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GEORGE NEWS & VIDEO - Difficult times await the South African consumer, and the happenings in Ukraine will no doubt have some impact on the South African economy.
This was the message from Matthew Mackay, investment specialist at PSG Wealth, when he addressed the George Business Chamber at Fancourt last Wednesday.
He said that one of the most critical things in a South African context is economic growth.
Debt unchecked in an emerging market economy like our own with low growth can lead to a spiral from which it is difficult to emerge. The most feasible way to improve the situation is sustained economic growth.
"Ultimately, if our GDP grows at a faster rate than our debt, then there is an improvement in the debt-to-GDP ratio. If we can find a way of systematically creating consistent GDP growth, our debt problem would effectively go away."
The biggest challenge in South Africa is unemployment. Having a smallish base that funds a larger base is tough. "We need to get more people economically active and find a way to bring the informal sector into a more regulated space," he said.
The introduction of the informal sector into a more regulated environment will give them access to capital and other facilities that this market previously had difficulty to access.
VIDEO: Difficult times ahead
The question is how the situation can be fixed. "A start would be to decrease regulation on business and create better relations between the public and private sectors. A chicken and egg scenario though - which comes first? Decrease regulation and inspire business confidence or private business allocate some of the cash stock piles they have generated," he suggested.
According to Mackay there is not enough trust between the public and private sector, but the government has the bigger drawcard and the ability to kick-start the relationship with the private sector.
Giving the private sector more certainty and security about regulation will be a good start to give the confidence to allocate capital.
He expects there are tough times ahead for consumers. "A lot of the inflationary impacts from the oil price on the logistics environment haven't bled through to the system yet and there is an expectation of strong inflation to materialise," he said.
Asked about the situation in Ukraine, he said that the consequences will be broad. The increase in oil price will have a significant knock-on effect in South Africa.
Costs will go up in the supply chain and this will have a wide-spread impact, often on the most cost-sensitive products. He wouldn't be surprised to see the prices of basic essentials like bread and milk go up in the near future.
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