How to cope with the downturn Clothing - Credit Guarantee

No 116 • May 2009
How to cope
with the downturn
Clothing & textiles
industry overview
RSA Economic and
Business Snapshot
April 2009
Regional analysis
Johannesburg - Gauteng
How to cope with
the downturn
– p2
Clothing & textiles
industry overview
– p4
Unlimited Alternative
to Money by awb
– p6
How To Ramp Up Cash
Flow and The Most
Profitable Sales by awb
– p7
Country Report The United Kingdom
– p8
Regional analysis Gauteng
– P11
Credit Guarantee's guide to Asia
- April 2009
– P15
World Markets Update
– P17
Kidnapping for ransom on
the rise
– P21
RSA Economic and Business
Snapshot April 2009
– p22
No 116 – May 2009
he current down cycle is
characterised by severe
lack of confidence in the
financial system which has, in
turn, led to risk aversion and
capital hoarding. There has been
severe distrust between banks
resulting in LIBOR rising
to compensate for financial
market risk.
In some countries the banking
system has collapsed or been
nationalised. Property prices
have fallen, bank balance sheets
are overstretched and the stock
market has plunged, giving
rise to panic and a flight to
safe havens.
The financial crisis is now
impacting the real economy with
an abrupt end to the commodity
boom, a rapid deterioration
in retail spending and the
beginning of job lay-offs.
Although companies have
seen a major setback in their
investment operations, the
impact on persistency and new
business has been slower to
come through – but 2009 will
be a tough year.
How do insurers cope with
the downturn? Management
of costs is critical, and needs to
be considered in light of
insurers’ ability to maintain
sales and retain customers.
For insurers, salaries are the
biggest cost. It is a major
challenge to manage costs
in a manner that keeps staff
satisfaction levels high. Cost
saving plans must be reviewed
for coherence and realism of
outcome. Failed cost cutting
processes are frequent programs should then be
reviewed in a year or two to see
whether they have produced the
desired results.
A further cost management
measure worthy of consideration
is the possibility of shared
services, e.g. for the IT and HR
infrastructure. The consolidation
and standardisation enabled by
shared services does more than
reduce costs, it also reduces
complexity so that businesses
can respond to opportunities
The more shared services are
integrated with the company’s
strategic goals, the more useful
they can be in a constantly
changing environment. Now
is the time to start thinking
of shared services as a higher
value adding centre, a strategic
business asset, rather than a
cost centre.
The companies that will survive
these difficult operating
conditions are those that
re-think their product strategy
by launching appropriate new
products and managing profits
by product line. It is essential
to make sure that the product
strategy meets the customers’
needs for security and value.
Then, focus on profitable
products and withdraw
unprofitable products in an
orderly fashion. In good times,
one is so busy concentrating
on good products that the nonprofitable ones are not weeded
out. Look at profitability by
product line.
When times are tough, there
is always a temptation to cut
advertising and other brand
spend. This is unwise because
brand awareness is very
important, particularly in a
market such as South Africa
with low barriers to entry.
Customers look for security
and a trustworthy brand so it is
important to remain visible and
At this time, companies would
be well advised to look carefully
at their distribution strategy
for the future - review growth
and value of new business by
distribution arm.
In South Africa, the insurance
industry continues to be
characterised by an intermediary
dominated distribution channel.
While direct channels are being
increasingly utilised, especially
in personal lines, brokers
continue to be a primary
distribution force because of
their ability to offer advice.
With the impact of aggregators
entering the market, this may
change fast. How companies
face this challenge at a time
when new business is drying
up is potentially the major
differentiating factor in the
medium term.
The down cycle is a perfect
time for scenario planning and
The Column
by Roger Munitich
GM: Marketing and R&D,
Credit Guarantee
Business Rescues
Chapter 6, as this has become
colloquially known, will replace
current Judicial Management
practices. The need to conserve
viable businesses and jobs,
is in itself a laudable
proposition, but…
Intended to be �debtor friendly’,
look out for:-
plans must be reviewed for coherence
and structural fit. If companies are
too one-track minded they can be very
vulnerable and alternatively they can be
so diversified that they lose focus.
In the current climate of down cycle
but still a skills shortage, it is crucial
to retain key staff ready for the
upswing. So leadership needs to create
opportunities and ideas to make sure
their staff are stretched. It is important
to align incentives with company goals;
monitor staff satisfaction surveys and
turnover for improvements/worsening.
Retrenchment of staff needs to be
rational - it should be a last resort
option, since reacquisition of skills can
be tough.
South Africa has a relatively solid
financial services industry but, that said,
risk management will be a major focus
for the next few years.
There is a relatively solid position in
South Africa of listed insurers and most
non-listed insurers. Financial institutions
have always focused on best practice
but now Solvency II aims to align an
insurer’s capital requirements to risk
taken so as to improve their overall risk
Companies will have the freedom to
choose their own risk profile, provided
that they hold commensurate capital.
Ultimately, this should lead to significant
improvements in the quality of risk
management of insurers.
Although Solvency II will not apply to
South African insurers directly, any
revisions to the current framework
are likely to take the IAIS principles
on assessing insurance solvency into
account. Solvency II is, therefore, seen
as an important guide as to how the
South African framework may look
in future.
In conclusion, the outlook for the
insurance sector overall will consist
of job freezes, cost reductions and
new projects postponed. There will be
solvency challenges if stock markets
continue downwards.
Companies should search for new
markets such as: untapped South
African markets, Africa and beyond.
Previous downturns have taught that we
have to manage expectations, including
our own.
Therefore, companies should focus on
playing to strengths and acquiring good
Management of the business
will still be in the hands of
the same people who got it
there in the first place, despite
professional �supervision’.
Both secured and unsecured
creditors have equal rights. This
could result in �voting blocks’
being formed, to the detriment
of some creditors.
There is no �time’ provision in
the Act stipulating how long
the �rescue’ can be enforced.
Longer term, this means that
creditors will carry the cost of
the �rescue’.
The �independent supervisor’
could cancel or suspend
contracts in force at the time
of the �rescue’. This could
infringe the “Law of Contracts”.
Unscrupulous directors who
may initiate �rescue provisions’,
in order to ensure that their
own �nests’ remain lined.
Issued on behalf of:
Contact: Giles Waugh, Director Actuarial
and Insurance Solutions
Tel No: 011 209 8106
Mobile: 083 680 7990
No 116 – May 2009
Clothing and textiles industry
he industry took a large blow recently
with Seardel announcing its intention
to close down the spinning, weaving,
finishing and denim divisions of Frame
Textiles' vertical pipeline and that 1,400 jobs
would be lost, should the closure proceed.
This is just another notch in the barrel of
the industry’s long litany of woe, which
has seen numerous concerns close over the
years and tens of thousands of jobs lost,
despite the ability to manufacture a wide
and diverse range of products. Job losses of
around 70,000 over six years, some 40%
of the total workforce, are reported to have
A Who Owns Whom report on the
Manufacturing of Wearing Apparel (excl. fur),
described the sector enjoying “a measure
of protection from massive imports from
Asia prior to 2004. With the falling away
of the Multifibre Agreement it was suddenly
No 116 – May 2009
exposed to the workings of �free trade’
(in a sense not free trade due to unfair
advantages) and the massive and unlimited
influx of Chinese imports. This resulted in
an immediate contraction of the industry
marked by job shedding and closure of textile
mills and clothing manufacturing companies.
Only two years later were controls
reintroduced nationally after collaboration
with the Chinese in the form of the Voluntary
Restraint Agreement. The result: the market
could not speedily adjust upwards due to
massive downsizing which had taken place
in the interim period.” The report adds that
the 2004-2006 period saw a relatively stable
exchange rate of around R7/$, which in turn
encouraged imports.
Exporters have over the past few years
been able to rely on a weakening rand.
Quota restrictions on Chinese imports were
instituted for two years from 1 January
2007, although new regulations post
December 2008 are yet to be finalised. This
quota restriction may also have allowed other
Asian imports to gain a local foothold.
Current conditions:
- Exchange rate depreciation has seen
some buyers turn local again as rising
import prices become less competitive
and as the consumer recession deepens.
- Many moth-balled mills from
18mths/2yrs ago are too expensive
to re-tool now, while skilled machinists
were also let go.
- Chain stores are trying to source locally,
but manufacturers have been battling to
produce to meet such demand.
- Failures are predominantly in small-to
medium-sized areas where there is very
little experience of trading in tough
- Manufacturers are hanging in there
despite factories being on short-time;
- giving manufacturers production
allowances to improve competitiveness.
Firstly, this goes against the warnings of
raising protectionist barriers in the face of
the global crisis. Secondly the �buy local’
campaign will never gain momentum if large
political parties insist on sourcing caps and
t-shirts offshore, as has occurred in the
run-up to the 22 April elections. Thirdly,
the extent of the purported package is
in response to the numerous incentives
offered to clothing industries worldwide
which have exacerbated domestic stresses.
Finally a Business Times report says that
critics of the plan argue that the needs of
labour have been put ahead of those of
industrialists and investors. As quoted by
the report, the real issue is whether it will
“address the institutional weakness, and
recognize that there will be winners and
losers. Decisions need to be based on some
very good research and implementation must
be effective.” Yes indeed, but will this in all
probability actually occur?
very few knitters left; consolidation/
monopolisation dominates.
- SARS clamping down on illegal imports
only now, however this is pushing some
operations over the edge.
This latter point bears highlighting. Illegal
and/or pirated imports have flooded the
market in recent years, while fraudulent
documentation allows importers to
avoid customs duties. While the recent
efforts to thwart such illegal activities
are to be welcomed, it is symbolic of the
haphazard approach to the overall strategic
management of the broader sector.
The sector has also had to deal with declining
domestic consumer demand as rising interest
rates and escalating inflation eroded buying
power; subsequently the global crisis has
exacerbated the situation, with massive
international job cuts, which in turn has
curbed both spending and demand.
Credit Guarantee's experience shows a large
jump in the number of payment extensions
being reported; especially concerning is
that this involves companies that were
traditionally considered safer than the norm.
Consequently suppliers are seeking significant
cover on what were traditionally regarded as
blue-chip buyers. Similarly, a sharp increase
in companies working short time and/or
conducting shut-downs has been detected. All
of this points to an industry in distress. highlights many other
flaws in the state’s incoherent approach to
policy applicable to the sector. The Duty
Credit Certificate Scheme (DCCS) allows
exporters of textiles and clothing certain
import duty rebates; this allows cheaper
import of inputs and thereby a competitive
advantage. This practice however is against
World Trade Organisation (WTO) rules; what
the South African Customs Union (Sacu)
does is renew it every year as it ponders
a replacement. The result – although not
many local exporters are competitive, the
uncertainty surrounding the scheme allows
for little forward planning and the impact
on concerns in Swaziland and Lesotho has
been devastating. India is said to be
contemplating a programme of export
incentives to support it’s clothing, textile
and leather manufacturers and even though
this also potentially flouts WTO rules.
The report concludes that the real issue is
the speed with which the Indian authorities
have responded to the current crisis; local
policy paralysis has seen many exporters
abandon global selling efforts and try to sell
domestically. This in turn is aggravating the
situation facing manufacturers geared to the
local market; while consumers should benefit
from this heightened competition, it is
inappropriate or policy inaction that requires
The Department of Trade and Industry is
evidently considering a grand rescue scheme
for the beleaguered sector. It is multifaceted
and includes:
- increasing tariffs on strategic apparel
imports to the maximum allowed under
our bindings to the WTO
- safeguard probes on certain clothing
items, thereby allowing for additional
provisional duties on such garments
- access to cheaper credit through the
Industrial Development Corporation, with
the IDC also increasing its direct equity
exposure (investment) in clothing and
textile firms
- allowing manufacturers access to the
incentives under the new manufacturing
investment programme
Writing for, Mathabo le
Roux states that the Textile and Clothing
Industry Developmental Programme, of
which the DCCS is a key component, has
been agreed by Sacu to be extended from
1 April 2009 but that the ability to sell the
rebate certificates be removed. Since many
manufacturers do not import clothes, the
certificates are of no use unless onsold to
other manufacturers or retailers who can
utilise the import duty rebates. It is held
that this will seriously curtail the export
competitiveness of the region, especially
Lesotho which exports 90% of its garment
production. Tens of thousands of jobs are
at risk.
This serves to illustrate the totally disjointed
manner in which the domestic and regional
sector has been administered for years, with
the latest proposed steps being a decade too
late. More pain is set to follow, involving
yet more factory closures and job losses.
Further, the debate surrounding support
programmes or protectionist measures for
the industry, is part of a similar debate
relating to other industries such as the motor
sector, and indeed trade policy in general.
This brings to the fore matters such as
whether the consumer should ultimately
bear the burden of any support package,
whether uncompetitive industries should not
rather be forced to close down – recall the
situation with the archaic steel industry in
the US some years back, and remember that
many other countries have already moved
to protect their economies in some form or
guise. Once again however, if we choose to
follow suit, who should foot the bill?
Luke Doig - Senior Economist
- 23 April 2009
No 116 – May 2009
Unlimited Alternative to Money by awb
sale being made is a profitable sale.
In a pure barter system there must exist
a coincidence of wants and or desires before
a trade takes place. This severely restricts
and limits the opportunities for commerce.
Money is a medium of exchange with an
established value that is accepted in return
for goods and services. The dominant
form of money is currency which is issued,
controlled and limited by governments.
In B2B Credit the transactional costs start
when a customer desires to buy based
on payment at a later date. At this point
of purchase efficiency dictates that the
information required to help determine if and
how credit will be extended to the customer
must be gathered. Use of a traditional credit
application that the potential customer fills
out, and which contains standard terms and
conditions of sale, contributes to a sales
limiting mindset.
An alternative to money is credit and no
government printing presses or controls
are required. Credit allows for the value of
a product or service to be assessed and for
profitable sales to happen based on payment
at some later date. Credit terms, i.e. IOUs,
like money are a medium of exchange. Credit
is an intermediary used in trade to avoid the
inconvenience and inefficiencies of a pure
barter system.
Safeguards so as to protect the value
of credit extended must exist just as
governments must safeguard the value of
the money they print. For example what is
the value of a Zimbabwe Dollar (ZWD) ? At
the time of this article one ZWD is worth
.00000003 of 1 USD, that means that it
takes about 37,410,000 ZWD to purchase
the same as $1.00 US.
While the supply of money is limited by
how much of it governments print, credit
is unlimited; in fact the more of it that is
created the greater the demand for products
and services created. Credit, properly
understood and managed allows for the
expanded movement of products and services
and for economic growth and prosperity .
Credit is a lubricant of commerce and greases
the wheels of business.
A better tool for the gathering of customer
information is a New Customer Information
Form, which is completed by the selling
agent and which contains an authorization to
check a customer's credit to be signed by the
Master speaker, award winner,
Abe WalkingBear
and reasoned argument. So what is the truth
or purpose for the use of B2B Credit in the
selling of products or services?
To understand the purpose of B2B Credit we
must first accept that behind the selling of
products or services lies a profit motive, that
is we need or desire to earn more than we
expend in a business transaction. The actual
process of extending credit must be driven,
based on and support this desire to earn a
Beyond the cost of the product or service
being sold there are fixed business expenses
and transactional costs that must be taken
into consideration to ensure that indeed a
profit is earned on a sale made.
In commercial or B2B Credit, fear of loss
and lack of knowledge on the full profit
potential and on how to properly manage
this unlimited medium of exchange creates
bottlenecks, i.e inefficiencies that hinder
the fruitful expansion of trade . The Profit
System of B2B Credit and A/R Management
provides a proven, understandable and
useable philosophy and methodology for
integrating a seller's specific knowledge
regarding their "Product Value at Time of
Sale", their potential customers' profile and
past performance to allow for the expansion
of profitable sales while remaining confident
of payment.
Fixed expenses are also known as fixed costs
and as a rule do not vary with production.
Some examples of fixed costs are rent,
sometimes insurance, long term equipment
costs. The ability or inability to take on more
business without increasing fixed costs is a
factor that must be considered in profitable
credit sales.
The Profit Approach
In B2B Credit sales it is important to consider
the transaction costs that might prove
significant; so as to ensure that in fact the
Philosophy is the study of existence and
truth and relies on a systematic approach
No 116 – May 2009
Transactional costs are incurred in every
economic exchange. These varying costs may
include sales commissions , the energy and
effort required to find potential customers,
the effort of billing customers and of the
taking of payments.
Terms and conditions of sale are to be
determined following the investigation of
the customers past payment history and the
evaluation of the customer's profile and the
seller's Product Value at Time of Sale.
Additional transactional costs that go with
selling on credit terms are the costs of the
investigation of the customer, the evaluation
of the customer's profile , i.e who the
customer is and how the customer does
business, and evaluating the seller's Product
Value at Time of Sale.
There is also the cost of carrying A/R
(accounts receivable), i.e. the time value of
money and of bad debt write offs or losses
should the customer fail to pay.
Why Incur The Costs?
We have already stated that the underlying
motive or purpose for an economic
transaction is the need or desire to earn
a profit.
Specific to B2B credit sales, credit terms are
extended because:
1) Required by the customer. The customer
require time after the delivery of the
purchased product or service to ensure that
in fact what was desired was received. They
also require time to process the bill for
2) Downline sales by the customer.
The customer company requires time after
the delivery of the purchased product or
service to add value to the product or service
and to make downline sales to its own
customers before it can pay. If a customer
company is extending credit terms to its own
customers it may require even more time in
which to receive payment before it can pay
upline suppliers.
3) Customary in the industry. Credit terms
are routinely extended in the customer's
industry by competitors and are expected.
The reason why the costs associated with
the extension of credit are incurred is
to capture profitable sales that would
otherwise be lost. Credit is primarily a
function of sale and not of accounting. Old
Risk Management Approach is Profit Limiting.
If the management of a business believes that
credit is an accounting function and all about
risk management the end result will be the
limiting of both short and long term sales
and profitability.
more and larger new sales, to improved cash
flow, controlled loses, greater repeat sales,
elevated customer service levels and customer
retention, and to the ability to identify areas
of opportunity for improvement that can
drive down costs of doing business for seller
and customer alike.
The proven profit philosophy and set of
methodologies that make up the Profit
System of B2B Credit Management turns an
area of business always thought of as a cost
center, as a negative, a necessary evil and
as the ugly step-child of accounting into a
proactive profit center.
In Closing
Credit is essential in both short and long term
sales and is als an investment in the customer
relationship lifespan.
DSO (days sales outstanding) and % bad
debt, i.e. the % of approved credit dollars
lost due to non-payment are and always have
been measurement of risk. Use of
risk performance measurements will
result in the limiting of both short and
long term sales and profitability. Two men
look through prison bars, one sees the
mud the other the stars.
Credit allows for the value of a product or
service to be assessed and for profitable sales
to happen based on payment at some later
date. Properly understood and managed B2B
Credit is an unlimited alternative to money
and to the expanded movement of products
and services and economic growth and
prosperity .
The Profit System of B2B Credit Management
In the course of years of hands on work
with companies across industry lines the
copyrighted Profit System of B2B Credit
Management has proven that Credit properly
understood and applied can and will lead to
The Author
Abe WalkingBear is an International
Speaker / Trainer / Consultant on
the subject of cash flow / sales
enhancement and business knowledge
organization and use. Co-Founder of, and President
of, he is
the author of Profit Centered Credit
and Collections 1999, co-author of
STAFDA's Foundations of a Business
2007, and co-author of the new
international book, The Best Kept Profit
Secret: The Executive's Guide
to Transforming a Cost Center 2009.
home.html. WalkingBear has authored
hundreds of business articles, has worked
with numerous companies in a wide
range of industries since 1982 and has
spoken at many venues including the
Shakespeare Globe Theater in London.
A hard hitting and fast paced speaker, he
brings life and energy to a critical business
function whose true potential has yet
to be realized by most businesses.
ICM / Mexico, Irish Institute of Credit
Management, Evergreen Marketing
Group,Vistage, CU, CSU, Texas A&M,
N A C M - Kansas City, HTDA, BCFM,
Skinner Nurseries, Deardens, Rain Bird,
STAFDA, IBM, PEI, Atradius are but a few
of the groups, schools, companies and
associations for whom WalkingBear has
conducted programs.
WalkingBear can be reached through: P.O. Box 457,
Canon City, CO 81215, (719) 276-0595
email: [email protected]
How To Ramp Up Cash Flow and The
Most Profitable Sales by awb
Old military funny money finds new life in
business. During this time of dropping sales
and extended delays in credit customers'
payments an old idea is reborn.
During the Vietnam war U.S troops and
sailors in Asia were paid in funny money,
i.e. MPC (military payment certificate).
This funny money which was also called
"monopoly money" was in use up until 1973.
You could convert MPCs to US dollars upon
leaving a designated MPC zone, but while in
these zones all you could do with it was go to
the post exchange or ship's store and convert
it to the local currency. MPC in Vietnam
had pictures of movie stars on it and I can't
remember for sure but I think the Marilyn
Monroe was on the $20 bill.
Interesting, but what does this have to do
with improved cash flow and more sales?
Companies sometimes offer credit customers
a 2-10-N30 payment term. i.e. the customer
can take a 2% discount off the invoice
amount if they pay it within 10 days
otherwise the full invoice amount is due in 30
days. The idea being to spur cash flow.
Any customer not taking advantage of a
2-10-N30 early pay discount fails to do so
for one of two reasons:
1) they don't have the financial ability to do money
2) the sales and credit guys failed to explain
that a 2-10-N30 is worth a 37.24% Annual
Rate of Return...where else can you get
37.24% return with no risk?
The Problem
There's a problem with early pay discount
that sometimes customers will cut a cheque
for payment on an invoice, less 2%, on the
the 10th day but will not release the cheque
until the 30th day or the 60th day thus
defeating the very reason why the discount
was offered in the first place... and further
creating additional work and cost for both
seller and customer in the pursuit of the
unearned discount. I've never liked 2-10-N30
terms for these reasons.
The Best of MPCs and Early
Pay Discounts
There is a way to use an early pay discount to
improve cash flow and also bring
To page 23
No 116 – May 2009
London - England skyline
The political picture
Great Britain includes England, Scotland and
Wales, while Northern Ireland together with
Great Britain forms the United Kingdom.
England has existed as a unified entity
since the 10th century. England and Wales
finalised their union in 1536, while England
and Scotland agreed to permanently join as
Great Britain with the legislative union of
Great Britain and Ireland implemented in
1801 with the adoption of the name the
United Kingdom of Great Britain and Ireland.
Queen Elizabeth II remains the chief of state
since February 1952 with heir apparent
Prince Charles. Head of Government since
June 2007 is Prime Minister Gordon Brown.
Following legislative elections, the leader of
the majority coalition is usually the prime
minister. The next general election is due
by May 2010 during which time the Labour
Party could be defeated by the Conservative
Party led by David Cameron.
After thirty years of fighting, Northern
Ireland reached a truce in 1997, but the
murderous terrorism has resumed with
the latest killing of two soldiers and the
injuring of four men during March 2009.
No 116 – May 2009
This represents the first instance where the
rebellious republicans who dislike the powersharing agreement of 1998, have killed
members of the security forces. The IRA
dissident groups believe that the mainstream
movement sold out its republican heritage in
doing a deal with the unionists. The rebels
hope to derail a peace deal that led to Sinn
Fein sharing power with the Democratic
Unionists at the province’s parliament at
Stormont. Trust between old antagonists,
on which power-sharing rests, is fragile. The
two particular reasons for concern are firstly,
security and intelligence and secondly the
economic slump, as the peace process had
been tacitly predicted on economic growth.
The reversal of the thriving economy which
is boosted by a big public sector, will be
trimming its workforce leading to rising
unemployment, amongst other economic
Economic quandary
The United Kingdom is a trillion dollar
economy and is known as a leading trading
power and financial centre of the world.
The economy has enjoyed long periods of
expansion when growth outpaced most of
Western Europe, but it has not managed
to escape the effects of the global financial
crisis. The tightened credit supply and falling
home prices pushed Britain into recession
during the second half of 2008 and prompted
Government to introduce financial stimulus
packages to support the economy.
Gordon Brown’s plans for a £1.4 trillion deal
to revive the global economy were quietly
dropped to preserve the facade of unity
ahead of the recent G20 summit. The US
and the UK have backed away from spending
proposals worth 2% of global GDP, accepting
that each country must find its own way.
Britain’s leading employer’s organisation
warned Gordon Brown that total
unemployment would reach 3 million (total
population is 61 million) before the next
election. The Confederation of British
Industry (CBI) said that the economy would
see the single biggest drop in output in 2009
since WWII which will lead to a rise of more
than 1 million in the jobless total by early
2010 and expects the economic situation
to remain bleak over the next eighteen
months to July 2010. Its prediction is that
Pembroke Castle in Wales
the economy would contract 3.3% this year
from the previous forecast of -1.7% made
in last November. The IMF forecast that the
economy would contract 2.8% this year. The
economy shrank 2% in the last quarter 2008
year on year and grew 0.7% in 2008. The
impact of the recession and the fiscal stimulus
is likely to take its toll on public coffers, with
net borrowing expected to reach ВЈ149 billion
in 2009/10 and ВЈ168 billion in 2010/11,
representing 10.6% and 11.8% of GDP
respectively. Manufacturing is expected to fall
10.1% this year, while business investment
is expected to fall 9.2% with investment by
construction firms in private housing set to
fall 23.5%.
Official figures suggest that the British
economy is on course for its worse year
since 1931 with overall GDP expected, by
research firm Capital Economics, to shrink
4% in 2009. Manufacturing output fell 6.4%
in the three months to January 2009 – an
even faster rate of decline than the 4.9%
contraction of the quarter to December
2008. The motor industry, one of the
hardest-hit sectors, saw output falling 10.6%
during the last quarter of 2008. This has
helped push the overall annual rate of decline
in output to 12% in 2008.
The Economist foresees public borrowing
and debt rising sharply to dangerously high
levels in the coming years, as economic
activity contracts and as the state is required
to intervene further to support the economy.
The next Government can expect severe
economic constraints, which will necessitate
a sizeable increase in the tax burden and
spending cuts to return the public finances
close to a sustainable path in the medium
term. Experts have warned that taxes may
have to rise by ВЈ25bn a year after March
2009 figures show that the budget deficit
swung to a new record as recession took
its toll on tax receipts. The budget deficit
for February 2009 was £9bn – eight times
the shortfall a year earlier, bringing the
total public-sector net borrowing for the
first eleven months of the fiscal to a record
£75bn – over £50bn more than for the
same period of 2008. The IMF has warned
that the downturn would plunge the UK
into its deepest fiscal deficit among the G20
countries next year, at 11% of GDP. The
national debt is over ВЈ100bn - ВЈ20bn more
than predicted in the November 2008 budget
report. The deficit is expected to grow
to ВЈ150bn next year or 10% of national
income, breaking the 7.7% deficit record
achieved by the Government of John Major
in 1993. It will also be higher than the deficit
of 8.9% expected for US next year. The UK’s
national debt rose from ВЈ610bn a year ago
to ВЈ717bn and accounts for 49% of national
income, up from 30% a decade ago.
Inflation defied fears of a deflationary
spiral to post CPI from 3% in January
2009 to 3.2% in the year to February
2009. Inflation has fallen from a peak of
5.2% last September. The rise in inflation
forced Mervyn King, governor of the Bank
of England, to write to Chancellor Alistair
Darling to explain why prices were still rising
above the Bank’s 2% point target. The data
appeared embarrassing for the Bank, as it
reduced interest rates to the lowest level of
0.5% in its 315-year history and begun an
unprecedented programme to create money
and to buy assets. This marked the sixth
interest rate cut since October last year. The
effect of higher import prices – reflecting
the sterling’s near 28% drop in value since
mid 2007 – seemed to be evident in some
categories that made the biggest contribution
to the inflation rate. The governor warned
Government that it could not afford a second
fiscal stimulus in April’s budget. Mr King’s
concerns were echoed in Brussels where
the European Commission gave Britain until
2013-14 to bring its budget deficit back
below 3% of national income. The members
of the BOE unanimously agreed on the
creation of £75bn of new money – known
as quantitative easing to try to revive lending
and the battered economy.
About one in ten UK companies was freezing
pay for staff in an attempt to control costs
during the recession. The Income Data
Services says that average pay was still
increasing but at a slower rate. Some sectors
such as utility firms and the defence industry
were relatively unscathed. BT will not award
pay rises to 100,000 staff following the steps
of National Express and Tate & Lyle who took
similar action.
Government will own 70.3% of Royal Bank
of Scotland after shareholders shunned a
ВЈ5bn rights offering in the UK's largest
nationalised bank. The Financial Services
Authority chairman Lord Turner has put
forward proposals on lending and wants to
reduce the banks’ ability to take excessive
risks. His plans aims to prevent banks from
lending too much during boom periods and
calls for increased regulation for hedge funds.
He also wants the bonus systems at financial
institutions to be overhauled. His report
followed the onset of the financial crisis
which brought down several banks, including
Northern Rock. Lord Turner admitted that
the changes in his proposal are profound and
says that the banking system of the future
will be different from that of the last decade.
To next page
No 116 – May 2009
The Abby at Bath - England
Personal debt at the end of January 2009
stood at £1,457bn – an increase of £42bn
over the past twelve months – slower than the
ВЈ116bn increase in the year to January 2008.
Total consumer credit slowed to 4.6% in the
last twelve months to January 2009 and is
at ВЈ233bn. Total lending in January 2009
grew by ВЈ1,1bn. Average household debt was
ВЈ9,550 (excluding mortgages) in January
2009. This figure increases to ВЈ21,750 if the
average is based on the number of households
who actually have some form of unsecured
loan and amounts to ВЈ59,730 including
mortgages. During January, personal debt
increased by ВЈ1m every 40.6 minutes from
ВЈ1m every 5.3minutes in January 2008.
and 3,045 creditors voluntary liquidations
(which are up 16.1% on the previous
quarter and 62.2% on the corresponding
quarter of the previous year). In the twelve
months ending Q4 2008, approximately 1 in
150 active companies (or 0.7%) went into
liquidation, compared to the previous quarter
when 1 in every 165 (or 0.6%) of active
companies went into liquidation. Additionally,
there were 2,428 other corporate insolvencies
in the fourth quarter of 2008 (not seasonally
adjusted) comprising 261 receiverships, 2,018
administrations and 149 company voluntary
arrangements. In total these represented an
increase of 220.3% on the same period a year
Alarming Stats:
Firms dealing with Britain’s debt problems
warned that one in 60 people were facing
insolvency after recent Government figures
showed that a collapsing economy led to
record personal bankruptcies and a 50%
jump in company failures late last year. The
Insolvency Service figures also showed a
75% jump in the number of people declared
insolvent in Scotland during the final quarter
of 2008. In Northern Ireland, insolvencies
increased by 39% year-on-year during the
three months ending December 2008.
• One in 33 people working is estimated to
become unemployed in 2009.
• About 2,831 people are becoming
redundant every day.
• One person every forty-five minutes is
declared bankrupt or insolvent.
• 144 properties were repossessed daily
during the three months to end September
2008. The Council of Mortgage lenders
estimate this to increase to approximately
205 a day throughout 2009.
• £91m is the daily interest amount the
Government pays on its national debt.
There were 4,607 compulsory liquidations
and creditors’ voluntary liquidations in total
in England and Wales in the fourth quarter of
2008 (on a seasonally adjusted basis). This
was an increase of 11.9% on the previous
quarter and an increase of 51.6% on the same
period a year ago. This was made up of 1,562
compulsory liquidations (which are up 4.5%
on the previous quarter and 34.4% on the
corresponding quarter of the previous year),
No 116 – May 2009
With flagging auto sales, vehicle manufacturers
like Toyota, Jaguar and Land Rover have
announced cuts to working hours and changes
to shifts, while Honda has closed its UK
plant at Swindon for four months. Ford cut
850 jobs in February 2009 and workers at
Vauxhall have accepted a cut in hours and
wages. Nissan and Bentley have been forced
to cut production or jobs since the start of the
recession. The UK’s biggest union has urged
Government to hastily put together a package
to ensure that 70,000 car workers and their
families are not made to pay the price for
what it calls �city greed and recklessness’.
Britain’s biggest car retailer Pendragon, is
close to securing a new financing deal with
its banks. The highly indebted company will
be forced to pay £25m – over two-thirds
its market value – for a fresh set of banking
covenants. The company’s net debt stood at
ВЈ288m at the end of 2008. The company
was forced to request a covenant waiver
from its bank last year to avoid breaching the
terms of its debt. BMW has announced that
850 workers at the Mini car plant in Cowley
Oxfordshire are to lose their jobs. The cuts
began in March 2009 when the plant moved
to a five-day week. This followed a collapse in
sales across the motor retail market generally
as a result of the credit crunch, with Mini
sales having slumped 35% in January 2009.
Manufacturers across Britain have been given
access to government-backed financing, but
are calling for additional help to survive.
The construction industry shrank at its most
dramatic rate in a decade in March 2009.
Demand for new homes has also fallen with
the average price of a UK property now
back to the 2004 levels. A campaign to
protect thousands of building jobs will soon
be launched at the Welsh assembly. The Get
Britain Building coalition of construction
organisations and companies has warned that
300,000 jobs could be lost in the industry
around UK with 90,000 job losses predicted
for the small and medium-sized builders.
Researched and compiled by
Lily Maharaj - Credit Guarantee
regional analysis
Gauteng is the financial and economic hub of South Africa, the
economic engine of the Southern African region and the gateway
to doing business in the rest Africa. Although the smallest of South
Africa’s nine provinces, covering only 1.4% of the country’s land
area, Gauteng contributes about 33% to the national economy and a
remarkable 10% to the GDP of the entire African continent. Gauteng
accounts for the bulk of all employees’ remuneration in the country
-estimated at 47.7% and is responsible for 50.4% of all company
turnover. It is the most populous province with 10.5 million residents
and that figure is expected to reach 15.4 million by 2015.
Gauteng’s municipalities
• City of Johannesburg Metropolitan Municipality; Ekurhuleni
Metropolitan Municipality; City of Tshwane Metropolitan
Municipality; Sedibeng District Municipality; Metsweding District
Municipality; West Rand District Municipality
Overview of the economy
Once the hub of South Africa's gold mining industry, Gauteng is
today the most industrialised and urbanised region in the country,
focused on sectors such as IT, manufacturing, and financial and
business services.
With a highly skilled workforce, world-class communications
infrastructure and ready access to African and international markets,
Gauteng forms a highly competitive investment destination and trade
platform. Gauteng also plays host to a large number of overseas
companies requiring a commercial base in and a gateway to Africa.
More than 60% of South Africa’s research and development takes
place in Gauteng and over 80% of all high-tech companies in South
Africa are based in Gauteng.
• Gauteng’s agricultural sector is well developed. Major farming
activities include poultry, cattle, pigs, vegetables, fruit,
flowers and maize. Prominent agricultural districts are that of
Bronkhorstspruit, Cullinan, Delmas, Heidelberg and Krugersdorp.
Even though most of the country’s crops are not necessarily
grown in Gauteng, most of them are processed, packaged and
transported through and from the province.
• The manufacturing industry produces the following: basic iron and
steel, fabricated and metal products, food, machinery, electrical
machinery, appliances and electrical supplies, vehicles parts and
accessories and chemical products.
• The technology sector is the newest and is mainly located between
Johannesburg and Pretoria. This sector includes highly advanced
technology such as telecommunications and advanced computer
To next page
No 116 – May 2009
regional analysis
• Gauteng forms the hub of commerce in South Africa, more
specifically Johannesburg. A large proportion of South Africa’s
national companies have their head offices in this city. The JSE
(Johannesburg Stock Exchange) is the largest in Africa.
• At present tourism contributes 8.2% to GDP nationally. This is
expected to rise to 12% over the 2010 FIFA World Cup Soccer.
Gauteng’s performance in the tourism sector is at the top of the
provincial log with 10.6% growth since 2003. More than 200
people visit Gauteng each month from different countries across
Africa for medical assistance, services and products. This creates
an opportunity to formalise medical tourism.
Recent economic highlights
South Africa is no exception to the devastating impact of the global
financial crisis. The slump in the global demand has led to a collapse
in commodity prices which in turn has led to a slowdown in earnings
by commodity-exporting sectors. Close to 60% of SA’s exports are
destined for the US, EU and Japan and contraction of demand from
those economies is having a direct impact on manufacturers and the
labour they employ.
The South African economy is estimated to have slowed down
to 3.1% in 2008 after an impressive growth rate of 5% for the
previous four years. The National Treasury estimates that growth
will slowdown further to 1.2% in 2009 before it recovers to 4%
in 2011. Since Gauteng contributes the lion’s share of SA economic
output and income, therefore any projected slowdown in economic
growth implies a reduction in provincial economic growth. Gauteng
residents have the country’s highest debt level which has a clear
impact on the province’s economic health.
No 116 – May 2009
Even though the global financial crisis is taking its toll on the
automotive, retail, manufacturing and mining sectors, the financial
services and tourism sectors are expected to grow and contribute
significantly to the province’s economic growth. Huge job cuts are
expected in the construction, mining and manufacturing sectors.
The province has promised to work with labour movements and
employer organisations to find creative solutions to respond to the
challenge. One of the biggest export markets for the province is the
automotive sector. The automotive parts and components industry in
Gauteng has 200 firms employing 38,000 workers and contributes
about 4.3% of the province’s GDP, which equates to an industry
worth about R13bn a year.
Provincial barometers with indices developed by independent
economist Mike Schussler measure activity in four private sector
economies for SA’s leading provinces. The recession in South
Africa’s private sector economy is worsening, particularly with the
decline in activity levels in the residential property and construction
industries. The slump in the market for durable and semi-durable
goods is beginning to take on crisis proportions as consumption
has slumped. In January, the barometer for Gauteng fell 16.5%,
continuing on the downward trend of the previous six months, and
it was the biggest decline since its inception seven years ago. The
residential and construction industries are in trouble. The impact
is clearly evident in broad financial services, property and business
services as well as the construction sector. In January the broad
financial sector declined in all provinces. Gauteng was affected
most with its activity level 25.5% lower. House prices are declining
with a glut of properties on the market and it takes longer to sell
them. The residential property sector was seriously impacted by
the reduction in the number of property transactions, which in
some provinces was 50% down on a year ago. The industry is in
distress with related enterprises such as estate agents, conveyancers
and electricians in difficulties. However the overall construction
sector is doing relatively well and in January, Gauteng activity levels
increased by 2.1%. Construction of commercial properties such
as industrial buildings, office blocks ad shopping centres is still
showing good growth, but the residential market is very weak.
Infrastructure projects like the Gautrain and soccer stadiums are
keeping construction activities alive. The number of new mortgages
registered at the deeds office in Gauteng was 42.2% lower than
January 2008. Manufacturing declined by 6.8%.
Gauteng will realign and adapt its investment strategies to reach
its economic growth target of 8% for Gauteng by 2014. It hopes
to use infrastructure investment as its economic fiscal stimulus
Government investment in the Expanded Public Works Program will
be stepped up in the coming years to provide both the necessary
skills and employment. The provincial government is working with
the manufacturing sectors to develop programmes to assist them on
curbing potential job losses and expanding their capacity to create
decent work for a sustainable livelihood. South Africa should still
expect high levels of investment to be generated in the construction
and building sector until 2012.
Recent developments
Government is to spend R70 billion to upgrade and improve
some road networks in Gauteng through the Gauteng Freeway
Improvement Project budgeted over various phases until 2018; the
first phase will be completed by 2010. The levels of congestion on
Gauteng’s roads are unacceptable and inconvenient costing billions.
Equipment will also be installed to manage the flow of traffic and
keep users informed about prevailing conditions to improve their
travelling times. The project is set to contribute R29bn to the
National GDP as well as R13bn towards the Regional Geographic
GDP by the end of 2009. A number of jobs will be created during
the construction, while skills transfer will ensure the construction
workers gain more experience to start their own businesses.
The Bus Rapid Transit System (BRT) will go ahead as planned
and as agreed to in the consultation process that took place
with taxi owners throughout Gauteng despite protests.
The Gautrain, the implementation of the Gauteng Freeway
Improvement Project and Gauteng Better Roads Plan would enable
the province to boost its transport network. From April 1st OR
Tambo International Airport began utilising multi-use terminals in
order to process international and domestic flights interchangeably.
The construction of the OR Tambo Gautrain Station has been
completed and has been handed over for final finishing to Bombela,
the consortium of companies who holds the concession to build,
operate and maintain the Gautrain. The station is the first Gautrain
station to be completed and handed over.
Cradle City, the first planned city situated around an airport in
South Africa is set to form an innovative, sustainable green-driven
development situated on substantial 912ha of land surrounding
Lanseria International Airport, north of Johannesburg. The
development which will comprise a vibrant mix of residential,
commercial, office, retail, hotel, resort, entertainment and
warehousing and other elements is being undertaken by Amari Land.
The vision for Cradle City is to create an unparalleled mixed-use
precinct which will provide the opportunity to live, work, play and
travel in an integrated environment which embraces new-urban
design and green building principles. The number of departing
passengers in expected to increase from 300,000 to 7 million
in 2017.
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No 116 – May 2009
regional analysis
Fifty nine land claims still have to be
settled in Gauteng and the North West,
according to the regional land claims
commissioner. 99.5% of the 13,194
lodged claims had been settled. Virtually
all Gauteng claims have been settled
with one expropriation case still in court
and about R2.5bn had been spent on
claims so far. Most claims lodged in
Gauteng were urban and have been
settled through financial compensation.
North West Finance MEC says the
relocation of the Merafong Municipality
from the North West to Gauteng will
go ahead as planned. The North West
government will continue to spend part
of its fiscal allocation on Merafong even
beyond the 1st of April. The decision
came after the National Assembly voted
in favour of the reintegrating the North
Western municipality of Merafong back
into Gauteng.
Challenges for the province
Delivering his state of the province
address, Gauteng premier Paul
Mashatile said crime remains the
biggest challenge facing Gauteng.
The province has invested R8 million
in recruiting 8,000 street patrollers
in 83 areas in the province and the
number is expected to grow to 10,000.
Progress has been made in tackling
poverty, housing and education although
the housing backlog is estimated at
450,000. Gauteng Community Safety
MEC says the province is ready to host
a safe and secure Confederations and
World Cup Soccer tournaments.
The 2009 FIFA confederations Cup will
be the 8th tournament of
its kind and will be held in South Africa
from June 14-28, 2009,
as a prelude to the 2010 FIFA World
Unemployment in Gauteng dropped
from a peak of 30.4% in September
2001 to 19.5% in September 2007;
this was achieved despite the continued
high-levels of migration to the province.
However unemployment, especially
among young people, remains a
burden. The slowdown in external
demand of products poses a significant
downside risk to the province’s
export numbers.
Researched and compiled by
Sindiso Valerie Mpofu Economic Services
No 116 – May 2009
Export destinations
Credit Guarantee’s guide to
Asia - April 2009
Notes: Cover = Credit Guarantee cover. Y = Cover available. CBC = Case by case. N = No
cover available under normal circumstances or if there is no request for cover. SC = Special
conditions. ILC = Irrevocable letter of credit. CILC = Confirmed irrevocable letter of credit.
All medium-term transfers will be individually underwritten based on the specific nature
and structure of the transaction.
President Susilo Bambang is chief of state and head of Government. The next election is due
in July 2009. Election candidates spend an equivalent of 1% of GDP to gain the support of its
171m voters – more than thrice the comparable campaign expenditures in last year’s US elections which amounted to 0.3% of GDP. This large polyglot nation has seen its debt-to-GDP
ratio fall steadily in recent years under the Yudhoyono administration, but fears loom that
the global economic crisis may reverse its economic advances. The crisis dampened inflationary pressures, but increased risk aversion for emerging market assets, resulted in large losses
in the stock market and depreciation of the rupiah. With global demand slowing and prices
for Indonesia’s exports declining, economic expansion for 2009 is expected to be significantly
lower that the two previous years. The Asian Development Bank forecast that the $433bn
economy will grow 3.6% in 2009 from 6.1% last year. Bank Indonesia said that maturing
private sector debt would unlikely pose a threat to the exchange rate, while Government’s foreign debt repayment risk in 2009 remained manageable as well. Government will pay a total
of $27.5bn in foreign debt this year.
President Lee Myung-bak is chief of state and head of Government. The next election is due
by December 2012. Advancing into the high-tech modern world has propelled South Korea’s
economy to achieve an incredible growth record. The country joined the trillion dollar club of
world economies in 2004. Government encouraged the import of raw materials and technology at the expense of consumer goods and endorsed savings and investment over consumption. The economy grew between 4%-5% annually between 2003 and 2007. A downturn in
consumer spending was offset by the rapid export growth. The global crisis affected South
Korea, which saw stock prices fall 40% and the value of the won fall 26% in 2008. GDP
growth fell to 2.5% last year and is expected to continue falling in 2009. It will extend a
$100bn state guarantee on bank’s overseas debts until the end of the year to assist lenders through the credit squeeze. Hana Bank, the country’s fourth-largest lender, sold $1bn
of three-year notes backed by the Government, becoming the first company to tap the state
COUNTRY - MALAYSIA | GOVERNMENT TYPE - Constitutional monarchy | POPULATION - 26m | 2009 POPULATION GROWTH RATE - 1.7% | 2008 GDP - $214.7bn
King–Sultan Mizan Zainal Abidin is chief of state. Upon his appointment in 2003, Prime Minister Abdullah began promoting investments in high technology industries, medical technology and pharmaceuticals to push the economy up the value-added production chain. Prime
Minister Najib Abdul Razak, who took office in March 2009, has pledged to carry out wide
ranging Government and social reforms. Government continues to boost domestic demand to
reduce the economy’s dependence on exports, but exports (in particular the exports of electronics) remains an important driver of the economy. The World Bank expects the economy to
shrink 1% in 2009 from the forecast 5% growth in 2008. Malaysia and three other countries
(including the Philippines), which have been blacklisted by the OECD, are now off the list after
they agreed to adopt the OECD’s regulations. The G20 leaders, who met in London at the
beginning of April 2009, cited the countries as uncooperative tax havens.
No 116 – May 2009
Export destinations
President Gloria Macapagal-Arroyo is chief of state and head of Government. The next election is due in May 2010. The president prevented a fiscal crisis by pushing for new revenue
measures. Declining fiscal deficits, tapering debt and escalating spending on infrastructure
and social services heightened optimism over Philippine economic prospects. The economy
expanded by 7% in 2007 – its fastest rate in three decades, but slowed to 4.5% in 2008
due to the world financial crisis. High Government spending, a small trade sector, a resilient
services sector and large remittances from abroad have helped to soften the full effects of the
crisis. The president disclosed that about $1bn worth of tourism investments, mostly hotels
and resorts, would be opened in the country this year until 2010 despite the global crisis. The
tourism industry was growing at an average 10% annually in the last few years. Tourism and
the business process outsourcing are among the dollar-earning sectors in the Philippines that
have been least affected by the global recession. The country, however, needs higher sustained
growth to address its growing population and to prevent poverty.
COUNTRY - SINGAPORE | GOVERNMENT TYPE - Parliamentary republic | POPULATION - 4.7m | 2009 POPULATION GROWTH RATE - 1% | 2008 GDP - $154.51bn
President S R Nathan is chief of state and the next election is due by 2011. Singapore is a
highly developed free-market economy, known for its stability and corruption-free environment. The economy is heavily dependent on the exports of consumer electronics, information technology products and pharmaceuticals and on a growing services sector. GDP growth
averaged 7% between 2004 and 2007 but declined to 1.2% in 2008 after having contracted
in the last three quarters of last year. Government is hoping to establish a new growth path
over the long term that would be less vulnerable to global demand cycles and will continue to
retain Singapore’s status as Southeast Asia’s financial and high-tech hub. Fitch Ratings believes
that growth will rebound in 2010.
COUNTRY - THAILAND | GOVERNMENT TYPE - Constitutional monarchy | POPULATION - 66m | 2009 POPULATION GROWTH RATE - 0.6% | 2008 GDP - $272.1bn
King Phumiphon Adunyadet has been chief of state since June 1946. Head of Government is
Prime Minister Abhisit Wetchachiwa. Thailand has a well-developed infrastructure with proinvestment policies. Thailand was known as one of the best economic performers in East Asia
earlier in the decade, but persistent political crises have stalled mega-projects, eroded investor
and consumer confidence and damaged the country’s international image. Exports became the
backbone of the economy when foreign investment and consumer demand hindered. Export
growth averaged 17.5% annually from January 2005 to November 2008. Continued political
uncertainty and the financial crisis weigh heavily on the economy. The Central Bank reduced
interest rates to the lowest level since July 2004 to stem the economy’s contraction after
exports shrank and consumer prices fell amid the global recession. Exports, which make up
70% of GDP, contracted for four months and the economy is likely to contract for the first
time since 1998. Thailand said that it will spend $44.4bn over three years, mainly on infrastructure projects, to help create jobs and spur economic growth.
COUNTRY - VIETNAM | GOVERNMENT TYPE - Communist state | POPULATION - 87m | 2009 POPULATION GROWTH RATE - 1% | 2008 GDP - $90.9bn
President Nguyen Minh Triet is chief of state with head of Government Prime Minister Nguyen
Tan Dung. The next election is due in 2011. This is a densely populated developing country. It
joined the WTO in January 2007 after the decade-long negotiating process. Its membership
provided an anchor to the global market and reinforced domestic economic reform process.
The country’s exports increased 900% between 2001 and 2007. Vietnam has been working to create jobs to address the challenges of a growing labour force, but the global crisis
is expected to strain its ability to create a significant number of jobs and further reduce poverty. The economy is predicted to suffer from lower exports (which made up 68% of GDP in
2007), higher unemployment and corporate bankruptcies and lower foreign investment. Vietnam plans to increase trade promotion activities and expand its export market to the EU this
year. Car sales plunged 36% in the first quarter of 2009 from the same period last year. The
World Bank expects the economy to grow by 5.5% this year from 6.2% in 2008.
No 116 – May 2009
country credit ratings
World markets update
Compiled by Sindiso Valerie
Mpofu - Economic Services
The following credit classifications were recently updated. For more information on these
and other countries please visit our website:
or contact our Export Department.
How we rate them
Country classifications are based on a numeric and alphabetic basis associated with
each country, with the numeric indicator showing the political rating of the country
and the alphabet indicating the commercial risk.These range from 1 to 3 on the
political rating with 1 being your lowest risk and 3 the highest. Likewise the A, B and
C are relevant to the commercial rating – A being the lowest risk and C the highest
Usually the two ratings are closely linked because the political rating of a country will
impact directly on its commercial rating. Factors taken into account when assigning
ratings include the following:
Political rating
Assessing political and economic conditions and stability:
Economic policies
Forex reserves – ability to generate
Rule of law
Access to legal system
• Banking and commercial infrastructure
• Past history as trading partner
• Utilising various sources of information such as D & B, Moody's, S+P,
various publications, Internet, Berne Union, ICIA, PASA, IMF, World Bank, etc
• Negotiating country limits with reinsurers
• Country reports prepared by Credit Guarantee’s economic researchers
• Credit Guarantee’s country underwriting committee.
Commercial rating
Commercial ratings are based on the financial strength of buyers in
a particular country as well as their ability to repay amounts within
terms afforded:
• Underwriting experience of other credit insurers on buyers
in a particular market.
• Number of insolvencies / liquidations in a country.
• Access to funds for buyers in the market.
• Reliable credit information from the respective market.
• Trade references within markets.
• Global and domestic industry trends and their impact
on a market.
Algeria will begin a new $100-500bn, five-year national infrastructure development programme in 2009.
Algeria’s budget for this year is predicated on an oil price of $37 per barrel, a growth rate of 4.1%, an inflation rate of 3.5% and an exchange rate of 65 dinars per US$. Analysts do not expect the state budget to
be affected by the global financial crisis in terms of covering the country’s main expenditures as long as the
oil price remains above $30 per barrel. A long-term strategy based essentially on the diversification of the
economy is the main option for Algeria to address the impacts of the global financial crisis as it seeks
to reduce its dependence on the hydrocarbons sector. CGIC’s cover is restricted to ILC and we have no
exposure currently.
Chief of state since April 2008 has been President Ian Khama who is the son of Botswana’s first president.
The next election is due by October 2009. A call for the president to be elected directly by the people was
rejected by parliament in 2008. The impact of the global financial crisis has definitely hit the mining sector.
It has impacted heavily on prices of commodities such as diamonds, nickel and copper, of which Botswana is
among the world’s leading producers. Financial experts believe that Botswana’s healthy reserves will shield it
from the full effects of a recession, but expect to see economic growth slowing significantly this year. CGIC
has a large exposure with favourable experience on this market.
Burkina Faso has significant reserves of gold but cotton production is the economic mainstay for many
Burkinabe. The country is attempting to improve the economy by developing its mineral resources, improving
infrastructure, making its agricultural and livestock sectors more productive and competitive and stabilising
the supplies and prices of food grains. The 2009 budget aims to strike a balance between preserving debt
sustainability and social and infrastructure needs. CGIC is open for cover on this market on a case-by-case
basis where we have a small exposure with good experience. This market is conducive to open account
exports but it is important that exporters have thorough knowledge of the country and the importers in the
market before undertaking such transactions and take adequate measures to protect themselves accordingly.
Chief of state since October 1997 has been President Sassou-Nguesso. The president is elected for a sevenyear term and is eligible for a second term. The next election is due in July 2009. Oil is the mainstay of
the economy, accounting for 75% of GDP and in recent years the country has tried to improve financial
transparency in the sector. Oil accounts for 75% of GDP. The IMF forecasts growth of 12.7% in 2009 and
12.3% in 2010, but warned of the impact of the global crisis. The forestry sector in Congo is the secondbiggest earner of foreign currency after oil and has been affected by the crisis with thousands of workers
expected to lose their jobs. The crisis is making it difficult for wood producers to find markets for their
goods and are cutting prices and thus not able to pay timber taxes and other duties. CGIC has small exposure
with good experience in this market.
No 116 – May 2009
country credit ratings
Egypt’s government will double its economic stimulus plan to 30bn Egyptian pounds ($5.4bn) and it will
mostly be spent on new infrastructure projects to stimulate the economy. Economic growth is expected to
slow to 4% in the fiscal year ending June this year after three years of expansion above 7%. The slowdown
comes as foreign investment, exports and revenue from tourism and the Suez Canal decline due to the
global financial crisis. The global financial crisis is likely to have a significant impact on the Egyptian economy
as a whole, especially large formal enterprises in key export sectors. Two of Egypt’s largest manufacturing
sectors are ready-made garments which make up large exports to the US and EU and the food industry,
which has markets in the EU and Arab region. CGIC’s experience has been good.
Like most developing countries, 2009 is expected to be a very challenging year for Ghana. The IMF has
called on the international community to prevent the devastating effects of the financial crisis on Ghana. The
Fund stated that Ghana and other low income countries were in need of over $25bn this year. The World
Bank has agreed to provide Ghana with a $1.2bn interest free loan to help cushion it against the global
downturn. Fitch Ratings revised the outlook on the long-term foreign and local currency Issuer Default Ratings (IDRs) of Ghana from stable to negative, on the back of new data pointing to twin fiscal and current
account deficits of 15% and 24% of GDP respectively in 2008 and double digit inflation. CGIC has reasonable exposure in this market with recent experience being favourable.
Chief of state is Captain Moussa Dadis Camara, President of the National Council for Democracy and Development, who led a military coup following the death of President Lansana Conte on 22nd December 2008.
The ruling military junta is planning for elections to be held before the end of the year, but did not make
clear whether it would be presidential or parliamentary. The former French colony has been suspended
from both ECOWAS and the AU, which prevented junta representatives taking full part in its February 2009
summit in Addis Ababa. The 2008 international non-profit Transparency International’s corruption index
ranked Guinea as the country with the seventh most corrupt image in the world. CGIC has very limited but
claims-free experience.
Prime Minister Bruce Golding was sworn-in in September 2007. A year after his inauguration various commentators argued that based on a number of key economic measures, including growth, unemployment,
inflation, interest rates, Jamaica’s situation was significantly worse than before and the new government
deserves a failing grade. The downturn in the US economy is expected to have a ripple effect on the Caribbean islands. CGIC has very limited but good experience in this market.
Loop holes in the National Accord and Reconciliation Act being exploited by President Kibaki’s Party of
National Unity (PNU) have sent Raila Odinga’s Orange Democratic Movement (ODM) back to the drawing
board. The party regrets having failed to negotiate for the inclusion of finer details in the law to offer distinctive powers to the prime minister. In the absence of a clear power sharing pact, ODM has been locked
out of public service appointments, heightening tension in government. Kenya needs 900,000 metric tons
of corn to tackle a food emergency and is appealing for Sh32bn ($402 million) in aid after poor rainfall and
post-election violence in the first two months of 2008 reduced plantings. Kenya’s economy is expected to
grow by just over 4% in 2009 as it continues its recovery but prolonged dry weather and a global slowdown remain a threat to the key agricultural export sectors and tourism. CGIC is open for cover in this
market without any restrictions and our experience has been favourable.
The three-month battle between the opposition movement and the regime left over 100 people dead and
dethroned President Marc Ravalomanana from his seven-year rule. Two days after his unseating, 34-year
old Andy Rajoelina suspended parliament and replaced it with two new bodies tasked with administering the
country until fresh polls are held within 24 months. The power grab was widely condemned by the international community who claimed that Rajoelina’s army-backed rise to the helm of the Indian Ocean Island
was undemocratic. SADC denounced the takeover as unconstitutional and does not recognise the presidency
of Rajoelina as SADC claims that his appointment violates the constitution of Madagascar and international
principles like SADC, AU and the United Nations protocols. The global downturn has affected the pace of
mining development and the political crisis has left the once-booming tourism industry facing ruin as tourists
look for alternative destinations. CGIC has suspended cover in light of the political developments.
In May 2009, Malawi will hold its fourth presidential and parliamentary multiparty elections. Malawi’s economic boom over the past three years allowed interest rates to fall from 35% to 15% and brought down
inflation to single digits from highs of 30%. The Finance Ministry expects the country to struggle to reach
its economic growth projections due to lower demand for its commodity exports. The economy is expected
to expand by only 7% in 2008/09 from 8% the previous year. Donors contribute about 40% to Malawi’s
annual budget. CGIC has a reasonable exposure to this market. Although our experience has been good, this
market is very susceptible to forex delays.
No 116 – May 2009
country credit ratings
Mali’s economic performance is vulnerable to climatic conditions, fluctuating terms of trade, dependence on
ports in neighbouring countries, concentration of its exports in three primary sector products, gold, cotton,
livestock and weak administrative capability. The government has continued its successful implementation of
an IMF-recommended structural adjustment program that is helping the economy grow, diversify and attract
foreign investment. Economic growth is estimated at 4.9% in 2008 and is projected to recover to 5.3% in
2009 thanks to favourable weather, high farm-gate prices and policies supporting food production. CGIC
has minimal experience in this market and caution is advised when dealing with this market.
Being a small and open economy, Mauritius can hardly be sheltered from global economic hiccups. Despite
diversification its tourism and textile sectors remain exposed to the worsening global financial and economic
conditions, especially in their main European markets. Mauritian policymakers unveiled a $330 million stimulus package in December to bolster the economy by 1-1.5% and cushion itself from the global financial crisis.
It is believed that if the plan is implemented timeously it will allow the economy to sustain GDP growth in the
high 3% to 4% range in 2009 with headline inflation edging towards 5.5% in 2009 and 5% in 2010. Mauritian exporters are holding onto their dollar earnings as there is no supply of foreign exchange coming into
the market as main export markets slide into recession with little visibility on how deep and prolonged the
slowdown will be. This year, the sugar industry faces a 21% drop in prices for sugar sold to the EU, bringing the total reduction to 36% since 2006. CGIC is open for cover in this market without restrictions. This
market is not claims-free and exporters must ensure they have taken the necessary precautions in managing
payment risk when dealing on open account or unsecured terms.
Chief of state since February 2005 has been President Armando Guebuza and the next election is due by
December 2009. Government claims that it is winning the battle against inflation and according to the latest
data from the National Statistics Institute (INE), inflation in December 2008 was only 0.47% compared to
2.8% in December 2007. Inflation in 2008 was 6.19% from 10.3% in 2007. The central bank put the
country’s net international reserves on 31st December 2008 at slightly over $1.6bn, covering five months
of imports. CGIC’s exposure in this market continues to grow whilst our claims experience has been good;
dealings should be undertaken with full information on hand as payment problems can occur.
Chief of state since March 2005 has been President Hifikepunye Pohamba. The next election is due in
November 2009. Namibia’s GDP was estimated at $7.4bn in 2007 with growth that year of 3.6%.
An IMF mission met with Namibian authorities in light of the global economic meltdown. The Fund noted
that after three years of solid economic expansion, Namibia’s growth was expected to have moderated to
3% in 2008 and is forecast to slow to 2% in 2009.CGIC has a large exposure on this country with
favourable experience.
Nigeria’s Finance Minister said while Nigeria was able to weather the first round effects of the global crisis,
subsequent deterioration in the global economic and financial environment has exposed the country to considerable shocks. The Niger Delta crisis has paralysed the country’s oil production and the country’s economy
is hanging in the balance with the depreciation of the currency against the US dollar, poor power supply
and the drop in capitalisation of the stock exchange. The West African nation has also removed subsidies on
gasoline and petroleum products to cut expenditure as part of a package of recommendations presented to
the Presidential Steering Committee responsible for mitigating the impact of the global financial crisis on
Nigeria. CGIC has reasonable experience in this market.
Macroeconomic developments in 2008 were less positive than expected with growth estimated at 3.9% in
2008. Senegal’s economy is expected to grow 4% in 2009, reaching 5.5% a year in 2010 and 2011 due
to increased phosphate production and recovery in private sector activity and FDI related growth. Budget
constraints in donor countries could result in reduced aid, which currently accounts for about 2% of GDP
annually for Senegal. CGIC is open for cover without restrictions in this market.
Seychelles has consistently over-run its budgets, borrowing heavily from foreign Governments and commercial creditors to invest in health, education and housing, as well as tourism and fisheries. The island is experiencing a severe economic malaise with the discovery that the country is bankrupt and that Government
had taken public loans in excess of $800m and private loans exceeding $500m. The country entered into
an economic reform programme with the IMF last November. The IMF recently forecast that the Seychelles’
economy would contract by about 9.5% this year as tourist arrivals in the heavily-indebted island nation
decline. CGIC is currently off cover in this market.
Over the past 15 years Swaziland has become characterised by a decline in economic growth, spreading
poverty and a rise in mortality and morbidity rates. Swaziland’s ability to cope with its ongoing humanitarian
crisis will not improve until its under-performing economy picks up. Real GDP growth is forecast at about
2% in 2008-10. Even though the global financial crisis has not affected the banking sector, the tourism
industry has taken a knock and the decline in tourist arrivals is expected to continue into 2009. The IMF
expects SACU revenues (the country's main source of fiscal revenue) to remain high at least until 2010,
after which they might be subject to declining pressures from factors like increasing trade liberalisation.
The IMF advises that Swaziland must now decide what to do when SACU revenues dry up. CGIC is open for
cover without any restrictions in this market. When conducting open account business in this country it is
important to be aware of payment risks and take necessary measures to mitigate them. CGIC is continuously
monitoring the political climate.
No 116 – May 2009
Tanzania is still among the largest recipients of aid. Over 34% of the national budget including the
2008/2009 financial year, heavily relies on donor support and that is likely to pose a big challenge for the
implementation of the budget. Tanzania has cut its growth forecast for 2009 from 8% to 7.3% and postponed plans to sell its first sovereign bond as the global financial crisis curbs demand for its exports and
pushes up borrowing costs. The global financial crunch and its ripple effects is putting the tourism and horticulture industries under pressure. CGIC has substantial exposure in this market with good underwriting
After successful legislative elections in October 2007, missions from the EU, IMF and World Bank visited
Togo to assess the financial state of the country and re-engage the country in after years of donor sanctions.
The global financial crisis will lead to falling phosphate and cotton export revenues as well as lower remittances. Economic growth is estimated at 1.1% in 2008 and with the implementation of planned growthenhancing reforms, the economy could achieve real GDP growth of about 4% annually by 2011, with a
gradually improving fiscal position. CGIC has limited exposure with favourable experience.
Uganda is endowed with substantial natural resources like fertile soil, good rainfall and significant mineral
deposits of copper, cobalt, gold and other minerals. Agriculture is the most important sector and contributor
to GDP, with coffee exports accounting for most of the sector’s export revenue. According to the country’s
Finance, Planning and Economic Development Minister, Uganda is already feeling the impact of the
global financial crisis, despite the president insisting that the country will not be affected. Exports
from tourism and remittances from abroad are expected to decline. CGIC has favourable experience
and increasing exposure.
Government has appealed to cooperating partners to enhance development assistance in light of the negative impact of the financial crisis on the local economy. Some industry players have taken this opportunity
to downsize their operations and have trimmed their workforces. The global crisis is affecting Zambia’s
copper industry which employs 50,000 workers and accounts for 90% of Zambia’s exports, as the price of
the commodity has slumped on global markets with the economic crisis. Zambia has already been forced to
abandon its windfall tax on copper mining, which was set at add $450m per year to its anti-poverty budget
and is likely to see further budgetary pressures. CGIC has large exposures with recent experience being
unfavourable due to claims being paid.
Although Hungary’s economy is not directly affected by the crisis in the US banking system, the resulting
tightening liquidity will make it more difficult and expensive for Hungarian banks and businesses to borrow,
leading to negative effects on exports and growth of the real economy. In October last year Hungary found
itself particularly vulnerable due to its heavy debt burden and was the first EU member state to have sought
a stand-by loan from the IMF since the financial turmoil in mid-2008. The Hungarian economy is forecast
to contract 2.4% in 2009 compared to a contraction of about 1.4% estimated for 2008 due to a downturn
in Hungary’s main export markets in Western Europe. The number of company liquidations in Hungary rose
17% y/y in 2008, including 32% y/y during the Q4’08. CGIC is open for cover in this market without any
The Economist expects that with the IMF support for the non-financial sector the country can avoid a
severe economic crisis, although some of the country’s smaller companies believe that the loan agreement
would only put Turkey in debt once again; Turkey’s debt has more than doubled from $220m when the
ruling AK Party took office in 2002 to $500bn currently. The IMF expects the economy to shrink 1.5%
in 2009 and to grow 3.5% in 2010. The culture and tourism minister stated that the tourism industry
would be able to overcome the effects of the global economic crisis if it offers reasonable prices and a wellorganised promotion. The country’s shipbuilding industry, which has grown exponentially in the last six years
with orders from around the world, has sustained damages from a drop in global demand but a new
stimulus package that aims to turn matters around will soon be introduced. CGIC is open for cover in
this market without restrictions; however exporters should take the necessary precautions to manage
their payment risk.
President Felipe Jesus Calderon Hinokosa is expected to face a difficult environment in 2009 as the political
focus shifting to the mid-term congressional elections in July 2009 will slow the pace of near-term momentum on his legislative agenda. A high level of violence stemming from organised crime represents a serious
challenge to Mexico’s deficient security forces. Economists, financial entities and analysts predict a negative
outlook for the economy this year, stating that it will suffer a marked recession due to the financial crisis;
about 80% of Mexico’s exports are to the US. CGIC is open for cover on this market without any restriction. Mexico has, however, recently found itself in a bit of a crisis due to the devaluation of the currency
coupled with the ongoing global economic crisis. As such any exporters in this market on open account
should ensure that they have taken the necessary measures to protect themselves against any non-payment
that may arise.
No 116 – May 2009
idnapping has become a global phenomenon and more
of a concern than at any time in the past.
“The kidnapping dynamics in any given country are everchanging and new hotspots are likely to emerge in 2009,” says
Dave Butler, Director, Global Client Services at Control Risks.
For many years, kidnapping-for-ransom was mainly associated
with Latin America. But this has changed and the reports now
also come from the swamps of the Niger Delta, the turbulent
cities of Iraq and ships in the Gulf of Aden. Not only has the
number of countries harbouring serial kidnap groups expanded,
but so has the range of victim profiles and demands.
Until 2004, Latin America accounted for more than 65%
of the world’s kidnaps-for-ransom. But the government
subsequently implemented the so-called �Democratic Security’
policy, which sought to regain effective state control over large
swathes of territory dominated by leftist guerrillas and rightist
“Its success in curbing guerrilla activity was startling,” continues
Butler. “Within two years of the policy’s implementation, the
kidnapping rate had fallen by at least 50%. By 2008, Colombia was
no longer among the world’s top five kidnapping countries.”
The global trend is upwards, driven by both political and criminal
developments. In the aftermath of the US-led invasion of Iraq in
2003, Islamist extremists used kidnapping against foreign nationals,
perhaps inspired by the kidnap and beheading of Wall Street Journal
reporter, Daniel Pearl, in Pakistan in 2002. Similar developments
took place in Afghanistan, where Taliban militants targeted aid
workers and journalists. Such extremist cases have a triple purpose:
to obtain some form of concession, whether political or financial; to
draw international attention; and to exact revenge on the West.
More recently, an organised militant movement has emerged in
the Niger Delta kidnapping oil company workers and contractors
in a bid to pressure foreign oil companies, and ultimately Nigeria’s
government, to meet the group’s demands on the sharing of oil
wealth, compensation for environmental pollution and the release
of detained militant leaders. “The shipping industry is suffering as
pirates who were previously content to steal valuables and equipment
now prefer to hold ships and their crews hostage, often for weeks on
end,” says Butler.
These shifts have clearly influenced kidnapping trends. By mid2008, only 43% of the world’s kidnap-for-ransom cases were being
recorded in Latin America. The number of countries outside Latin
America regarded as having a serious kidnapping problem increased
from four in 2003 to eight in 2008.
According to Butler, while most demands remain financial, even
among terrorist groups, political concessions now account for 4% of
all cases, up from 1.5% in 2003. The percentage of deaths in kidnap
cases has also increased.
The number of reported piracy incidents involving kidnapping-forransom surged in 2008. Prior to 2007, pirate attacks were generally
quick and centred on theft, with the vessel and crew only briefly
held. But by 2008, pirates operating off Somalia realised the benefits
of mimicking traditional kidnap-for-ransom. A spate of attacks took
place where vessels and crew were taken hostage. Somali pirates are
comfortable with protracted negotiations, usually with the vessel’s
owners or crew’s employers, to obtain a substantial ransom payment,
generally between $1m and $2m. International forces have been able
to do little to stop them.
Butler says that in Nigeria, militant and community groups that
previously boarded oil rigs and held workers hostage in exchange
for promises of jobs or compensation for environmental damage are
now attacking vessels offshore and abducting the crews for ransom.
The disruption caused to shipping business by such incidents, which
can last for several weeks, is considerable, as are the implications
for finances and employee welfare. “Although the international
community, through the UN, NATO and the EU, has latterly paved the
way for joint patrols of the worst affected areas, particularly the Gulf
of Aden, these efforts have yet to produce any tangible improvement
and the outlook is not promising,” says Butler. Kidnap groups are
widening the scope of their operations, e.g. many Colombian kidnap
gangs have adapted to tougher policing in the country by moving to
neighbouring Ecuador and Venezuela.
According to Butler, a similar trend has been observed in Africa,
fostered by porous borders and weak state security. Somali gangs
have staged kidnaps in both Kenya and Ethiopia, and the activities of
such groups in Algeria, Sudan and Nigeria have been felt in Tunisia,
Egypt and Cameroon respectively. Militant groups are prepared
to travel, particularly when high levels of insecurity in their home
regions limit the number of potential foreign victims.
“It looks as if this trend is set to strengthen in coming years and will
need to be factored into security plans; even if a country appears
to be at low risk, its border areas may be susceptible to infiltration
from a higher-risk neighbour,” cautions Butler. In such a varied
environment, it is important for companies to take the kidnap risk to
their employees into account.
This requires a good understanding of the regional variations and
changing local dynamics underlying security issues such as kidnapping
in each country of operation. Security managers will need to keep
up to date with the main trends, groups and tactics, as well as the
competence of the authorities and any legislation that might impede
ransom negotiations in the event of a kidnap.
“Armed with such information, companies will be better prepared to
take the necessary precautions to avoid an incident and to
deal with one should it occur,” concludes Butler.
No 116 – May 2009
RSA Economic and Business Review
APRIL 2009
Where to from here?
Global stresses
Both the global and domestic economies
and their various constituents are frantically
seeking for signs of any bottoming in the seemingly relentless plunge in demand and overall
activity. The IMF reports that corporate default
probabilities in the US are still below the peaks
seen when the dot-com bubble burst in the early
2000’s; those in Japan have reached previous
crisis levels while those in emerging markets
have also risen strongly in recent months, most
notably in South Asia and emerging Europe and
Russia and were approaching previous peak
levels. In Latin America, East Asia and China the
risk of corporate default currently remains considerably below the levels seen in the aftermath
of the late 1990’s crises. Allied to this is the fact
that sovereigns are also under stress, especially
emerging economies: “among the most affected
have been countries with large external financing needs (for example, in emerging Europe),
high risks of financial and corporate stress as
credit booms are unwound (for example, in
central Asia), and risks of widening fiscal deficits
as commodity revenues plummet (for example,
in some South American countries)” [IMF World
Economic Outlook, April 2009].
Local cycle under strain
Initial indications point to the ANC winning
the 22 April elections resoundingly, providing
them with a �clear mandate’. Much speculation
has been circulating concerning possible policy
shifts in the new ANC government. Hence the
talk of a developmental state in which employment creation becomes paramount; in fact
the SA Institute of Race Relations argues that
Government’s anti-poverty thrust will focus more
on social spending and expanding the public
works programme than on enabling unskilled
people to enter the labour market. The 2009/10
National Budget provides for: (See chart below)
The leading indicator appears to have
peaked as far ago as March 2007 (at 127.2)
while the coinciding indicator crested in June
2008 at 156.8. Barring the 40-month downturn
over 1974-77, the previous two downward
phases of 51 months (March 1989 – May 1993)
and 33 months (December 1996 – August 1999)
were the longest since WWII. For consumers it
is worth noting that following the onset of the
previous downturn, disposable income of households grew by just 0.6% and 1.5% in 1998 and
1999 respectively, while for businesses, the
pressures on national income fed through in a
scant 1.7% real rise in consumption expenditure
by households in both of those years. 40.3%
more people were sequestrated in 1999 than a
year earlier while civil default and consent judgments against businesses grew 44.5% in 1999
to R1.32bn.
Compiled by
Senior economist,
Credit Guarantee
Over the past few years, larger than
expected revenue receipts have given Minister
Manuel latitude to grant above-inflation tax relief
which in turn enabled the consumer-driver cycle
to keep on turning. Government’s response to
the deepening recession has been to increase
spending, both on capital projects but also
through direct transfers such as social grants.
This is argued to be justifiable in the face of
looming job cuts and pervasive poverty. Well and
good; a complimentary blend of expansionary
fiscal policy together with looser monetary policy
as the economy cools.
Business cycle analysis has become
something of a forgotten art given that we
were in an upswing since before the new
millennium began.
If one considers the plunging industrial
production and export figures being recorded as
demand nose-dives across the globe, it becomes
very difficult to see any salvation for the domestic economy coming from that front for quite
some time. Faint hopes are being expressed that
the various stimulus efforts around the globe
may be helping to stabilize economies - let us
indeed hope so, but hope may not be sufficient.
The faint pick-up in the local leading indicator in February 2009 – to 106.6 from 105.9 in
January 2009 – does appear to offer some faint
hope that a recovery in the overall business
cycle may become evident by year-end. Of the
13 indicators comprising the leading indicator,
four are opinion surveys which represent a large
qualitative component. The coinciding indicator
is purely quantitative and this is still strongly
Revised est.
Gross tax receipts as % of GDP
Total expenditure as % of GDP
South Africa has numerous opportunities
in the near term to showcase itself as a prime
tourist and investment destination and hopefully
we will grab the opportunity with both hands.
Public sector infrastructural spend
over the next three years of R787bn
will amount to in excess of 9.5% of
GDP, significantly higher than the
5.9% of GDP achieved over the last
four fiscal years.
We may yet turn out to be a
Real GDP growth in %
Budget balance as % of GDP
beacon amidst the global fall-out,
but it’s going to require level heads
and strong leadership.
From page 7
the customer back to buy again thus gaining the most profitable
sale, the repeat sale. Instead of offering a 2-10-N30 term a
business can send out, along with an invoice, a VCDC; A Valued
Customer Discount Certificate for 2% of the invoice amount and
they can put the selling company's CEO's picture or the selling
salesperson's picture on the certificate or Marilyn Monroe's picture.
Each VCDC would carry the same # as the invoice it applies to and
thus would be easy to track.
Accredited Financial Services Provider #17691
The VCDC would clearly state that if the invoice the VCDC applies
to is paid within 10 days of the invoice date the customer can use
the VCDC on their next purchase.
Visit our website at
E-mail: #[email protected]
If a customer pays in 15 days..cut them some slack and accept the
VCDC...on that next most profitable purchase, the repeat.
Gauteng: Telephone 011 889 7000
Credit Guarantee House, 31 Dover Street, Randburg
P O Box 125, Randburg, 2125
Fax 011 886 1027 or 011 886 5715
Business development consultants: Nazel Veldtman
Malcolm Kourie, Llewellyn Paulsen
Service consultants:
Jacky Mzobe, Tracey Dansie,
Business researcher: Renate Janse van Rensburg
Western Cape: Telephone 021 421 7830
No 1 Thibault Square, 1 Long St, Cape Town
P O Box 6018, Roggebaai, 8012
Fax 021 419 7586
Business development consultants:
Claire Marx Willie van den Berg
Service consultant:
Danie van Niekerk
Business researcher: Marita Procter
The end result? Improved cash flow and repeat sales. All too often
we walk a mental rut, we do the same things over and over again
in the same way, until the rut becomes a mental trench and then
we think we can see the horizon for oncoming danger when in
effect all we really see is a wall.
And that's not to say that a trench can't be comfortable and easy to
navigate, but God help you if things change and the walls give way.
During this time of dropping sales and extended delays in credit
customers' payments, an old idea is reborn and to those with the
courage and sense to take advantage go the spoils, i.e. improved
cash flow and more repeat sales.
In the last 10 years, Abe WalkingBear has spoken to hundreds
of CEO's and top manager groups internationally. Since entering
the training and consulting field in 1982, he has revolutionized
the way that business owners, CEO's and senior managers think
of and manage one of, if not, their largest assets. He is also the
co-founder of
During his career he has worked with many companies across
industry lines, he has taught in schools and universities, is the
author of Profit Centered Credit and Collections with Touchstone
2000, 1999, co-author of the STAFDA's Foundations of A Business
2007, and co-author of the international best selling book The Best
Kept Profit Secret: The Executive's Guide to Transforming a Cost
Eastern Cape: Telephone 041 363 4024
First Floor, Mutual Place, cnr Cape Rd & Langenhoven Drive,
Greenacres, Port Elizabeth
P O Box 27154, Greenacres, 6057
Fax 041 363 3750
Sales & service consultant: Nici Large
Business researcher: Brenda McEwan
Kwazulu/Natal: Telephone 031 265 0300
Suite 7, No 4 The Crescent, Westway Office Park, Westville
P O Box 2756, Westway Office Park, 3635
Fax 031 265 0323
Sales & service consultant: Lorraine Abbott
Business researcher: Andrew Reed
WalkingBear has written hundreds of business articles and has been
a featured speaker at numerous company business meetings and
association conventions.
CREDIT NOTES is published by Credit Guarantee Insurance Corporation of Africa
Ltd, (Reg No 1956/000368/06), PO Box 125, Randburg, 2125.
For subscriptions and information, please contact Vicki Sokolich at tel 011 889
7281, fax 011 686 9581 or e-mail at [email protected] .
He was given the Vistage Master Speaker Award (the world's
largest CEO organization) for having spoken to over 200 CEO
groups in the US, Canada and Europe. A high energy and fast
paced speaker, WalkingBear uses wit and humor to keep his
audiences engaged and learning. A Vietnam War veteran and
of Pueblo Native American descendant, WalkingBear's family is
originally from the Taos area.
Credit Guarantee does not necessarily endorse opinions expressed in this publication.
Although all reasonable care is taken to ensure the correctness of facts and figures,
Credit Guarantee accepts no responsibility for the results of actions based on anything
published in this issue.
He is now living in Canon City,Colorado.
[email protected] 719.276.0595
Design & layout: MALNOR (Pty) Limited
2 Hermitage Terrace, Richmond, Johannesburg
Private Bag X20, Auckland Park, 2006
Tel: 011 726 3081/2 • Fax: 011 726 3017
e-mail: [email protected] • Website:
No 116 – May 2009
23в‡ 15034 C/Notes 05/2009