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IDC mulls rescue for recession-hit firms

Aug 21 2011 13:04 City Press

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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. 

Markets crash

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 aground.

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 sentiment.

"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 funding.

"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.

idc  |  global economy  |  businesses  |  sa economy
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