Despite sluggish local economic growth caused by the 2008-09 global financial crisis recession, Finance Minister Pravin Gordhan has not gone back on his 2013 projections for the growth of South Africa’s economy.
Tabling his 2014 Budget in Parliament in Cape Town on Wednesday, Gordhan projected that South Africa’s gross domestic product (GDP) growth would increase from 2.7% in 2014 to 3.4% in 2016.
Over the next five years, Gordhan said, the government would focus its efforts on economic growth, backed up by increased investment in electricity and transport infrastructure.
With the South African economy performing below its potential – growth declined from 3.6% in 2011 to 2.5% in 2012 and 1.9% in 2013 – the minister said that bold decisions were needed going forward.
Increased spending on public infrastructure would encourage private investment, while stronger employment growth would contribute to increased household consumption, he said.
“Potential domestic risks to the outlook include further delays to the introduction of new infrastructure, particularly additional electricity capacity, higher inflation due to the weakness of the rand, and protracted labour disputes which could depress consumer and business confidence.”
Economy ‘successfully stabilised following global crisis’
When President Jacob Zuma took office in 2009, the economy had just shed almost one-million jobs following the global financial crisis, the country’s revenue levels had declined notably, its debt levels had increased, and the budget deficit had widened.
At that point, the National Treasury had decided to take bold steps to ensure that the bleeding economy recovered.
“We stabilised the economy and ensured a recovery,” Gordhan said. “Our response was to implement an aggressive fiscal adjustment. When global trade went into reverse, we took steps to improve competitiveness of businesses within the framework of the Industrial Policy Action Plan.
“We accelerated infrastructure investment and we expanded financial assistance to businesses in distress.”
He said the response to the crisis had been founded on the principle of government, business, labour and communities working together under the facilitation by the National Economic Development and Labour Council (Nedlac).
“And so, although the great waves of financial turbulence and the slow growth in the developed economies have constrained our economic recovery, we have recorded positive growth since 2010.
“We have more than recovered the jobs that were lost. And we have initiated a coordinated infrastructure investment programme, organised into 17 Strategic Integrated Projects, to catalyse opportunities in mining, industry, agriculture and services across the country. We have saved this country from the worst.”
South Africa’s unemployment rate remains at an average of 24%, which Gordhan said was unsustainable. To counter unemployment levels, especially among young people, the government aims to create six-million work opportunities over the next five years.
He said the government’s job-creation plans included:
- Stepping up the implementation of the Expanded Public Works Programme;
- Implementing the Community Work Programme in every municipality by 2017;
- Last month’s introduction of the Youth Employment Tax Incentive, which has already recorded 56 000 beneficiaries; and
- Establishing Special Economic Zones, industrial incentives, and support for small agriculture and labour-intensive sectors.
Gordhan said skills development and Further Education and Training (FET) programmes had been ramped up, while the government had stepped up its support for small and medium enterprises, and fostered partnerships between the private sector and public sector development agencies through the Jobs Fund.
Deficit to be decreased, inflation to stabilise
Gordhan said that despite slower growth, South Africa’s 2013/14 budget deficit was projected to be 4% of GDP, lower than projected in October. He said the deficit would narrow to 2.8% of GDP over the next three years, with net debt stabilising at about 45% of GDP in 2016/17.
“Investment is forecast to increase by about 5% a year, and the current account deficit will average 5.8% of GDP over the medium term, while consumer price inflation will return to levels within the target band between 2015 and 2016.”
He said consumer inflation in the country was expected to breach the upper band of the target in 2014, reaching 6.2%, before declining to 5.5% by 2016.
Measures to boost growth
Gordhan said that over the next three years, the government’s motto would be inclusive growth, as envisaged by the National Development Plan (NDP). To boost growth, several measures and investments would be undertaken, including:
- Allocating R10.3-billion towards manufacturing development incentives, in addition to tax relief offered through incentive programmes;
- Injecting 15.2-billion from the Economic Competitiveness and Support Programme to help businesses upgrade their machinery and increase productivity over the next three years;
- Channelling R3.6-billion to special economic zones to promote value-added exports and create jobs in economically disadvantaged parts of the country;
- Allocating R620-million to the digital broadcast migration programme; and
- Spending R7-billion on conditional grants to 435?000 subsistence farmers and 54?500 smallholder farmers, in order to create one-million new jobs in agriculture by 2030.