Investors Give S. Africa Cold Shoulder
International Investors Give South Africa the Cold Shoulder as Currency Falls to Record Lows
biz.yahoo.com
Sunday September 23, 1:08 pm Eastern Time
By MIKE COHEN
Associated Press Writer
CAPE TOWN, South Africa (AP) -- With South Africa's currency battered to record lows after last week's attacks in the United States, the man charged with steering Africa's largest economy shook his head in disbelief. ``America was attacked. How can the rand weaken (against the dollar) on that?'' lamented Finance Minister Trevor Manuel. ``Somebody must explain that kind of rationale to me.''
Since the end of apartheid in 1994, the government has been lauded by analysts, the World Bank and the International Monetary Fund for rapidly streamlining and modernizing the stodgy, inefficient economy it had inherited. But officials are growing increasingly frustrated at low levels of foreign investment and the sharp decline of the rand despite improving economic conditions.
The government has slashed the budget deficit from more than 7 percent to less than 2 percent; exports have grown from 23 percent of gross domestic product to 30 percent; inflation has plummeted from 15 percent to 6 percent. Several state assets have been privatized, taxes and protective tariffs have been cut and a host of restrictive laws have been revamped or abolished.
A budget surplus is possible next year for the first time in living memory -- an achievement that even major industrialized countries like France and Germany are unlikely to emulate. Trade Minister Alec Erwin said not only have the country's exports grown rapidly, but export markets and products have also been diversified, providing some insulation from global economic fluctuations.
In a report issued last month, the traditionally cautious Reserve Bank highlighted a slew of positive economic data, including improved foreign reserve levels and declining interest rates. ``The South African economy coped well in a changing world (that is) being particularly affected by a slowdown in the United States economy,'' said the bank's governor, Tito Mboweni.
Yet international investors, having burned their fingers in other emerging economies, remain unimpressed. Last year the country attracted $492 million in new foreign direct investment, down 52 percent from 1999.
Since 1994, the rand has lost a quarter of its value in real terms -- which takes into account inflation rate differentials -- against a basket of currencies. Against the high-flying dollar, the rand has fallen about 40 percent in real terms. Currency speculators view South Africa's small, open economy as an easy target. Since the attacks in Washington and New York, they have driven the rand exchange rate from 8.59 to the dollar to 8.67.
Although the economy has expanded, the growth rate is still well under the 6 percent economists say is necessary to make a dent in the country's one-third unemployment rate, which subjugates millions of people to crushing poverty. Even many of those with jobs are paid wages as low as 250 rand ($30) a month.
Iraj Abedian, an economist at Standard Bank, believes the global economic slump and political turmoil in other African countries have detracted from South Africa's economic turnaround. Especially damaging to investor confidence has been turmoil in neighboring Zimbabwe, where ruling party-backed militants have embarked on a violent campaign of occupying white-owned farms, sending the already damaged economy into a tailspin.
Analysts point to other factors deterring investment in South Africa -- rampant crime, one of the world's highest AIDS infection rates and a militant labor movement. Recent strikes by trade unions against privatization have undermined much of the good work done by the government to attract foreign capital, said Michael Spicer, a director of mining giant Anglo American.
Abedian said foreign investors are inherently pessimistic about Africa, and the South African government is not doing enough to change those perceptions. Finance Minister Manuel remained optimistic South Africa's economy would pull through and prosper amid the current downturn in the world economy.
``Whereas emerging markets elsewhere are suffering varying degrees of recession, South Africa is expected to record a growth rate for 2001 that is in excess of the growth rate for the world economy,'' he said. ``We can rightly say that we have achieved an economy which is both more stable and more competitive, and in which growth is more sustainable.'' |
