S.Africa to launch $3.2 bn stimulus, cuts growth forecast

25th October 2011, Comments 0 comments

South Africa will launch a $3.2 billion package to boost the economy, Finance Minister Pravin Gordhan said Tuesday, as he revised the 2011 growth forecast for the country down to 3.1 percent.

Gordhan told parliament the scheme would be a "competitiveness support package of 25 billion rand ($3.2 billion, 2.3 billion euros) over the next six years to boost industrial development, assist enterprises and accelerate job creation."

The plan aims to help South African firms become more competitive and increase exports, and reverse any further slowing in the economy's recovery, he said.

Details will be provided later by the trade ministry, he added.

Growth in Africa's largest economy slowed to 1.3 percent in the second quarter.

Gordhan revised the growth forecast for the year down 0.3 points from 3.4 percent and proposed a cap on public service wage increases to prioritise spending on infrastructure to counter the gloomy world outlook.

"A year ago ... we thought that we would see a sustained improvement in the global recovery and in our economy. That was not to be," said Gordhan.

"The crisis of leadership currently reflected in the eurozone and in Europe is having a damaging effect on the global economy, including our own."

The state plans to encourage economic recovery by allowing the budget deficit to grow in the short-term, widening to 5.5 percent of Gross Domestic Product this year as revenues slow.

South Africa has set a goal of seven percent annual growth but expects only 3.4 percent next year, rising to just over four percent in 2014 and 2015.

Gordhan proposed the shift to infrastructure spending to drive growth, with a focus on investment in electricity, roads, rail, water and telecommunications.

The government aims to create five million jobs by 2020 and reduce the unemployment rate to 15 percent. Unemployment rose to 25.7 percent in the second quarter this year.

"We must borrow to invest in infrastructure -- not for government consumption," said Gordhan.

"This means we must see a moderation in the growth of the wage bill and spending on goods and services," he added.

The state's wage bill takes up 42 percent of its income and the Treasury wants to introduce an annual wage increase of 6.5 percent for government employees, including top managers.

"In tough times, you've got to make tough decisions," Gordhan told reporters ahead of the speech, saying current spending was unsustainable.

"What we are trying to look at here is a sustainable way on the one hand of supporting growth in our economy. Secondly, that growth has to come through infrastructure investment, and thirdly, all of us have got to make some sacrifices to make this work."

Gordhan also hit out at calls for nationalisation, which have been led by the ruling party's youth leader Julius Malema, who wants to target mines, banks and land.

"I think generally we have to acknowledge that there are unhelpful public sentiments being made, out of what some might consider to be political necessity, which is not helping to create the right kind of confidence both within the South African economy and outside," he said.

State spending will rise marginally to more than one trillion rands next year with total debt levels growing to around 40 percent of GDP in 2015.

"For the next three years, the aim is to moderate spending growth, combined with a recovery in tax revenue, so that national debt will be stabilised as a percentage of GDP," Gordhan told lawmakers.

In all, social services accounted for 461.5 billion rands in spending this year, with education topping the bill.

© 2011 AFP

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