This too shall pass

2008-10-14 00:00

MANY commentators have likened the worldwide stock market crash of the past few weeks to that of 1929. Indeed, some claim that it is more serious. Trillions have been wiped off the wealth of nations and South Africa has not been immune, the Johannesburg Stock Exchange (JSE) losing about 30% of its market capitalisation this year. Indeed, one day’s fall could be translated into a loss of national wealth equal to R6 000 for every individual in the land.

In fact, however, despite such dismal figures, South Africa is in a much better situation than many other countries. The World Economic Forum last week rated South African banks the 15th most secure out of 134 countries, ahead of even Switzerland. South Africa had its own banking crisis in 2002 when 22 banks either went under or were bought out. As a result, despite the political pressure to lend to low-income earners, South African banks have been extremely wary of lending to people who can’t afford it. So, although bad debts have gone up recently, they are still within manageable limits. Finally, the coming into effect of the National Credit Act in June last year put an end to all easy borrowings, whether for mortgages, vehicle finance or personal loans.

Furthermore, South Africa’s much reviled exchange control regulations, liberalised over the years but never shed, are now shown to have been a blessing in disguise. Not only did they prevent financial institutions in South Africa from investing directly in sub-prime paper and other toxic assets, but they also prevented the development of markets in the more exotic financial schemes because regulators wouldn’t allow exposure that might mean money would have to flow out of the country.

Thus Finance Minister Trevor Manuel’s weekend call not to panic is eminently sensible. No South African bank is going to go broke or have to be bailed out by the taxpayers as has happened in the United States and the United Kingdom. Because we are part of the global village, however, tough times lie ahead: prices will rise, exports will fall and the economic growth that creates jobs will be harder to sustain. But just as stock markets go down, so they also come up — always, in the long term, more than they went down.

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