Effects of the Recession

Andrew Layman:  PCB CEO

Last week I was invited to attend a presentation of a report commissioned by the provincial Department of Economic Development and Tourism that analysed the effects of the recession on the provincial economy.   It elicited some lively discussion, not so much about its contents, but its significances.    Needless to say, it showed that the economy had suffered a good deal, especially in the manufacturing sector and in terms of unemployment.    On the basis of these body blows and subsequent economic circumstances, recovery, though in progress, will be slow.   In the critical sphere of unemployment, the ground may not be recovered for a considerable period of time considering that retrenchments and other cash flow problems prompted companies to find more efficient and less expensive ways of doing things without compromising productivity.    Although very difficult for retrenched people to swallow, the recession has acted as an emetic on Business.   In the broader scheme of things this is positive and if our companies can sustain or improve production at a lower cost, it is good for competitiveness.   Boom times, inevitably, promote complacency and some reliance on inertia for momentum.   

The researchers did not find it a plain-sailing exercise.  Aside from the frustration of the reluctance of business people to assist and contribute to this kind of research, it was difficult to disaggregate the factors relating to the recession and those relating to other economic circumstances.    At the end, the question was posed:  to what extent was the recession causal or exacerbating?    The significance of this is easily missed.    It has been easy to blame the recession for the statistical declines since the beginning of 2008.    This has made it possible to avoid too much scrutiny of other factors which might have had more effect than we would like to think.    Distraction such as the recession has offered is dangerous and, recognising this, we should not allow the FIFA World Cup and its economic impact to close our minds to what the situation might be, or might have been, if there were no such event to boost our hopes and confidence.   

Expert opinion seems to be that we must consider the recession more of an exacerbating than a causal factor.    Manufacturers who lost orders from abroad and have had a hard time of it as a consequence might not agree, but the truth is that additional pressures undermine resilience severely if that resilience is shaky in the first place; just as an ill person’s health will deteriorate much quicker if the illness is compounded by other afflictions.     There is a need, therefore, to consider what factors were causal if the recession cannot account for them completely.     Some are quite easy to identify.   There was a good deal of political upheaval, we suffered electricity crises of blackouts and drastic increases, the Rand strengthened, the balance of payments showed that imports were excessive and exports insufficient and workers, notably those in the public sector, began to flex their muscles in demand of double-digit wage increases which were granted.    The country’s economic structure was beginning to show that it was not as sustainable as the annual growth figures had implied.

The fact that we had a change in the national administration may prove to have been a blessing, since the former government was showing no signs of recognising a need for change.    The jury is still out, I believe, as to whether President Zuma’s changes were motivated by a real need or by the political imperative for he and his ANC to display reformist strategies.     We have a new national Industrial Policy Action Plan.   It is promising, but will it succeed?   And does it address all the issues that might compromise growth in the forthcoming years?   

The value of the report lies not in its commentary on the effects of the recession, for this has taken place and nothing can be done to change what has happened.   The value lies in identifying the significances which require attention and action to ensure uninterrupted growth in the future. 

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