Transcript The global financial crisis and economic policy - Learning

The global financial crisis
and economic policy
Presentation to Bishops
Trevor A Manuel, MP
Minister of Finance
3 November 2008
Global public goods
• We live in a world that is increasingly integrated
• Globalisation provides opportunities for trade and
development…
– … but it also contains risks
– Not everyone benefits equally from globalisation
• Globalisation needs rules and values
• Priority global public goods include:
– Achieving peace and security
– Preventing the emergence and spread of infectious
diseases
– Tackling global climate change
– Enhancing international financial stability
– Strengthening the international trading system
– Generating knowledge
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The global economic crisis
• The epicentre of the present crisis lies in the USA
• The main causes are:
– Excessive lending by banks
– Extending housing loans, initially at low interest rates and when
interest rates increased, many people got into trouble
– Increased use of credit cards
– Complex financial instrument that hide the real risks
• The impact of the present crisis
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Lending has dried up
House prices have fallen sharply
Lending between banks have ground to a halt
Insurance companies such as AIG have got into serious trouble
Difficulty in obtaining vehicle finance is affecting the auto
industry
– Business investment, which slowed after the dot-com bubble
burst has slowed further
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The US is the epicentre of the present crisis
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The responses by various countries
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In total, over US$4 trillion dollars have been injected into the world’s banks
US
– Cut interest rates 1 per cent
– Provided US$700 billion into the banking system, of which:
• US$125 billion is to buy shares directly in the banks
– Guaranteed bank deposits up to US$250 000
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EU
– Cut interest rates too
– Governments have provided €2182 billion into the financial system
– Increased guarantees on bank deposits
•
UK
– Nationalised Northern Rock
– Injected £300 billion into the banking system
•
£50 billion to buy shares in the big banks
– Cut interest rates
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Japan, Australia, South Korea and several other countries have also
announced bailout packages
These measures are necessary in the short term, but they will increase public
debt, which has to be paid back over time
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USA
US sells US$65 billion of
goods a year to China
China
China sells US$322 billion
of goods a year to US
•
If the US slows down,
China will have no place
to sell the goods it
produces
•
If that happens, they
have to produce less
•
If that happens, they will
demand less steel, coal
and platinum from South
Africa
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So demand for our
exports slows and the
price of these
commodities fall
SA sells US$10 billion of
goods a year to China
China sells US$19 billion
of goods a year to SA
SA
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Policy is Choice
• Governments are responsible for setting policy –
elections are fought for the right to implement
policy
• Different choices have different outcomes
• Policy is implemented through laws and
regulations
• The mandate of our economic policy is
– To build a prosperous and equitable society,
reducing unemployment and expanding
opportunities for especially disadvantaged SAns
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Policy choices
Reducing poverty, expanding opportunities and building a better life for all
The RDP
6 basic principles
• An integrated and sustainable
programme
• A people centred process
• Peace and security for all
• Nation building
• Link reconstruction with
development
• Democratise South Africa
Key programmes
• Meeting basic needs
• Developing human resources
• Building the economy
• Democratising the state and
society
• Implementing the RDP
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GEAR
Reduce interest
burden to release
funds for development
Competitive and stable
exchange rate
Reduce trade tariffs
Tax changes to
support growth
Improve performance
of the state
Invest in infrastructure
Expand trade flows
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AsgiSA
Faster and more shared
growth
Stable and competitive
exchange rate
Improve cost efficiency
of infrastructure and
logistics system
Improve skills
development
Reduce barriers to entry
and enhance
competition
Reduce deficiencies in
the state’s performance
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Skills shortages
• In the past six years, our economy has created over 2 million jobs
– Most of these have been in skills intensive sectors
• Key challenge for our country
– Over one million job vacancies for skilled people
•
Doctors, engineers, nurses, teachers, artisans, IT professionals etc
– Over 4 million people unemployed
• School education
– While access to education has improved, in many schools the quality still
leaves much to be desired
• Tertiary education
– Enrolment is growing, but only about 10% of learners get to university
• FET
– Still small but growing, only about 4% of students in on FET course
• Major challenge is the school to work transition
– Almost half of black school leavers do not find work within a year
– The world of work itself is changing and so skills learnt in school becomes
outdated if people are not working
– Initiatives such as JIPSA, internships, skills levy funding and FET
recapitalisation are aimed at addressing this
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Reversing the spatial distortions of
Apartheid
• After bantu education, the second biggest legacy
of apartheid is the spatial distortions it introduced
– Within cities, poor people and black people generally
live far from where the jobs are
– The homeland system put millions of people in areas
with low economic potential
• Investment in better public transport is meant to
address the first legacy
• Spatial corridors, rural roads and investment in
rural development is aimed at addressing this
second dimension
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Industrial development zones
• Many countries have used IDZs to focus
investment in areas that can attract exporters
• South Africa has several IDZs
– Coega, Joburg container terminal, Richards Bay,
East London IDZ
• The idea is for the state to invest in the heavy
infrastructure (ports, rail, high voltage
electricity, roads and services) to attract
investors that would use these services at a
lower costs, to export
• Investors in these zones have also been
provided with tax incentives
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The Port of Ngqura at Coega
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The Coega IDZ
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Example of a spatial development initiative:
The Maputo Development Corridor
Joburg-Maputo Highway
PPP- BOT completed
Port of Matola/Maputo
Upgrades, PPP
GAUTENG
Coal-based Power Station
2 transmission lines to Matola
completed
MAPUTO
Joburg to Maputo
Railway line: Upgrade
Liquid Fuels & Petrochemicals: Sasol
Pande-Secunda Gas line.
PPP Sasol completed
Al smelter 500ktpa
BHPB completed14
Conclusion
• South Africa has made good progress in transforming our
economy since 1994
• But too many people remain poor and unemployment
remains high
– Too many people still have limited opportunities
• Our economy needs to become more export focused and
more labour absorbing
• The global financial crisis will impact on South Africa’s
growth
• However, South Africa is somewhat protected and well
placed to grow in the future
• Growth and development is not automatic
• These depend on the choices a country makes, the
institutions they build and how they implement their
policies.
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Reference link
http://www.ft.com/s/o/3af6c64c-9eb6-11dd-98bd-000077b07658.html
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