Economic future is not all doom and gloom, despite recession

2009-05-22 00:00

THE future is not all doom and gloom, despite the current economic downturn and KwaZulu-Natal business will recover with the rest of the world, Ithala CEO Sipho Shabalala told local business people at the Second Annual Investment Conference presented by Harvard House Group and The Witness, at the Sinodale Centre in Pietermaritzburg yesterday.

He said economic history and theory proves that recession is followed by recovery and suggested that entrepreneurs should adjust to new ways of doing business.

He warned that world economic conditions are worsening, which has resulted in the decrease in external demand, leaving every nation and every economy having to rely on national demand for the continued survival of that economy.

“It is expected that volumes of exports out of South Africa will contract in 2009. On the other side of this is that there is weakening domestic spending. Rand Merchant Bank, in its March bulletin, forecasts that the country’s GDP will contract to -0,5% in 2009. Should this happen, it will be the worst contraction since 1992.”

He said the next upside is going to be driven by, among others, the pre­servation of jobs “in the sectors that are ranked from one to five [agriculture, forestry and fishing; manufacturing; transport; storage and communications; wholesale and retail trade, including hotels and restaurants], particularly because these sectors have a capacity to employ larger numbers of people”.

He also said that increased government spending, including investment in infrastructure, can stimulate growth.

The challenge, according to Shabalala, is to forecast the recovery period.

“What is, unfortunately, not as clear is the timing and the magnitude of the recovery, when will the recovery phase begin and how long will it last . . . To a significant degree, the timing and the magnitude of the recovery phase will depend on the economic sectors that drive the recovery phase”.

He encouraged entrepreneurs to use economic tools to stimulate the economy: “This should be done through a combination of two approaches: a reduction in interest rates and government investment in infrastructure.

“It is not appropriate to continue on a ‘business as usual’ approach. Times such as these require continuous reviews or stress testing of the business model and the business plans of every business. Proper decisions can only be taken on the basis of the current environment . . . ”

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