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South Africa Lags in Economic Recovery

South Africa's finance minister says the continent's largest economy is expected to have a slow recovery from the global economic crisis.

Pravin Gordhan says the crisis has had a significant impact on South Africa, as the nation's first recession in 17 years extended into the second quarter of the year. Gordhan is predicting growth of between two and a half and three and a half percent for the next few years.

David Shapiro, a director at Sasfin Securities in Johannesburg, says a lagging recovery is no surprise.

"We went into the so-called downturn behind everybody else and it's probable that we will come out of it behind everybody else," he says.

Late start

While…other nations were actually concentrating…on cutting back, I think we just lagged. So…you'll find that our interest rate cuts came a lot later. Our housing market is still under pressure. So I would expect this recession here to extend for a few more months," he says.

The South African economy, he says, "relies heavily on what happens in the rest of the world" because it is mainly a commodity producer.

"We have to wait for the real demand for materials to take place. Not the financial demand, where we start to see oil prices and commodity prices go up…. But I think we need to see real demand coming through as well," he says.

South Africa's mining sector has also suffered because of the drop in demand for various minerals.

Shapiro says, "We've lowered interest rates and I think we're expecting that to kick in by yearend. We'll start to see spending pick up and consumers feeling a little more comfortable about things."

Predicted growth rate raises concerns

Nonetheless, he says, it's" pretty serious for us because we have a very high level of unemployment. The official rate is 23, 24 percent. I think it's probably even higher than that."

An economic growth rate of two and a half to three and a half percent may do little to improve the unemployment situation.

"If that is the case, then I think we're going to have to make other arrangements or we're going to have to look carefully at stimulating the economy and addressing what is a very threatening issue, which is unemployment," he says.

World Cup 2010

South Africa is hosting the World Cup next year. The soccer championship is considered the world's biggest sporting event. Shapiro thinks the nation's economy would be in worse shape if South Africa had not been the host country. However, he says, overall, it's not been a big economic stimulus.

"It will give us a bit of a kicker. (But) in terms of the amount of money that's being spent to get us up to speed in terms of stadiums and so on, it's not very huge relative to the overall infrastructure package," he says.

The World Cup-related construction has resulted in new roads and hotels, among other projects.

Nevertheless, Shapiro says it'll take more than the World Cup to rev up the economy and create jobs.

Government can't do it alone

"I think the government's battling a little bit. In other words, it's not coping and I think we need to formulate a plan here where we can actually bring in businessmen without any political agenda, who are not driven by money, who are not driven by…promises of big contracts…but who can actually help the administration," he says.