Short-term growth prospects dim, MPs told

Prospects for the economy to grow in the short term are not good as businesses hold back on big projects, an SA Reserve Bank economist has told parliament's standing committee on finance.

"It is clear that people will be reluctant to enter into bold ventures, big capital ventures and heavily geared undertakings," Johan van den Heever said on Wednesday.

"It is not good news for short-term growth. One should recognise that," he said.

"That said, a consumer-led upswing in an environment of relatively low inflation and generally healthy policies which is not heavily credit dependent is far more sustainable.

"One would expect that despite the external circumstances in Europe and [the US], our domestic upswing will continue and will take us forward."

Van den Heever said South Africa had to "shape up" and lift its slow volume of exports.

"Exports are rising but are not quite back to the level we saw in 2008, and this has been a concern to economists," he said.

"It is one of the things the South African economy needs to shape up on."

Reasons for the weakness included poor transport infrastructure and the lack of availability of electricity.

Gold, which was being mined "deeper and deeper", with grades becoming "lower and lower", was also affecting poor export volumes.

"Our ability to export and take advantage of high commodity prices has been ruined [because of] our transport infrastructure," he said.

"Our government is addressing some of these infrastructure bottlenecks, but to install a pipeline and expand a harbour takes a long time."

Exporters were less inclined to seek out new markets because of the strong value of the rand.

The bank had been increasing its holdings of foreign currency "quite a bit", but this had not been sufficient to lead to a depreciation of the currency.

"Part of the reason for that has been that our exports like gold and platinum have been very buoyant which has supported our export proceeds and underpinned the exchange rate of the rand."

A stronger rand, however, was "helpful from an inflation point of view".

Van den Heever said sustainable monetary and fiscal policies had allowed the inflation rate to decline quite a bit.

"Currently, inflation is at the mid-point of the range.

"If you took out the volatile components like food and energy you would find that inflation rate is on the tame side, which is good from an inflation monitoring point of view."

He said the bank had built up its foreign currency reserve position to around US$50-billion (about R356.8-billion) ,which had created confidence in the economy.

"An American investor, when things are difficult, prefers to pull money into the US, where they know their government is overseeing the financial system.

"They would prefer to have their money under their own national control rather than another country's banking system."

Van der Heever said US investors had taken their money back to the US after the financial crisis in 2008, causing emerging markets to fall "a bit".

"To some extent the same thing may happen. International investors become inward looking and pull their money back into known. We see that from time to time. There is no reason to think these fluctuations will come to and end."