Don’t throw away a good recession

South Africans should not throw away the opportunity offered by the recession.

June 28, 2016

Erik van Dijk 2 minutes read

Dawie Roodt said South Africa is not out of the woods yet, but signs point to an upcoming recovery for the economy.

According to Dawie Roodt, chief economist at Efficient Advise, the dip in the country’s economy is not yet over, but it gives us a chance to “clean up all the dead wood”.

Roodt recently addressed a hall full of business owners and company representatives at a meeting organised by the Ekurhuleni Business Initiative, in Kempton Park.

Central banks today are exceptionally powerful, according to Roodt.

“They started off by looking after banks, but today they issue money, control interest rates and can swing the world economy.”

He explained that global economics depend, in large part, on the decisions made by the largest four or five central banks in the world, each of which is headed by only a few individuals.

He predicted that the time of central banks is nearing its end, saying virtual currency will become the future’s norm, leaving banks, central banks and eventually government taxation, by the roadside.

Roodt went on to say that the world economy is on potentially thin ice, one factor being all-time low interest rates.

Interest rates in many economies are negative today, meaning the lender must pay the borrower.

“How can that be right?” he rhetorically asked.

“Rather, we should have positive real interest rates and prudent fiscal management (in the world).”

Roodt expects the Rand to strengthen because of this fact, as South Africa’s prime rate is still positive.

“Even if we see a downgrade from the ratings agencies, which I believe we will, the Rand will strengthen.”

Don’t waste a good recession

“Do not underestimate a good recession,” he advised.

“A good recession is actually not a bad thing, it’s an opportunity to clean up.

“It’s like a fire, it’s painful, but gets rid of all the dead wood.”

Roodt went on to say that, in South Africa, food inflation will go up, it may be between 30 and 40 per cent by the end of this year.

He warned that there are plans to create a centralised medical fund for South Africans.

“Why don’t they do the opposite, by privatising all medical services?” he asked.

“Instead of bringing private medicine down to the quality of state-run institutes, we should raise public services to a higher standard.”

Government expenditure

“There is too much expenditure on civil servants,” Roodt added.

According to the speaker, in the past few years, the Minister of Finance has had to borrow more money, because the state spends so much on employees.

“The Minister is borrowing long term, but spends it in the short term,” he added.

Roodt also pointed out that the world is in a technological revolution.

“The jobs of the poor are already being taken over by computers and machines.

“This is also adding to worldwide social tension,” the economist warned.

Corruption

Corruption is, to a large extent, undermining the economy, according to Roodt.

“We have a lot going for us, we have a diversified economy, some of the best banks in the world and well-organised financial markets; we just have to sort out our politics,” he commented.

An audience member asked what might pull South Africa out of a recession.

“Our manufacturing sector may save us, but not yet, we’ll need more skills development,” Roodt predicted.

“If we can’t fix our skills levels and labour issues, or commodity prices don’t rise, the economy won’t recover soon.”