SA ‘over the worst of recession’

27 October 2010

South Africa is over the worst of its recession, says Finance Minister Pravin Gordhan, with real gross domestic product (GDP) growth expected to come in at 3 percent in 2010/11 after reaching 3.9 percent in the first half of the year.

Driven by an increase in household demand and lower inflation, South Africa’s GDP growth is expected to rise to 3.5 percent the following year and hit 4.4 percent in 2012/13.

Presenting his medium-term budget policy statement to Parliament in Cape Town on Wednesday, Gordhan cautioned, however, that one had to remain vigilant in an ever-changing world.

Gordhan said Africa was set to become the second-fastest growing region after Asia, adding that the recovery of global demand, which was being driven by emerging economies, had helped South Africa to secure high prices for its major commodities.

While China, Brazil and India are expected to grow by an estimated 7.1 percent this year and 6.4 percent next year, the US and EU are only expected to experience 2.6 percent and 1.7 percent GDP growth respectively this year.

Performance by sector

Other trends picked out by Gordhan include:

  • In the first half of the year, South Africa’s manufacturing value add grew by 5.8 percent compared with the previous year.
  • The value-add in SA mining increased by just 2.2 percent in the first six months of the year.
  • The country’s construction sector grew at a slower 4.2 percent in the first half of the year compared with the same period last year, when the sector grew by 7.8 percent.
  • South African retail sales were 4.6 percent higher in August compared with a year earlier, although the pace had slowed since the end of the 2010 Fifa World Cup.

Strong investment by the state

Gordhan said the government was expected to spend R811.2-billion on South Africa’s infrastructure over the next four years – 40.3 percent of this on the energy sector and 26.1 percent on transport.

Real investment by public corporations is expected to grow by about 12 percent in 2010/11, much of this led by spending by Eskom on power stations, by Transnet on rail, ports and pipelines, and by the South African National Roads Agency on roads.

Gordhan noted that the sustained investment by the country’s state-owned enterprises has helped to offset relatively weak investment by its businesses.

Private sector investment is expected to recover, however, as higher domestic consumption lifts demand and as capacity utilisation in manufacturing rises for both the domestic and regional sectors.

Unemployment

According to the minister, South Africa’s unemployment rate increased from 21.9 percent in 2008 to 25.3 percent, with the global financial crisis seeing the country losing over a million jobs between the fourth quarter of 2008 and the second quarter of this year.

High wage settlements – which in the nine months to September were 8.3 percent compared to consumer inflation of 4.7 percent – may have reduced the incentive for companies to hire workers laid off during the recession, Gordhan said.

Development finance institutions

Meanwhile, the government wants its development finance institutions to play a greater role in financing its development goals.

Gordhan said the Land Bank had been strengthened with a R3.5-billion capital injection over the next three years, to help restore investor confidence and support emerging farmers.

The National Housing Finance Corporation had secured international funds from multilateral agencies to help fund low-cost housing projects, while the government had recently increased the lending capacity of the Development Bank of Southern Africa (DBSA) to fund the maintenance of municipal infrastructure and social services.

The government had also directed the Industrial Development Corporation to use its balance sheet to help distressed firms to stem job losses.

Revenue, deficit

Government revenue is expected to grow from last year’s 27.2 percent of GDP (R666.9-billion) to 28.4 percent (R761-billion) in the current financial year, touching 28.7 percent (R843-billion) of GDP in 2011/12.

South Africa’s budget deficit is expected to decline from 6.7 percent in 2009/10 to 5.3 percent in the current financial year, reaching 4.6 percent in the next financial year.

Source: BuaNews