Perfect storm erases visibility

FINANCE Minister Trevor Manuel's Budget speech last year took the form of a weather forecast, complete with maps warning of storms. Little did we know then that the financial storm would turn into a full-blown hurricane, wreaking further devastation in the global economy, with the International Monetary Fund slashing its global growth forecast to 0.5percent, the lowest since World War Two.

FINANCE Minister Trevor Manuel's Budget speech last year took the form of a weather forecast, complete with maps warning of storms. Little did we know then that the financial storm would turn into a full-blown hurricane, wreaking further devastation in the global economy, with the International Monetary Fund slashing its global growth forecast to 0.5percent, the lowest since World War Two.

The IMF expects a drop of 1.6percent in gross domestic product in the US this year and another drop of 1.6percent in 2010. A fall of 2percent is expected in the euro-zone this year and meagre growth of 0.2percent in 2010.

Though the picture looks different in emerging markets, with China and India still growing, albeit at lower levels, and fiscal stimulus packages being harnessed in many economies, it is clear that South Africa cannot escape these gale-force winds. Nor can it escape the grim reality of the return of economic nationalism - the urge to keep jobs and capital at home - so vividly illustrated on the cover of last Friday's edition of The Economist.

As early as October last year, Martin Wolf of the Financial Times labelled the growing crisis a "perfect storm" at a joint Helen Suzman Foundation-Gordon Institute of Business Science seminar.

At the event, Manuel made the first cautious comments about the effect the crisis could have on domestic plans and projections as a debate about the role of the developmental state continued to rage in different domestic arenas.

It can therefore come as no surprise that the curtain-raiser of the domestic political calendar, the state of the nation address by President Kgalema Motlanthe on Friday, strongly emphasised the impact of the global economic crisis on our economy and on government's readiness to be of assistance to protect jobs. It is in this context that this week's Budget will flesh out some of these proposals, ranging from significant and continued infrastructure spending to "job-sharing" and leveraging pension funds for economic development (perhaps a more controversial notion invoking memories of prescribed assets).

A second phase of the expanded public works programme has been announced and there is little doubt that the word "fiscal stimulus" might feature in our Budget as in many others.

The challenge we confront is to decide what level of fiscal stimulus we can afford to engage in, given our limited resources and dwindling revenue. It appears to be an inescapable fact, that depending on its magnitude, such stimulus will undoubtedly increase our deficit after years of painful austerity.

This is not the only challenge we face. Equally complex is the management of the burden of our growing current account deficit against the backdrop of public infrastructure spending of R690-billion over the next three years, in a world of rising protectionism and economic nationalism in which the demand for exports and, arguably, the notion of export-led growth paths has all but collapsed.

In addition, the complexities of raising capital in credit markets that are all but closed for emerging markets will be addressed, in part, by the measures announced by Motlanthe, but more might be required if we are to confront these challenges. A real partnership between the stakeholders in South Africa has never been as necessary and indispensable as it is now.

It was therefore potentially significant to see Motlanthe invoke the memory of the growth and development summit as a blueprint for a possible new compact between government, business and labour. This should be one of the contingency measures we craft to protect ourselves and lay a sound foundation for faster growth when the global village re-emerges.

As protectionism and economic nationalism grows, South Africa has a special duty to speak loudly in multilateral forums for many nations that have less of a voice than ourselves about the need for unprecedented global co-operation. It must play a significant role at the upcoming G20 meeting in London to highlight the challenges emerging markets confront and the risks Africans in particular have to grapple with as a consequence of this perfect storm.

But the bigger question hovering as a backdrop to all this, indeed, centre-stage to the Budget, is who will succeed Manuel? In the present climate, we need strong voices to represent us. Meanwhile, our uncertainties remain unanswered and the administration's succession plan remains unclear.