Despite narrowly failing to win the bid for the recent 2006 football World Cup, the bid in itself hi...
Despite narrowly failing to win the bid for the recent 2006 football World Cup, the bid in itself highlights the strides the South African government, and the policies it has implemented, have achieved.
Many South African companies are now being recognised as global leaders. Anglo American Plc in the commodity sector and Dimension Data, a leading network solutions provider, are just two.
The Mbeki government has attempted to implement sound economic policies like inflation targeting and focusing on revenue collection. However, much more lies ahead especially on structural reform of the labour market, provision of basic utility services to the entire population and kick-starting the privatisation process. Economic growth has returned following a period of stagnation, however the sustainability of this growth is yet to be proved.
The privatisation process is key to the government's drive for revenue collection. There are a number of exciting companies like the state telecom provider, Telkom and its mobile phone subsidiary, Vodacom, slated for public stock market flotations early next year. The revenues raised will help reduce the stock of national debt and hence ease the interest rate burden on government finances.
Part of the structural reform process has been to broaden black ownership of businesses in South Africa. This has been driven through various financial schemes with mixed success. The established black economic empowerment companies such as Real Africa Holdings and Johnnic remain well placed to take advantage of government objectives to empower the black population. However, there are a minority of empowerment partners that have failed to live up to expectations.
South Africa's economy is dominated by the resource sector and thus the risk to its economy lies in the global commodity cycle.
Inflation too remains a risk. Despite the recent introduction of an inflation target, the high price of oil and the currency depreciation have led to an increase in inflation in the short term. One of the long-term concerns in South Africa remains the AIDS crisis. It is estimated that 20% of the adult population is infected with the HIV virus. The long-term implication of this epidemic could be disastrous given the large reduction in the labour force, which may significantly reduce economic growth potential, some estimate by as much as 25%.
South Africa's economy appears to have recovered through the establishment of sound economic policies. This should result in significant job creation thus helping to reduce the high levels of crime experienced in the urban areas. Many challenges remain for both the government and companies of South Africa in what promises to be an exciting road ahead.
Ali Khalpey is senior portfolio manager of Middle East & Africa at Merrill Lynch Investment Managers
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