Alumnus shares his view on SA’s budget speech

The global economy can be seen as the flipside of a coin – with the one half represented by the developed markets and the other by the emerging markets. The problem that is currently facing the advanced economies – especially in Europe, can be contributed to a so-called “balance sheet problem” according to Mr Ettienne le Roux, Chief Economist at Rand Merchant Bank.  This, together with factors such as restricted fiscal policies, elevated government spending and low tax rates gave way to Europe’s low Gross Domestic Product (GDP) average of 0.5% for the 2012/2013 financial year.
 

Some of the attendees during the Alumni Breakfast. From the left: Dr Lenie Holtzhausen and Mrs Viné Petzer, Mrs Jabulile Makhilima and Dr Brendah Sekatane, Mr Sammy Khumalo and Mrs Lydia Mokgatle, and Mr Vuyisile Gubuza.

During a recent Alumni Breakfast hosted by the Vaal Triangle Campus Alumni Office the focus fell on global economic markets and more so, a financial forecast for the South African economy for the year ahead. And who better to address such matters than an alumnus of the Campus?

Global economy
According to Mr Le Roux the future global economic growth potential is not in the hands of the advanced world but rather the emerging markets. Whilst the global GDP is set at a 3% growth rate, developing markets only show growth of 1% apposed to the 5% recorded by the emerging markets.  Emerging markets such as India (6% GDP growth) and Brazil (2% GDP growth) are, according to the economist viewed as the “new normal” since they are fundamentally better poised for growth. Factors such as policy flexibility, trade development with other emerging markets and a slower growth rate contributes to their overall financial stability.

When looking at international debt levels as a percentage of a country’s GDP the statistics tell the story of a developed economy under immense pressure – especially concerning economies such as the United Kingdom (80%) and the United States of America (95%). Emerging markets such as Russia (12%) and South Africa (37%) reflect much lower debt ratios.  This trend relates well to South Africa’s consumption lead growth model and according to Ettienne, household spending in the country contributes an estimated 46% to the national GDP.

South African economy
It takes, according to Mr Le Roux, at least 12 months to regain the losses ensued by the global recession and all indications are that South Africa is experiencing an economic uprising. Since the 3rd quarter of 2011, a 4% growth has been reported apposed to the same time in 2008.

According to Mr Le Roux the single biggest challenge posed to the South African economy is the overspending in terms of the government’s wage bill – which was increased by 8.2% for the 2012/2013 fiscal year. In terms of capital expenditure the government under spends (with only 2.9% budgeted for the current financial year) whilst household transfers have grown from 15% to 19%. The latter causes an increased tax burden for Joe Public and it is worrisome that only 10% of the South African population pays income tax resulting in a very narrow tax base.

About Mr Le Roux
Mr Le Roux studied at the Vaal Triangle Campus when it was still a satellite campus of the former Potchefstroom University for Christian Higher Education. Between 1991 and 1995 he received the BCom, BComHons and MCom Economics degrees cum laude. During this time, Ettienne was credited as the best Masters student withint he Economics faculty.

After lecturing economics at the North-West University, he followed a career as economist at the National Treasury. His focus area of research at the time was the currency and balance of payments. While employed by the Treasury, Ettienne completed courses in International Trade and National Accounting Studies at the New York University.

Following his career as economist at the National Treasury, he joined Firs Rand Bank as financial markets economist. In 1998, Ettienne joined Rand Merchant Bank in a similar role. During his time at the bank he received various performance awards and, for a two year period, he also served on the Junior Management Board.

Prior to being appointed Chief Economist in 2009 he was co-head of Rand Merchant Bank’s Fixed Income, Commodity and Currency research team. Ettienne, on occasion, acts as guest lecturer in Economics at the University. His main task at the Rand Merchant Bank is to watch the macro-economic environment in which the bank functions for new trends – with regard to economic variables as well as policy. He also spends a lot of his time studying the global economy.  
 

Published by Sipho Msolo