BEE Partner, South Africa Economy Watch

Scenario No. 2

During 2004, the likelihood of a pan-Asian integrated economic and free trade arrangement came a step closer to fruition. At the Association of South East Asian Nations (ASEAN) summit in Laos, a number of important linkages took place, which will have far- reaching ramifications for the intensification of global competition between nations, and globalisation in general.’ China signed a Free Trade Agreement (FTA) with ASEAN (which consists of Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) at the summit. This will soon be followed by Japan, India and Korea. Japan, Korea and China are also considering an FTA amongst themselves, whilst India is contemplating an FTA with China. What appears to be emerging is an FTA between Japan, ASEAN, China, India and Korea, or what is being touted as JACIK. Analysts are predicting the expansion of ASEAN into a broader Asian economic community.

This economic community would comprise half of the world’_s p_opulation, and would be larger than the EU in terms of economicoutput.

It would generate greater trade than the North American Free TradeAgreement (NAFTA), comprising Canada, Mexico and the USA_, and would hold foreign reserves far greater than NAFTA and the EU combined.’ By creating such a community, the member state_s will not only be positioning themselves to manage global competition, they will also essentially be redefining it.

Scenario No. 3

The government of Singapore has taken a more aggressiv_e stance to attract and retain key investors. It has long established a Pioneer Incentive Scheme to attract new investors. During 2004, it decided to extend the maximum tax relief period under this scheme from ten to fifteen years. It also has a Development and Expansion Incentive Scheme for what is termed ‘post-pioneer’ investors. The government is increasing the tax relief period in this scheme from ten to twenty years. These amendments have been implemented because the Singapore government did not want to fall behind the competitive practices of competing nations, whilst at the same time wanting to provide its investors with a greater sense of certainty and security in their investment in the country. It has acknowledged that the global competition for foreign investment has become more aggressive, and has decided to improve its standing in the global marketplace.

Another amendment was the removal of the practice of consulting with the Singapore public on matters pertaining to pioneer investors. Although committed to a policy of transparency, the Singapore Ministry of Trade and Industry reasoned that this step would allow the government to improve its marketing to potential investors in three ways:

• It would be able to better customise incentive packages for investors.
• As a result of this customisation process, it could make thecountry a more competitive and attractive investment location. It would have more speed and flexibility in negotiating withpotential investors, thus facilitating the negotiation process.

Scenario No. 4

During 2004, the international Monetary Fund, in its Article IV Report, reported that whilst South Africa’s monetary, fiscal and foreign reserve policies are sound, the country’s efforts on economic growth are inadequate, and government attempts at reducing unemployment are feeble.’ Commenting further, the report states that The main risk to the [positive growth] outlook relates to a continuation of the high pace of pay settlements which have been running at around 8-9 per cent. A continuation of settlements at these levels, while not likely beyond the end of this year, could undermine the recovery and the inflation-targeting strategy.”

The IMF also criticised the government’s Skills Development Programme, which, because it is funded by a levy from business, actually has the effect of reducing demand for labour. In conjunction with the country’s current labour market regulations and, in particular, the above-inflation minimum wage increases, job creation is suffering. If the country is not creating sufficient jobs, economic growth will suffer, and if economic growth suffers, the country’s ability to compete globally will be damaged.

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