[DEBATE] : (Fwd) That Manuel quote in the Financial Times

[Patrick Bond]

(Famous last words... in the last sentence.)

S Africans urged to beware left turn
By Richard Lapper and Tom Burgis in Johannesburg
Monday Oct 27 2008 12:15

South Africa's finance minister has given warning against a lurch to the 
left after next year's presidential elections, arguing that global 
recessionary pressures are introducing "vulnerabilities" to an economy 
he has done much to stabilise over the past 12 years.

Trevor Manuel, who refuses to be drawn on whether he would stay on under 
a new administration, issued the warning amid falls in local stocks and 
bonds that have led to a plunge in the rand. The currency has lost 
nearly a third of its value against the US dollar since the beginning of 
the month and is now trading at its lowest levels this decade.

"We need to disabuse people of the notion that we will have a mighty 
powerful developmental state capable of planning and creating all manner 
of employment," Mr Manuel told the Financial Times.

"It may have been on the horizon in 1994 [when the governing African 
National Congress first came to office] but it could not be delivered 
now. The next period is likely to see a lot more competitiveness in the 
global economy. As consumer demand falls off there will be a huge battle 
between firms and countries to secure access to markets."

Mr Manuel's assessment follows clear signs that the country is being hit 
by the global slowdown at a time when hopes for change among the 
country's poor are growing.

Jacob Zuma, the ANC's leftwing leader and the country's most likely next 
president, has vowed to improve social conditions and intensify the 
fight against unemployment. Up to a quarter of South Africans are out of 
work.

Mr Zuma's supporters from the ANC's left wing, the trade union movement 
and the Communist party are pressing for bigger roles for state-owned 
enterprises and development banks.

South Africa's economy is still growing but has been hit by the global 
financial crisis. This month, worries about a widening current-account 
deficit and risk aversion on international markets have led foreign 
investors to sell local financial assets.

Falling commodity prices - gold and other metals account for at least 40 
per cent of export revenues - could widen a current-account deficit that 
has been forecast this year to reach 7.7 per cent of gross domestic product.

Mr Manuel suggested that as the dollar and borrowing costs became more 
expensive, South Africans might have to curb their appetite for imported 
goods. "The consumer behaviour response has actually been quite tardy," 
he said.

"Part of the problem is that there has always been - certainly in 
Johannesburg - conspicuous consumption."

Mr Manuel said that in Johannesburg "ostentation has been a part of the 
life-style more than in any other capitals, a lot of it financed by debt 
easily financed to white South Africans and now as easily extended to 
high-income black South Africans". But he said South Africa, which has 
radically cut public debt in recent years, was less vulnerable than some 
of its peers.

Foreign reserves stand at more than $30bn (€24bn, £19bn) - a sufficient 
cushion for the finance minister to order a significant increase in 
spending last week, pushing the public finances into deficit (of about 
1.6 per cent of GDP by 2010).

In addition, the country's banks had remained largely immune to the 
credit crunch, in large part because local exchange controls restricted 
their ability to invest significantly in the US market. One exception to 
this rule - Old Mutual life assurance company which did suffer heavy US 
losses - had chosen to list in London and be primarily supervised by the 
UK's Financial Services Authority, noted Mr Manuel. "JPMorgan recently 
described the banking sector as boringly well-regulated and capitalised. 
That boring is excellent."

The country's financial markets had been hit by general uncertainty and 
"sometimes erratic behaviour" by investors, he said. Hedge funds were 
"taking bites out of anything that appears unprotected". But he said 
commodity prices - in spite of falls since June - were still 
substantially higher than when South Africa last came under financial 
pressure at the beginning of the decade.

Mr Manuel also suggested that there might be a "higher level of 
tolerance [among investors and institutions] about what a 
current-account balance should be for any country".