Calculating the financial cost of the Zimbabwean crisis helps to measure relative priorities and gives guidance on what needs to be done.
Last year, the combined size of Zimbabwe and SA’s economies was US283-billion, but our neighbour accounted for just 0.2% of the total.
If only a third of the jobs held by Zimbabweans in SA are taken by locals, our unemployment rate would drop from the current 23% to 16%.
The financial repercussions of the political chaos and economic meltdown in the country should be spelt out because it’s costing us dearly, writes Jayendra Naidoo
While many question the role of South Africa and its right to intervene in the Zimbabwe crisis, the real question is whether we can afford not to intervene.
Zimbabwe stands on the edge of an election outcome that will lead either to a democratic change or a political disaster.
While the stakes are undoubtedly high for Zimbabwe, South Africans with other pressing challenges, such as electricity shortages, unemployment, crime and Aids, will inevitably ask why Zimbabwe should be given priority.
Social and political organisations should operate on principles of social justice and human rights. This allows strong moral stands to be taken regardless of economic interests.
But calculating the financial costs and benefits of the challenges we face helps to measure relative priorities and provides guidance on the amount of resources that can be invested to resolve an issue.
The question South Africans must ask is whether our current government policy of quiet diplomacy is an appropriate response, or should we rather be investing in a stronger approach to ensure a successful democratic election outcome and the restoration of the Zimbabwean economy?
Using public data, Macquarie First South’s economists have “run the numbers” on Zimbabwe’s effect on the South African economy.
SA Reserve Bank data shows that the combined gross domestic product of South Africa and Zimbabwe was US143-billion in 1994, with Zimbabwe’s share about 5%.
After experiencing steady growth through most of the ’90s, Zimbabwe’s economy has deteriorated since 1998 to the extent that it’s now the world’s fastest-shrinking economy with the world’s highest inflation rate.
By last year, the combined size of SA and Zimbabwe’s economies had doubled to US283-billion, but Zimbabwe’s economy accounted for just 0.2% of the total.
Today, the Zimbabwean economy is 40% smaller than what it was in 1999.
Had it maintained its pre-2000 growth rate, its GDP would be at least US7- billion larger than it currently is.
South Africa is Zimbabwe’s largest trading partner, supplying 40% of its imports and receiving 25% in exports.
It’s estimated that the share of “lost” exports from South Africa to Zimbabwe is approximately R22-billion.
Furthermore, perceived political risk attached to the Zimbabwean political crisis has had a big impact on South Africa, especially taking into account the current account deficit and the tough global financial environment.
International negative sentiments on Zimbabwe hurts South Africa as well, as investors in SA bonds and equities calculate the negative consequences on SA in terms of employment, growth and social stability.
In 2001, the initial wave of negative sentiment on Zimbabwe coincided with a 3% increase in South Africa’s cost of borrowing foreign currency.
Macquarie First South’s research estimated that, in the current global environment, a meltdown in Zimbabwe could weaken the rand by as much as 20%. This would push interest rates up by at least 2%.
This raises the borrowing and investment costs of public and private companies, and hits consumers in the form of higher transport costs, electricity, house rentals or mortgages, and a higher cost of goods generally.
This would equate to a total cost to South Africa of R24-billion.
The loss of SA exports to Zimbabwe has resulted in a total loss in GDP of R46-billion in the current year.
Of course, the cumulative effect over the past seven years is larger, and if the crisis continues for years ahead, the costs would continue to grow.
Conversely, in the context of a successful transition in Zimbabwe, positive sentiment would strengthen the rand and result in a reduced cost of borrowing.
Taking action to restore the Zimbabwean economy would potentially add 2% to our economy.
Zimbabwe’s crisis is not just a lost opportunity in terms of GDP, but a huge direct cost to South Africa.
Formerly a food exporter, Zimbabwe is now an exporter of poverty and refugees.
An estimated 3.5 million Zimbabweans are in South Africa, most working “illegally” in SA homes, restaurants and the construction sectors. At the same time, there are about four million unemployed South Africans who are actively looking for jobs.
If the Zimbabwean economy began functioning normally and started to create job opportunities again, many would return home and find jobs there.
Assuming that only a third of the jobs currently held by Zimbabweans are taken by South Africans, unemployment in South African would drop from the current rate of 23% to around 16%.
This translates into more income per average South African household, plus additional savings in unemployment benefits currently being paid and a decrease in remittances sent to Zimbabwe, which will save South Africa additional foreign exchange.
According to the SA Reserve Bank, the average total compensation for an SA employee (taking into account a labour force of 17 million people) is about R49 000 a year or R4 000 a month.
Assuming that the average Zimbabwean employed in SA earns even half of this, the direct effect of 1.2 million more South Africans being employed in those jobs would be about R30-billion.
Each average SA household would be roughly R3000 better off each year.
There are other costs too.
Zimbabwean food production has fallen 40% since 2000 and the UN World Food Programme estimates that 2.6 million Zimbabweans will need food aid in 2008. The country has lost major tourism revenues, foreign direct investment has dropped to less than 10% of its pre-2000 levels to US30-million, and SA suppliers have lost millions as a result of non- payment from Zimbabwean companies. The valuable mining and agricultural sectors have lost out on the high prices for commodities due to dramatic falls in their output.
Zimbabwe is a high-value challenge and opportunity for South Africa.
The costs or gains of getting it wrong are high — as are the gains of getting it right. If South Africa was a company, the shareholders of SA Inc would link the bonus of the top executive management to resurrecting Zimbabwe and helping to get it on the right path.
Weak action on South Africa’s part now is in itself an action and a choice.
Zimbabwe can’t afford to miss this critical chance for change.
But more still, South Africa can’t afford to miss this opportunity either.
• Naidoo is the executive chairman of the J&J Group and writes in his personal capacity .
( Sunday Times, 11-05-08 )
No comments:
Post a Comment