Delayed, but South Africa feels pain

The country's hopes of weathering the storm have collapsed, with the forecast of zero growth dismissed as 'wildly optimistic'.

Itinerant workers in Johannesburg are finding it increasingly difficult.

HONEYDEW, SOUTH AFRICA // The Builder's Warehouse superstore in this Johannesburg suburb is packed with goods for those looking to improve their homes or build new ones, and the road leading to it is lined by people offering their labour, stark evidence of the first recession to hit South Africa in nearly 20 years.

Holding up signs advertising the tools of their trade, from paintbrushes and putty knives to plumbing implements, whenever a driver pulls up, the vehicle is instantly mobbed by eager would-be employees. But fewer are finding work, even though their services usually cost only 250 rand (Dh110) per day. "Maybe I got two days work last month," said Mike Dube, a plumber. "The work has gone down. Last year was busy, last year was better."

Then, he was often working six days a week and could afford monthly visits to his wife and child, who live several hours away in KwaZulu-Natal province. These trips home are much rarer now. Bright Chisarima, 29, fled the ruins of Zimbabwe's economy, but has found little relief. "Sometimes I can spend the whole month without working." he said. "There are a lot of people who are scrambling for the same job. Six months ago it was rather better. Maybe in six months there will be no jobs at all."

When the global financial crisis first hit last year, South Africa went largely unscathed. Its banks, having been isolated from the worst excesses of the subprime crisis by exchange controls that limited their ability to take part in international markets, were relatively unaffected. Government regulations had also clamped down on the banks' domestic lending in previous years, as concerns had been raised about excessive consumer borrowing.

But in a globalised economy, no country is an island, and the hopes that South Africa might weather the storm have collapsed spectacularly, with two of its most important industries, mineral exports and car manufacturing, suffering badly during the downturn. Plunging commodity prices have caused mining operations to be suspended, and car sales have fallen by record margins. Last week, the government announced it was officially in recession. Gross domestic product had fallen by an annualised 6.4 per cent in the first quarter of 2009, adding to a smaller drop at the end of last year.

It was the worst contraction in more than 25 years, and is the country's first post-apartheid recession. To try to revive growth, the reserve bank has cut interest rates by 450 basis points since December, with the last 100-point cut coming last week. But with inflation slipping only slightly, to 8.4 per cent, still well above its target range of three per cent to six per cent, the scope for further reductions is limited. The rand, which reached a nine-month high of 7.8888 against the dollar yesterday, has economists worried that a strong currency will hurt exporters at a time when factory output is flagging.

Tito Mboweni, the central bank governor, yesterday said a strong currency "may help in terms of the inflation outlook, but in terms of the whole balance in the economy, these levels might be unwelcome". "This week's avalanche of economic data offered little prospect of relief for South Africa's shrinking economy," wrote Brendan Boyle and Benjamin Bradlow in the Sunday Times. "The economy is likely to double the extent of job losses seen so far," Standard Bank's chief analyst, Goolam Ballim, told the newspaper. "There's still some shedding that is likely to occur in the retail and manufacturing sectors."

It is a situation that will only add to the challenges facing Jacob Zuma, the country's new president. Having been elected on promises of material improvement for South Africa's poor, he and his finance minister, Pravin Gordhan, face the worst economic conditions the African National Congress has encountered during its 15 years in power. Predictions of zero growth for the year have been dismissed as "wildly optimistic". But without growth, the ANC will be hard pressed to meet the demands of its allies in the trade union federation, Cosatu.

It has been less than a month since Mr Zuma was sworn in, but there have been calls for him to deliver quickly on promises, despite the difficulty of doing so when economies react slowly to stimulus measures. The Honeydew workers stand to gain, or lose, most from the downturn and recovery efforts. Working in an informal market with no job security, they do not even need to be dismissed; they are simply not hired when economic activity reduces.