The European Union is South Africa's major partner yet the leading country of the African Union is not feeling the effects of the debt crisis weighing on the European accounts. Because it diversifies. The new entry of the Brics is increasing year by year its commercial relations with India, China, Brazil, but also with Nigeria and Egypt. It certainly enjoys a not indifferent geopolitical position, but it is always the political choices that make it possible to exploit the gifts of nature to one's advantage. FIRSTonline spoke to Professor Hendrik Strydom of the University of Johannesburg about it.
FIRST online – Professor, the capital that entered Greece for the 2004 Olympics helped to widen the hole in public finances which is at the root of the crisis today. What effects have investments for the 2010 World Cup had in South Africa? And which are the main countries from which these resources have come?
Strydom – The incoming capital has certainly benefited the country's growth. The biggest contribution was certainly the big boost to infrastructure. Highways have been built, a train system in the big cities and connections from the main airports. Most of the funds came from'Europe, which remains our most important trading partner, as a source of commodities and representing 40% of foreign direct investment. Furthermore, European countries play an important role in promoting human rights and political stability in countries experiencing a situation of conflict. But our relations with China are also expanding and I think that in a few years the Asian giant can take the place of Europe. Commercial relations with the Brics represent a share of 19% (2008 data), when in 2000 they did not exceed 5%.
FIRST online – Has South Africa suffered a contagion effect of the crisis we are going through in Europe?
Strydom - I would say no. As already happened in 2008, the global recession is not having too many negative effects. Firstly because the our banking system is solid, relatively closed and not too exposed to European risks. Furthermore, our real economy is very diversified: our relations with India and Latin America are growing and we do not depend exclusively on the production of just one economic good. Finally, most of the European exchanges take place with Germany, England and the Scandinavian countries, which have so far been the least affected by the crisis.
FIRST online – Yet the Central Bank has revised its growth prospects downwards from 3,7% to 3,2% in 2011 and from 3,9% to 3,6% in 2012. The rand has depreciated by 18,6% since start of the year. Governor Gill Marcus spoke of inflation risk (the 5,5% interest rate is at a 30-year low and inflation is at 6%). Do you think they will cut interest rates to try to boost the country's growth?
Strydom - A weaker rand is good for our exports and a few days ago it was reported that our trade balance has grown from 500 billion rand (about 46,28 billion euros) thanks to our depreciated currency and that the country can easily meet its foreign payments. The inflation rate is perhaps mildly alarming, but it doesn't yet present a problem as the central bank's target is to keep it between 3% and 6%. Two years ago the value was much higher: these are expected fluctuations in a financial situation like the one we are experiencing. The growth rate has also been stable over the past two years, fluctuating between 3% and 4%. At the moment there is no clear indication that the central bank will cut interest rates. If that happens, it will be good for the housing market, which has been in a slow growth phase since mortgage interest rates peaked at 15% about two years ago.
FIRST online – Does South Africa feel more connected to the BRICS or to other African countries?
Strydom – Our ties remain close above all with Europe, also due to the colonial history that unites us. However, they are relationships that gradually become less important precisely because relations with the BRICS and other African economies are increasing, especially Nigeria and Egypt. And South Africa will certainly be increasingly committed to them and will play an important role in the development of infrastructure in those countries.
FIRST online – Do you believe that the time has come for substantial and concrete growth for Africa?
Strydom - I think it is still too early to talk about real development of the African continent. Some economies are emerging like Ghana, Tanzania, Angola. However, internal conflicts continue to be a major obstacle to development. And South Africa is working to end that conflict. However, the African Union's peacekeeping role is still weak and depends very much on the European Union which plays a very important assistance role (in 2008 they contributed 1 billion euros to the Security Council and safeguarding the peace). A Zulu proverb says, "You cannot hunt two antelope at the same time." First we need to work hard to obtain peace and political stability and then we will think about economic growth.
