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ECONOMY: Can a Positive World Cup Kickstart the Economy

 





Recent Gauteng Business News

Hopes are riding high on the World Cup with optimism that the positive sentiment around rugby matches and the start of the Soccer World Cup could boost sagging business confidence and kickstart the economy. Debt counsellors and the police are warning new growth is necessary to stem a tide of young people turning to crime because they can’t get jobs.

“Economic indicators are not looking good,” Andre Snyman, CEO of Consumer Assist said, “Borrowing by households and companies contracted for the seventh month in a row, reflecting heavily indebted households and lack of confidence in South Africa’s recovery. Matters are not helped by ongoing strikes, go-slows and disruptions at a time when 18 000 journalists are in the country and everything that happens here has a global spotlight on it.”

And there is another need for the economy to grow – rampant criminality by young people who can’t find work. Last week, Minister of Police, Nathi Mthethwa said: “One of the findings from our crime analysis over the past months, is that in South Africa around 70 percent of crime is mainly concentrated around three provinces: Gauteng, KwaZulu-Natal and Western Cape. Further analysis tells us that crime in South Africa is committed by the same offenders again and again and this would represent a very small percentage of the population. Sadly, the majority is the youth and it cannot be business as usual when our prisons are filled by vulnerable young people.”

Snyman said, “We get tragic cases of talented young people unable to study because their parents cannot afford the tariffs; even schools are illegally harassing parents and blacklisting them if they cannot pay school fees. And then there are those young people who have studied and have a degree and can’t find jobs – in 2006 alone graduates without work numbered a million young people according to StatsSA, we believe that figure must be far higher now.”

There are some positive rays through the gloom, Standard Bank says the volume and value of mortgage loan applications is increasing, but they say those hardest hit by the economic crisis are in top earning categories. And car sales are up by 35 percent. Snyman says: “Those who earned a lot of money before the financial crash often over-extended their credit limits or suffered with stock market crashes. The middle class has proved more resilient, we are selling Consumer Assist franchises at R120 000 each – with 50% loans from First National Bank. We have seen high interest in them but too with job security questionable at many corporates more people are becoming entrepreneurial.”

Overall, Snyman and credit providers say consumers are very wary of spending or making new investments with many fearing job losses. Last year South Africa shed a million jobs and it has already lost 171 000 jobs this year with more people likely to be looking for jobs after World Cup events are over. Government claims that the World Cup created 159 000 full and part-time jobs and a skills audit by the Department of Environmental Affairs and Tourism suggested that the World Cup opened up 80 000 job opportunities – many of which will close in late July and August.

The latest Trade Stats issued by government last week showed that “imports decreased by R5.02 billion (9.83 percent) to R46.06 billion and exports decreased by R7.37 billion (14.29 percent) to R44.17 billion.” Snyman observed: “such drops suggest that manufacturing is contracting sharply and that always has a significant impact on job security.”

Standard Bank issued a statement last week saying: “Highly indebted consumers, the debt review process, and rigid unemployment will serve to cap household credit growth this year.” At present 7 500 people are applying for debt review each month.

Standard also noted that of 18 million consumers with credit, only 40,5% are up to date with payments, against 47,3% at the start of the economic downswing late in 2007. Household borrowing rose 3,6% in the year to March driven mainly by home loans. Household debt levels are still hovering at very high levels of about 80% of disposable income. Debt service costs are at 8,4% of that aggregate, despite substantial interest rate relief.

Snyman said: “Consumers are still frightened that the economic downturn is not over and key data released last week suggests their fears are based on fact, even economists are urging caution because of financial instability in Europe.
“There is no reason to expect a pickup in credit,” said Annabel Bishop, an economist at Investec. “The economy is still weak and households and companies are still highly indebted.”

Commenting, Snyman noted: “much more needs to be done to stimulate the economy and find programmes for young people to become involved in. Next year, according to Department of Health figures, there will be a shortage of 18 000 nurses, but we see no signs of large scale drives encouraging young people to become nurses. The public and private sector need to apply their minds to this because crime also has a negative impact on economic growth and investment.”


 
 
 
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