Magazine article New African

South Africa: It's Boom Time Down South but for Whom? in an Unexpected Increase in Fortunes, the South African Economy Has Exceeded All Expectations by Registering a Whopping 5.1% Growth in 2005. but How to Translate These Figures into Real Benefits for the Majority Black Polulation Remains the Problem. Kgomotso Nyanto Reports from Johannesburg

Magazine article New African

South Africa: It's Boom Time Down South but for Whom? in an Unexpected Increase in Fortunes, the South African Economy Has Exceeded All Expectations by Registering a Whopping 5.1% Growth in 2005. but How to Translate These Figures into Real Benefits for the Majority Black Polulation Remains the Problem. Kgomotso Nyanto Reports from Johannesburg

Article excerpt

It came as a pleasant surprise to all economic pundits, even Finance Minister Trevor Manuel, who had forecast 4.3% growth in 2005. Now the race is on for an annual growth rate of 6%, expected to be the panacea to South Africa's poverty and unemployment problems.

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The economy grew by 4.5% in 2004, the fastest rate since 1984, a marked improvement on an average 1% growth rate prior to the advent of democracy in 1994. New figures show that the economy has been growing at an annual rate of 4% or higher in every quarter since 2004--and in some cases 7%. It is boom time.

"A 28th consecutive quarterly period of GDP growth since 1998 and an economy that remains in an upward phase of its business cycle are records that are unlikely to go unnoticed by investors," said the economist, Hart Garrow. "I am optimistic we will breach that 6% growth target soon," he added. The new growth came from many sources: Record-breaking sales of new motor vehicles (an additional R17.5bn revenue from 2004), astronomical growth in residential and business construction, rocketing retail sales and a bustling domestic air travel. Now everybody is waking up to what was self-evident, judging from the government's astute handling of the economy since liberation from apartheid.

The IMF's latest report on South Africa commends the government for the remarkable economic progress achieved since democracy in 1994. "The economy is now growing strongly, inflation has been lowered and has become more predictable, public finances have been strengthened, and the external position has improved markedly," the IMF said, adding: "The expansion in economic activity has created additional jobs. Given South Africa's position in the region, the country's strong economic performance has benefited the rest of Africa."

The IMF said the growth could be bolstered by labour market reforms and further trade liberalisation. It is a recipe that is to be taken with a pinch of salt. Economic growth has largely benefited the wealthy and the middle class segment with access to finance. The wealth has not trickled down or made a significant dent in unemployment.

Instead, the cream of the growth has remained on top and circulated among the wealthy, a hugely disproportionate number of whom are white--12% whites command over 90% of the wealth on the Johannesburg Stock Exchange (JSE). Besides, the shareholding of the boom in various sectors of the economy happens to be owned by whites from South Africa, Europe and America.

There is, however, a growing black middle class buoyed by some government intervention. Employment equity (also known as Black Economic Empowerment or BEE) seeks to transfer 25% of the economy to blacks by 2015.

Thus, politically-connected blacks have become instant millionaires from discounted shares purchased through bank loans. They have acted as a buffer to social unrest often trumpeted when there are complaints of black/white inequalities. It is an interesting subterfuge, judging from the insignificant impact they register on the JSE.

The so-called black middle-class driving around in flashy cars and living in white suburbia are nose-deep in debt owed to the banks whose shareholding remains white while the consumers of their products are largely black.

Interestingly, the blacks have no old money from apartheid days, but are into conspicuous consumption, funded by the banks. They have adopted expensive lifestyles that take hostage future earnings while savings and investment that will give them real wealth are virtually non-existent. …

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