BuaNews (Tshwane)
Michael Appel
10 February 2008
Pretoria — Discussing the effects of the current power crisis on the South African economy, analysts believe that although mining is being hard, the rest of the sectors are holding up reasonably well.
Following President Thabo Mbeki's State of the Nation address on Friday in which he discussed the current power crisis in the country at great length, Econometrix economist Russell Lamberti told BuaNews that other sectors are holding. "The President addressed the issue of the power crisis and possible recession in the United States economy well.
"He said what he needed to on the [electricity] issue and there was a pretty good acknowledgement of the problems facing the country," Mr Lamberti told BuaNews, Friday. South Africa's mining sector - highly dependent on electricity to function - has had to endure power cuts and reduced electricity usage for some time now and despite safety being affected, mineral extraction has slowed.
"With the power outages having gone on for a month or so the mining sector will recover, but if it carries on for a few months then we are going to start to see substantial loses in that industry. "If the situation carries on as is, there is going to be more loses on the Johannesburg Stock Exchange (JSE) as investor's price in the situation," he said. Referring again to Mr Mbeki's speech, Mr Lamberti said whilst not much was said on the economic front, if you read between the lines on fiscal budget, that government is going to foot the bill for a lot of the power generators that are going to be built.
As well, in the current low growth environment, tax revenue might be lower than government expected, with the budget going into deficit territory. Inflation remains stubbornly high, the fear of a recession in the US economy, the current electricity crisis, and the rand having weakened significantly against the greenback does not bode well for future market prospects he said.
"From a JSE perspective it's not a rosy situation. "I don't think we are going to see another rate hike [when the Monetary Policy Committee meets again in April 2008], it will probably stay on hold, but the biggest risk factor is the depreciating rand. The president said people are concerned about some developments in our economy, especially the steady increase in interest rates; food and fuel prices which further impoverish especially the poor.
"Some among these worry about the possible impact on our economy of the threat of economic recession in the United States," said Mr Mbeki, adding "government must continue to proceed as we keep our eyes firmly focused on the continued pursuit of the goal of a better life for all."
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