High time European austerity showed some results

EUROPE needs a success story to emerge from this austerity drive that we have seen dominate the region. One out of Portugal, Ireland, Greece and Spain needs to report some tangible improvements in the state of its economy, and very soon.

But instead of confidenceboosting headlines, we keep being reminded of just how hard a slog this rebalancing of Europe’s common monetary union really is and the struggles look likely to continue for some time.

The prime minister of Portugal, a country that was the recipient of a bail-out package about two years ago, this past weekend raised the spectre of yet another bail-out for the country, which is in its third year of recession.

Germany, the European Union and the European Central Bank — the proponents of austerity — have pushed southern nations such as Portugal to undertake spending cuts to improve their finances, and in the long run boost confidence in the common monetary union.

Finances aren’t improving fast enough because of slowing economies, and confidence levels aren’t climbing as fast as one would have hoped.

For that reason, Europe faces the spectre of yet another govern- ment being removed from power as pressure intensifies for the Portuguese prime minister to call an early general election.

Another general election means more uncertainty for the 14-yearold euro project.

CHINA’s insatiable appetite for resources has long been held up as the one positive factor to hold onto when we consider growth, not only domestically but in the entire African continent. While European and, to a lesser extent, US growth falters, politicians often brag about good relations with the world’s secondbiggest economy and what they’ll bring our way in terms of trade.

But what politicians fail to consider is the fact that the Chinese economy, much like everyone else’s, is also changing.

Manufacturing may account for 45% of its gross domestic product (GDP) compared to 20% in the US (making it the largest in the world), but it is actually on a downward slope. This changes China’s future needs. The services sector will usurp manufacturing as the largest contributor to Chinese GDP this year, according to Standard Bank.

“Growth in the services sector has outstripped growth in the manufacturing sector four out of every five years since the early 1990s, resulting in its share of GDP rising from just 32% in 1994 to 45% last year,” the bank said in a note.

The shift has been occurring for the best part of a decade, a period in which we saw record commodity prices. What this means for commodity-rich countries such as ours is less demand from the world’s biggest consumer of resources, which in turn means lower prices.

In some respects, the purchasing managers’ index for manufacturing in China is yester- day’s number for yesterday’s China, Standard Bank argues.

“To extrapolate the sustainability of tomorrow’s China the services sector is where one should focus.”

TELKOM’s fortunes should be decided by its board and its new CEO, Sipho Maseko, if it is to stand any chance of recovery. Yesterday’s trading update confirmed that meddling by its political principal, the Department of Communications, has done nothing but destroy value. Telkom said annual profit would be as much as 20% lower.

The executive appointments Telkom has made in recent months have been impressive, and include a strong chairman and a CEO once touted to head Vodacom.

But all this counts for nothing if they aren’t left to salvage what they can at a company that has been losing the battle against rivals such as MTN and Vodacom.

It’s best that the ministry leave the board — which it helped constitute — to decide the future path of the one-time giant.

I don’t think nationalising a company that needs billions in reinvestment is the smartest choice for a government that isn’t cash flush. Getting a long-term, strategic partner with deep pockets still seems the best option.

GETTING IT RIGHT: In last week’s column on Lonmin, the world’s third-biggest miner, I didn’t mention the fact that the company’s senior management also relocated to SA when the company decided to move its headquarters here two years ago.

E-Mail: derbyr@bdfm.co.za Twitter: @Ronderby