SA facing a supply-side crisis

While the current shortages of ­staple food products like wheat and maize are drought-related, there is a danger that a structural shortfall in agricultural production will eventually emerge, mainly because of the ongoing attacks on farmers and the policy of pressurising 30% of commercial farmers to leave their land by 2013.

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That’s according to Absa’s economic perspective for the second quarter of 2007. Absa’s economic desk contends that SA’s economy has become afflicted by a supply-side crisis, reflected among others in shortages of skilled labour and production capacity constraints. The economy simply cannot produce the necessary goods and services in sufficient quantities and the situation has already led to more imports and a swelling of the deficit on the current account of the balance of payments, which could weigh down the rand.

The bank’s economic researchers warn that supply-side crises have a long global history, with the one that hit Germany in the 1930s being a prime example. Then, recurrent shortages of food furnished one of the reasons for the German invasion of Russia in 1941. The aim was to conquer Ukraine to gain control over Europe’s bread basket.

They say the shortages of skilled labour are causing quicker job turnover rates, pushing up wage costs and potentially exerting upward pressure on prices. The skilled labour problem is further aggravated by the increasing emigration of coloured, Indian and black professionals, as well as the loss of economically active people to the Aids epidemic.

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There are now thousands of vacancies in the public sector and this helps to explain the disintegration of services in government departments and local authorities. More than 60% of municipal senior managers have virtually no qualifications in finance or engineering and nearly 40% have no more than five years of work-related experience.

The result, say the researchers, is that contract work for previously retired whites is proliferating, potentially impairing the success of affirmative action policies. But at the same time, certain European companies are considering disinvestment from the country, partly because of this skills crisis. – Roelof Bezuidenhout