The credit crunch

South Africa has been hit hard by the global credit crisis. For more than four years, South Africa boomed, like so many other emerging economies. And then suddenly without warning, capital markets froze, and South Africa tumbled into recession. The waves of foreign capital flowing into the country quickly evaporated, sending share prices into freefall and leaving a serious question mark over the future of capitalism in South Africa. A political backlash now looms. A ticking bomb of endemic unemployment, extreme poverty and rising crime are the legacy of the economic policy pursued by the African National Congress since 1994. The rapid increase in borrowing of recent years, financing conspicuous even ostentatious consumption among whites and middle-income blacks, has brought the economy to its knees.... The South African government and central bank cannot insulate the economy from the ravages of global recession, now that it is so tied in through 'free' trade. The necessary firewalls can only be constructed by turning back on globalisation, and that invokes the risk of retaliation, when South Africa's external financing requirements are likely to remain extreme, and may even rise in the short run. With so many emerging market economies in trouble, and some industrialised countries like Spain, Ireland, Portugal and Greece likely to need IMF assistance, it seems that South Africa can ill afford to turn its back on the capricious foreign investor.