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  • BDO SOUTH AFRICA - The War on Recession - Global Events Putting Further Pressure on SA’s Economy
Articles:

The War on Recession - Global Events Putting Further Pressure on SA’s Economy

30 May 2016

Orignal content provided by BDO South Africa

According to Macro-economist and co-founder of the Center for Economic and Policy Research, Dean Baker - It is often believed that wars and increases in military spending are good for the economy. However, most economic models show that military spending diverts resources from productive uses such as consumption and investment, and ultimately slows economic growth and reduces employment.

If we look at the more recent history of wars around the world, it is possible to see an indirect effect on the South African economy. Werner Gerber, an Audit Manager at BDO South Africa highlights some examples of global events and how they have effected South Africa’s economy, while offering insights into what we may be facing in the very near future.

According to Gerber, with the current state of affairs in Syria and the rise of ISIS we may very well be on the brink of the next major war. A possible war in Syria will most probably also include major economic powers such as Russia, which did not form part of the 2001 to 2006 civil unrest and US conflicts.

“Combined with the current drought and political situation, the effects of this potential war will be catastrophic for the South African economy,” warns Gerber. “We may well be on the brink of a recession and this could very well push us over the cliff into the ocean.”

“We will most definitely need to plan ahead for this. We need to build life rafts for when we go over that cliff and that is where consultants such as BDO come into play. BDO has the knowledge and experience to build financial life rafts that could withstand the impending stormy seas of recession,” says Gerber.

“The United States and the European Union are two of South Africa’s most important trading partners. From the two graphs below we can clearly see a direct correlation between the value of South African exports and the value of European Union (EU) and the United States of America’s (USA) imports.”

“It is also possible to link certain global events to certain distinctive trends in these graphs,” says Gerber. “We can clearly see a downward trend from 2001 to 2004. The reason for this is the terrorist attacks of September 11th 2001 and the consequent Second Gulf War.”

“Both the US and key members of the EU were involved in the fight against the Taliban and the liberation of Iraq and during this time huge amounts of resources went into the respective war machines. It is important to note that a combination of the global recession and massive military expenditure were the reasons for the massive negative trends from 2008 to 2010.”

US imports vs South African exports 1999 to 2016


http://www.tradingeconomics.com

European Union imports vs South African exports 1999 to 2016:


http://www.tradingeconomics.com

“If you take the below graph showing the United States’ defence expenditure, and compare it with the above two which show the dip in South African imports, we can see that it would be possible to draw a direct comparison between the imports of these economic players and the increase in military expenditure,” says Gerber.

Graph by W.Gerber, info from the US Office Management and Budget

 

Gerber goes on to compare South African exports with the terrorism index of certain countries.

The Global Terrorism Index (GTI) is an attempt to systematically rank the nations of the world according to terrorist activity. The index combines a number of factors associated with terrorist attacks to build an explicit picture of the impact of terrorism over a 10-year period, illustrating trends, and providing a data series for analysis by researchers and policymakers.

From this we can see that every time that there is an increase in the terrorism index of the US, there is a decrease in South African exports, another contributing factor to the poor state of our economy.