Pretoria’s new budget plans will see a major new boost in spending, with public services, infrastructure and the fight against crime all expected to benefit.
Finance Minister Trevor Manuel opened the coffers last week, announcing in his medium-term budget policy statement (MTBPS) that the government will spend R78.3bn ($12.4bn) over the next three years, a move expected to propel South Africa towards a growth target of 6% by 2010.
However, doubts remain over the implementation of large-scale civil engineering projects, labour reforms and rising inflation.
Strict fiscal discipline over the last 10 years has placed South Africa in an enviable position, with low inflation, strong growth, a healthy trade surplus and a budget deficit of just 1% of GDP.
The country’s tax authority, the South African Revenue Service (SARS), also recently announced that it had collected R30.2bn ($4.8bn) more tax revenue than expected this year.
The unexpected windfall, resulting from a combination of efficient revenue collection, an amnesty on undeclared offshore assets and robust economic growth, led the finance minister to hint at further tax cuts in the upcoming February 15 budget. This would amount to the second consecutive tax cut in as many years.
The forecast for economic growth in 2005, which currently stands at 4.4%, may also be revised upwards. Several supplementary indicators signal that accelerated growth is underway, Manuel said during the MTBPS.
Many analysts agree though that the challenge for the South African government now is to convert this hard-earned macroeconomic stability into tangible improvements in the quality of life for the vast majority of the South African people.
In this regard, the finance minister called on the government, the private sector and civil society to pull their weight in order to tackle high unemployment and unfulfilled expectations among the poor, with these widely seen as threatening to critically undermine South Africa’s social cohesion.
To help tackle this thorny problem, ahead of the MPTBS, President Thabo Mbeki met with members of his International Investment Council to discuss the road ahead. The council, which includes many top international businessmen, is believed to have focussed on large-scale, medium-term infrastructure projects. These are viewed by many as key components in the strategy to achieve 6% growth.
Areas discussed included the skills gap at the bureaucratic level and the drastic shortage of civil engineers, as both problems are proving to be a drag on the overall performance of the economy.
South Africa will need between 3000 and 6000 more civil engineers, technologists and technicians for all of the infrastructure projects that are currently planned, according to a report from the Institution of Civil Engineers. These projects include the new high-speed railway between Pretoria and Johannesburg, new stadiums and facilities for the FIFA World Cup, and new port infrastructure at Richards Bay and Durban.
Meanwhile, there are some worrying signs that inflation is on the rise, with Reserve Bank Governor Tito Mbeweni hinting recently that an interest rate hike is on the cards. If interest rates were to be increased in December, this would end a run of seven consecutive reductions since the fourth quarter of 2002. Inflation, which is likely to average 5.2% next year, is being driven by higher wage earnings and the high price of oil.
Mbeweni has also made headlines recently for criticising his own labour laws. Mbeweni complained about the unintended consequences of these, which he enacted as South Africa’s first post-apartheid labour minister. South Africa’s labour laws are often criticised for being too stringent, making it difficult for businesses to fire employees. It is often argued that this leads to slower growth and, consequently, higher unemployment.
Joblessness has, however, recently decreased slightly, although it still remains stubbornly high at 26%. Given the huge social pressure this creates, the government must act rapidly to address this issue if it is to create that rarest of prizes – an African success story.
