South Africa

FOOTBALL IN SOUTH AFRICA This year marks the 10th anniversary of South Africa’s admittance back into international football. The highlight of South Africa’s national footballwas winning the African Cup of Nations in 1996 at their first attempt. Unfortunately, since then Bafana Bafana have not won any major trophies and their performances have deteriorated. South Africa’s status as the largest economy inAfrica has not always been reflected in success on the football field. In the 1998 African Cup of Nations they lost 2-0 to Egypt in the final (held in Burkina Faso) and in the 2000 tournament (hosted by Nigeria and Ghana) they lost 2-0 to Nigeria in the semi-finals. This year’s performance in the African Cup was their worst. The FIFA/Coca-Cola World Ranking now puts South Africa at 36, behind Cameroon at 18, with Tunisia and Nigeria at 29, and the other African World Cup qualifier Senegal at 43. The popularity of the sport nevertheless remains high despite the recent lack of success and despite concerns about the management of the sport in the country. The country is currently preparing a bid to host the 2010 World Cup after narrowly losing out to Germany for the 2006 final. THE STATE OF THE ECONOMY During the lastWorld Cup Finals South Africawas in the midst of a currency crisis, which the Reserve Bank handled by hiking interest rates by 700bp and intervening in the Rand market. The interventionwas done in the forward market resulting in an increase of US$10bn in the Bank’s net open foreign currency position. That year economic growth slowedto 0.8%, the lowest since the recession of 1990-1992. In 1999 Tito Mboweni was appointed Governor of the Bank and made a commitment to eliminate the net open foreign currency position and to not intervene to defend the currency. Up until the end of 2001, the MPC under Mboweni’s leadership raised interest rates only once, in October 2000 by 25bp, despite numerous bouts of currency weakness. The weakness in the Rand up until the fourth quarter of last year had not raised significant threats to meeting the inflation target – the Bank’s new policy framework since February 2000 - of3-6%average for 2002 and 2003. The massive depreciation of the Rand in the final quarter of last year has put this year’s inflation target out of reach and also threatens next year’s target. This has forced the Reserve Bank to hike interest rates by 200bp in the first quarter andweexpect them to hike a further 100bps by June. This will dampen domestic demand somewhat although the tightening in monetary conditions overall will be moderated by the decline in the real trade weighted Rand. Economic activity has to large extent tracked activity in South Africa’s major trading partners and so we expect a gradual improvement through the rest of the year. Exports will likely be the main driver of the 2.1% growth in GDP that we expect for this year. Despite the strong slowdown in the global economy last year, South Africa still posted a relatively decent growth rate of 2.2% in 2001. This is testament to the largely good macroeconomic policies that the government has implemented since 1995. However, the better performance of the economy has still not translated into increasing employment or higher Greenfield FDI inflows. The unemployment rate remains high at almost 30%. The country remains highly dependent on volatile portfolio inflows. There also continues to be a strong pent up demand to diversify out of South Africa by the corporate sector. Exchange controls remain an important feature of the structural environment. In an effort to boost economic growth the government has The World Cup and Economics 40 World Cup 2002 THE 2002 WORLD CUP South Africa’s journey to these finals has not been easy. Although they won the preliminary rounds comfortably – winning five of their six games – the team (known as Bafana Bafana) has in the last few months been negatively affected by other developments. They performed poorly in the African Cup of Nations in January, being knocked out in the quarterfinals. Conflict between the Portuguese coach Carlos Queiroz and clubs, over the release of players, affected their preparation for the tournament. Since then, Queiroz has parted ways with the South African Football Association to be replaced by the legendary Jomo Sono as coach. Queiroz departure was messy until a large severance package had been negotiated. Sono has adopted a risky strategy as he prepares the squad for theWorld Cup Finals, overlooking a number of established players for the warm-up fixtures. now, after many years of consolidating the budget, adopted a more expansionary fiscal stance, through both cuts in taxes and higher capital expenditure. This together with the undervalued Rand should help push GDP growth back above 3.0% in 2003. THE STATE OF THE NATION The performance of the Rand last yearwould suggest that not much has changed in South Africa since the World Cup Finals in 1998. As with Bafana Bafana, the country has faltered in various areas during the last four years. Unemployment has increased, crime remains very high, sentiment towards South Africa and the region has deteriorated and political pressures within the ANC alliance have been increasing. But progress has been made in many areas. The provision of basic services – medical, water, electricity and telecommunications - to poor South Africans have increased significantly. The relationship between the different population groups continues to improve. Income inequalities are being reduced, albeit slowly. Finally, despite the shocks that the economy has had to bear, as reflected in the performance of the Rand, the government remains committed to further liberalising the economy and to opening it up further. This stance has already paid benefits in the form of relatively decent growth last year and will bear more rewards in the coming year as the global recovery intensifies. The ANC government’s policies will next be put to the test in parliamentary elections in 2004, the 10-year anniversary of their rise to power. Between now and then we would want to see significant progress in a number of areas of reform. First, privatisation needs to be accelerated and largely completed by 2004. The government’s actions this year with Telkom will be particularly important in gauging whether this objective will be met. Second, exchange controls on residents need to be liberalised further. This is unlikely to happen this year but this policy should resume next year. Third, the delivery of public services needs to improve by removing the capacity constraints in government departments. Finally, there needs to be some transformation of the political environment.Government, trade unions and business should either reach agreement on a growth plan for South Africa or theANCgovernment should unshackle itself from the constraints of its tripartite alliance with the trade union COSATU and the South African Communist Party. Previous Appearances: 1 1998