from the editor
Jump-starting the consumer 16 OCTOBER 2009 ISSUE 116 ISSN 1995-4476
South Africa Gareth Stokes – Editor Julie Brownlee – Deputy Editor Annabel Koffman – Publisher Editorial & Production Gary Booysen, Karin Iten, Jeremy Miles Subscriptions and marketing Tel: +27 11 699 6530 Advertising sales Shaun Besarab – Tel: +27 82 725 8355 Paul Vidas – Tel: +27 82 926 3429 MoneyWeek is published in South Africa by Fleet Street Publications (Pty) Ltd, Unit 2, Block B, Northlands Business Park, Newmarket Street, Northriding.
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16 October 2009
Recession is a tricky beast. While the economy flounders you cannot predict its turning point, nor what triggers the improvement. By the time you realise the recovery is underway your next challenge is to predict its strength. The United States emerged from the Great Depression of 1929 in the spring of 1933, from which point it took a full decade for Gross National Product to return to predepression levels. There is no consensus on the factors responsible for post-Depression economic growth in the US. Some economists point to the massive inward flow of international gold assets due to dollar weakness. Others credit the surge to manufacturing and productivity increments as the US industrial machine geared up through the Second World War.
household consumption expenditure accounts for almost a third of GDP. And you won’t see consistent economic growth until local consumers return to the fray! As we enter the final quarter of 2010 many local economists remain sceptical about consumer strength and the impetus of the recent equity-led recovery. Retails sales statistics will remain under pressure unless we see significant improvements in measures of employment, real after tax disposable income and consumer confidence.
Local consumers are stuck between the proverbial ‘rock and a hard place.’ Positive developments include the significant interest rate cuts since December 2008 and government’s recent call for cellular services providers to cut costs. Unfortunately the average homeowner’s savings are being sucked up by massive increases in administered prices. Consumption expenditure is flowing to Eskom’s coffers instead of bolstering the broad economy! The state power supplier recently approached the National Energy Regulator of SA (Nersa) for tariff increases in the 44% to Can we expect similar time frames as the current global economic contagion plays out? 66% region for each of the next three years! If Two months ago cynics were punting Japan as Eskom gets its way, South Africa’s GDP could suffer between 1.3% and 1.9% through 2010, a likely blue-print for the world economy. and inflationary pressures will return much They predicted decades of contracting sooner than expected. You’re not going to see economic growth as deflation set in. Their an improvement in the household debt-to‘outlier’ views have since proven incorrect. Today everyone is confident the world’s major income ratio of 76.3% (Q2 2009) any time economies are on the path to slow and steady soon! economic recovery. What has to happen for Spiralling power costs aren’t unique to South the economic recovery to gain momentum? Africa. Developed economies are struggling to Economists analyse hundreds of indicators in balance the demand for electricity with the their attempt to answer these questions. Among the common statistics are employment cost of providing it too. The cost of building nuclear infrastructure points to a likely numbers, inflation data and manufacturing resurgence of ‘cheaper’ alternatives. In today’s and production results. feature article David Stevenson reports says renewed dependence on the fossil fuel could If you want a single indicator of economic lead to a two-fold increase in coal demand strength you should consider real demand. over the next three decades. To find out how Modern economies are consumer driven. to profit from this energy production trend Most analysts agree that consumption turn to page 16. expenditure was behind the equity market boom of 2003 to 2009. South Africa is no Gareth Stokes exception! You live in an economy where final Editor, South Africa
In this issue 6 Markets The dollar is in trouble – but it’s not finished as reserve currency yet.
Clarke about Asia, US debt and gold.
7 Sector How you can profit from the
sense; the new wave of recession sitcoms.
boom in satellite imaging demand.
11 Strategy Four key signs of strength to look for in a company’s balance sheet.
19 Blogs Why selling the Tote makes no 20 Entrepreneurs How one ex-soldier made a million from exercise classes.
13 Briefing Why Britain’s Royal Mail’s
23 Travel
future is looking pretty bleak.
in Prague.
14 Expert view Peter Schiff talks to Jody
24 Toys
Two intriguing options to stay at
The coolest cameras out there.