The casualties of slower emerging market growth have been the commodities markets and this makes prospects for South Africa’s economic growth particularly worrying.
This is according to Sandy McGregor, the manager of fixed interest and individual client portfolios at Allan Gray, a South African investment management company.
Almost all African countries are dependent on export of primary commodities. The last decade saw unprecedented rise in the price of these commodities.
This is described as most significant primary commodity price boom in the last four decades. This primary commodity boom is primarily fuelled by a demand surge for primary commodities from newly emerging economies such as China and India.
In addition, the decade also witnessed a number of natural resource discoveries in Africa, particularly oil. This allowed many African countries to benefit from the global price rise of primary commodities.
According to the Institute of African Economic Studies (IAES), a surge in export earning owing either to a rise in global prices of primary commodities or a new discovery, though beneficial in terms of providing much needed resource and in spurring growth, it also brings with it, among other things, macroeconomic challenges.
“It increasingly looks as if we have seen the peak of the great commodity boom which commenced in 2002 and was driven by a rapid increase in demand in developing economies, especially China,” McGregor said in a note.
He said rising export prices have rewarded commodity exporters such as Australia, Chile and South Africa with a decade of prosperity.
But now what had been favourable had become adverse. No longer would these countries be able to sit back complacently and allow the rising tide of prices to carry them ever forward to increasing prosperity.
“The prospects for South Africa are particularly worrying. While Chile and
Australia have a strong skills set which will enable them to reinvent themselves and change their focus to compensate for shrinking mining revenues, South Africa probably lacks the skills and market flexibility to do this,” according to McGregor.
“This is the biggest challenge our country faces because it impacts directly on all our other problems. How will the economy grow after the end of the commodity boom?”