPUTO Pande-Secunda Gas line. PPP Sasol completed Coal-based Power Station 2 transmission lines to Matola completed Liquid Fuels & Petro- chemicals: Sasol Al smelter 500ktpa BHPB completed Joburg-Maputo Highway PPP- BOT completed Port of Matola/Maputo Upgrades, PPP Joburg to Maputo Railway line: Upgrade GAUTENG Example of a spatial development initiative: The Maputo Development Corridor

15. 15 Conclusion South Africa has made good progress in transforming our economy since 1994 But too many people remain poor and unemployment remains high –Too many people still have limited opportunities Our economy needs to become more export focused and more labour absorbing The global financial crisis will impact on South Africa’s growth However, South Africa is somewhat protected and well placed to grow in the future Growth and development is not automatic These depend on the choices a country makes, the institutions they build and how they implement their policies.

16. 16 Reference link http://www.ft.com/cms/s/0/54f2b80e-9947-11dd-9d48-000077b07658.html

17. 17 Reference link http://www.ft.com/s/o/3af6c64c-9eb6-11dd-98bd-000077b07658.html

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