Opportunities Abound!

In the latest edition of South Africa - The Good News, Ian Macdonald and Matthew Choate make a cogent case for being positive about the South African Economy.

The papers are full of 'recession-talk'. The simple fact of the matter is that we aren't even in a recession, or guaranteed to be in one in the near future. Admittedly, we are close. A recession is two successive quarters of negative economic growth, and we recently had our first, after the longest economic upswing in our history. But as Finance Minister Trevor Manuel said recently in a radio interview 'Technically, we're not in a recession. (I know there is) an argument, that if it walks like a duck and quacks like a duck, it probably is a duck; it probably is a recession but, in technical terms, we're not in a recession. We're not in recession yet, that's a very important point.'

Take a look at a number of factors in our favour:

• Exchange controls have trapped liquidity within South Africa that may otherwise have been exposed offshore.
• The National Credit Act has enabled the country to manage credit better than many of our global counterparts.
• We had a budget surplus in 2007 which means that government is able to increase spending to maintain economic growth.
• Our banks are more sound than the Swiss (and the German, the British and the American banks) according to the World Economic Forum.
• Our property market is in better shape than most.
• We are investing in vast public infrastructure projects that are aimed at attracting investment and reducing unemployment.

What many people do not know is that independent organisations such as the World Bank, Business Unity South Africa, the Bureau for Economic Research, Germany's Ifo Institute and the Paris-based International Chamber of Commerce have recently predicted that the South African economy will continue to grow in 2009.

But can a recession be a self-fulfilling prophecy? Can the tail wag the dog? If one constantly reads that we are heading for a recession, won't one act accordingly, whether it's true or not? With the perception of a recession imminent, business and consumer confidence drops; people stash their cash instead of investing it, they stop spending money. Businesses don't invest and they lay off staff. Aggregate demand drops and the perception of the 'imminent' downturn becomes the cause. Economics is a lot about confidence.

Having said that though, there is very little doubt that the world is entering a very difficult period. And even if South Africa is able to avoid a recession, we are almost certain to experience an economic slowdown. South Africa is sound, but we are not immune to the financial crisis. We service global demand and as that drops, we will be negatively affected.

But as with most crises, unprecedented opportunities abound. There is consensus amongst some experts regarding how South Africans should respond to the cooling economic climate.

Regarding your stock market investments: (As per a specialist at a top investment firm in South Africa)

• If you have any money to put away, buy equity unit trusts, which invest in quality shares. Yes, some companies are struggling, but look at balance sheets to check if they are sound. Some companies will always be cash generative, look out for those.
• South African companies are blessed with good conservative management teams, the type who will always have cash on their balance sheets.
• South Africa's debt to income ratio has increased over the last few years, but not near the levels of the US and the UK.
• Our banks are some of the few in the world that still have the ability to lend.
• The emerging markets offer the big growth opportunity after the crisis. China is looking at 4 - 6% growth this year; this is lower than previous years but is still very good.
• South Africa's fiscal policies have helped us immensely and infrastructure spend underpins this. When things turn, South Africa will be able to take advantage of this.

This is a perfect time for young South Africans, with no risk, to get involved in saving in equity unit trust funds. You don't have to be rich, or have a great job, but you can plan to retire a wealthy man or woman.

Now is the time to buy and/or hold on to property and to start a business. Not only will those who grasp these opportunities benefit in the long run, but they will also help to keep the economy's head above water and to avoid the sustained recession that so many think to be inevitable.

Source: South Africa - The Good News Silke Financial Services has the experience, skill & knowledge to guide your investment-making decisions in the most appropriate manner.

You are welcome to contact Ross Munro and Associates. We have partnered with Ross and his team specifically to extend our service offering to you. Ross and his well qualified team offer accounting, personal and corporate tax services.

Office Number: 021 674-4012
Email: ross@rossmunro.co.za
www.rossmunro.co.za
Fax: 086 669-1121