IDC mulls rescue for recession-hit firms
Johannesburg - The Industrial Development Corporation (IDC)
would turn to government for further financial assistance to bail out
distressed companies when the double-dip recession set in, the development
financier said this week, as world markets were battered and bigger economies
showed signs of economic slowdown.
But economists rejected the idea, saying the government was
now spending more than it had in its coffers.
They said providing money on demand to state-owned
enterprises was unsustainable.
Geoffrey Qhena, the chief executive officer of the IDC, told
City Press that of the R6.1bn the development finance institution had at its
disposal in 2009 for distressed companies, only R1.9bn was left.
“This means if this amount is exhausted, we can approach the
shareholder for more money,” Qhena said in an exclusive interview. “We will
have to intervene in many ways if there is a need.”
This move would put pressure on state coffers, as other
state-owned entities such as the SABC were also lining up for financial
assistance from the state.
South Africa's tax base was reduced drastically in the past
three years as more than a million jobs were lost during the 2008 recession.
And there was talk this week that the economy would shed
more jobs this year and in future.
This week, the chairperson of the public broadcaster, Ben
Ngubane, told a portfolio committee on communications that the head count at
the public broadcaster had grown astonishingly in the past few years.
Ngubane urged the government to provide funds so they could
give some employees early retirement packages.
This week, signs that the world was on the brink of yet
another recession became visible.
It emerged that the US and German economies were slowing
down while France's was stagnant.
And austerity measures became the name of the game in the
European economies, indicative of the fact that a double-dip recession is
looming ever closer.
Late this week, financial markets on both sides of the
Atlantic trembled after a fresh upsurge in selling following fears that the
world economy is sliding back towards recession.
The mood of panic was fuelled by growing confusion in the eurozone over the latest Greek bailout, weak American manufacturing figures and
a warning from Wall Street lender Morgan Stanley that the US and Europe were "hovering dangerously close to recession".
A gauge of the US manufacturing sector produced by the
Philadelphia Federal Reserve sagged, showing worries that the recovery had run
Peter Brooke, head of the macro-strategy investments
boutique at Old Mutual Investment Group (SA), said the biggest risk to the
global economy right now was that sustained market panic could itself trigger a
recession if falling asset values seriously dented consumer and business
"This, in turn, could cause cutbacks in household and
corporate spending, exactly the stuff recessions are made of," Brooke said.
Rian le Roux, an economist at Old Mutual Investment Group,
said South Africa would not be able to escape the negative impact of the
slowdown, but the economy was still likely to maintain growth of a little more
than 3% this year.
Dawie Roodt, a senior economist at Efficient Group, on
Friday said the fact that state enterprises were running to the government for
financial assistance was not sustainable.
"Government debt is rising too fast," Roodt said, adding
that this had to end.
"The government cannot afford additional expenditure in the
short term. Unfortunately this is the reality."
Though the state's budget deficit was regarded by economists
as being acceptable at this stage, demands on its finances could intensify the
state's need to borrow more money.
Tony Twine, a senior economist at Econometrix, said it was
not good that every state entity saw the government as a last resort for
"It should be kept in mind that the government has finite
resources," Twine said.
"The government is already spending more than it is earning.
It cannot provide money forever. Nobody dreamt that Spain, Portugal and the US
would arrive at the stage they are at now."
The IDC had approved R4.1bn of the R6bn allocated to assist
companies in distress.
More than 17 000 jobs were created and saved.
Qhena said the IDC would make available R102bn over the next
five years for investment.
To achieve this level of investment, the partnership of
various stakeholders and social partnerships was important, he said.