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Newton’s third law

Oct 11 2012 07:32 *Geoffrey Chapman

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PERHAPS I should blame the government for failing to deliver on its education promises and creating an environment in which a naïve workforce can exist, but placing blame on others is far too easy.

For example, I could tell you about a man from the Cape Flats who worked his way to being a specialist physician, or a domestic worker who watches TV soapie 7de Laan so that she can learn Afrikaans. Point being, you are limited only by your ambition (or lack thereof).

Three things, thus, are currently of concern to me:

1) The expanding and continuing strike in the mining sector;

2) The road freight sector strike; and

3) The large current account deficit.

Tied in with the latter is the downgrading of several municipalities and our top five banks by Moody’s. Although our "leaders" tried to allay our fears by saying it was expected, foreign investment was already insufficient to support the deficit.

Following the downgrade, I am certain that foreign investors will be even more cautious about investing in South Africa, which is evidenced by the rand’s poor performance in recent weeks.

Making investors more wary of South Africa is government’s inability to resolve the ongoing strikes - and this is where Newton’s third law comes in: for every action (the ongoing strikes, failure to act by government) there is an equal and opposite reaction (inflation, instability and a worsening current account deficit).

Yes, the mine and road freight workers will earn more in the end but at the same time, the rest of the country is worse off. Clearly, the significant annual allocations for education in the national budget have been wasted because people do not understand this. Those who will benefit from the striking (perhaps 200 000 in total), do so at the expense of the remaining 50 million South Africans.

Platinum and gold (in unwrought, semi-manufactured or powder forms) are two of South Africa’s most valuable export commodities, earning the country billions of dollars annually (commodities are traded in dollars).

The two metals thus contribute to keeping the current account balance in check; however, with the ongoing strikes in the sector, this balancing item is no longer in place.

The growing current account deficit implies a reduction in South Africa’s net foreign assets. Moreover, the deficit means South Africa is a net debtor to the rest of the world, ie we owe the world money.

In order to repay this debt, countries usually turn to exports, since the trade balance is typically the largest component of the current account. However, since South Africa is a net importer, we will not be able to generate sufficient export revenue to repay the debt diligently.

Consequently, South Africa will be paying off the current account deficit over a long period, which means investment in the country is stifled as a result.

Keeping in mind that the majority of South Africans are poor and that the majority of their money is spent on fuel, food and electricity, this bodes very badly for the future.

With living costs soaring regardless, we cannot afford to lose the export revenue from the mines and this holds truer for the poor, the very people who are on strike.

- Fin24

* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS.

 

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geoffrey chapman  |  strikes  |  sa economy
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