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SONA faces a slow economy

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The State of the Nation address (SONA) will have the challenges of a grim economy to contend with. Low GDP growth appears to be a main concern, especially with the World Bank estimating that South Africa could only grow at 0.7% this year. The rand has been extremely volatile in recent months and is being tossed about ‘like a rag doll’. Some of the factors that have added pressure to the Rand include local economics and productivity. The President’s decision to fire and hire Finance Ministers have also weighted heavily on the Rand.

It is inevitable that drought conditions may reduce agricultural output. A resultant will be to import R12 billions of grain to satisfy local demand. The inclusion of high priced corn starch and syrup in most manufactured foods will make for a secondary level of food price increases. People will have no choice but to buy food at a higher price and this in turn leads to inflation. Amidst this bleak economic outlook, is the high rate of unemployment and pending job cuts. Many mining houses, industries and at least one bank have indicated job cuts and the South African Reserve Bank has adopted a policy stance of raising interest rates to cool inflation.

The demand from China for all goods and commodities has slowed, impacting mining and resource businesses. The China slowdown drags the rest of the world down with them and as a result South Africa will notice lower demand from global partners. Parliament may be in a position to help alleviate some of these economic woes by creating employment through encouraging entrepreneurship. Creating funds that promote start-up businesses, may also reduce the need for expensive imports. A national drive to assist farmers and encourage the public to start vegetable gardens may also help to salvage the situation.

The South African Reserve Bank may follow the lead of western central banks and abandon their monetary policy stance in favour of a flat interest rate policy. The forthcoming budget speech should therefore be guided by job creation and promotion of business protection. This may assist in promoting productivity and GDP growth. In the face of economic recession and a disjointed parliament, it is now time for unified efforts to combat the challenges facing the South African nation.

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