SA's economy, which grew 0.5% last year, is set to grow at 1.3% this year, 2% next year and 2.2% the year after, says Finance Minister Pravin Gordhan. Picture:Kopano Tlape/GCIS
SA's economy, which grew 0.5% last year, is set to grow at 1.3% this year, 2% next year and 2.2% the year after, says Finance Minister Pravin Gordhan. Picture:Kopano Tlape/GCIS

#Budget2017: Private sector holds back growth

By Nicola Mawson Time of article published Feb 22, 2017

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Parliament – South Africa's improved economic outlook is not sufficient to reduce mass unemployment, poverty and inequality.

Instead, National Treasury says, the country needs a gross domestic product growth rate of at least 5 percent to meet the National Development Plan goals.

South Africa's economy, which grew 0.5 percent last year, is set to grow at 1.3 percent this year, 2 percent next year and 2.2 percent the year after.

The gains are mostly thanks to improving commodity prices, and the end of the drought that ravaged SA last year.

However, National Treasury indicates the improvement isn't good enough, and argues that the low level of private sector investment is the main inhibitor.

Remedying this situation, it notes, requires concentrated efforts to strengthen business and consumer confidence.

In the Budget Review, provided on the occasion of Finance Minister Pravin Gordhan's speech on Wednesday, National Treasury says, in 2016, domestic investment contracted for the first time since 2010.

Investment by private businesses declined by 5.9 percent.

“In the short-term, the low level of private-sector investment is the main factor limiting economic growth. Reversing this pattern requires concentrated efforts to strengthen business and consumer confidence.”

National Treasury notes weak business confidence and low levels of profitability continue to weigh on investment flows.

During the first three quarters of 2016, investment in fixed capital fell by 3.9 percent – the first decline since 2010, and investment by private businesses suffered the largest decline. Investment by public corporations also fell as they continued to delay capital expenditure plans.

Investment growth is expected to recover moderately, from 1.5 percent in 2017 to 2.8 percent in 2019. However, levels of domestic savings remain insufficient to fund investment expenditure, it says.

Government's plan

Yet, government, working with business, labour and civil society, can act decisively to boost investment in the short term by:

• Finalising the Mineral Resources and Petroleum Development Amendment Bill, and legislation on land holdings and security of tenure. Certainty will promote investment in mining and agriculture.

• Concluding the transition from analogue to digital television signals, and allocating new spectrum to broadband services. Cheap and reliable internet will lower costs and create business opportunities for new entrants. It can also provide a platform to expand health and education services in remote areas.

• Expanding the independent power producer programme in renewables and gas. An expansion that provides certainty to investors can open up substantial opportunities for black-owned firms, create thousands of jobs and boost power supply.

• Ensuring that the state performs its economic regulatory functions effectively. For example, speeding up the verification of black empowerment credentials and local content requirements would support transformation and local manufacturing.

• Reinforcing South Africa’s commitments to global standards in financial sector regulation. South Africa needs to maintain its position as an investment destination, supported by a sophisticated business and financial sector, and adherence to international standards.

• Safeguarding the country’s investment-grade credit rating. Maintaining a sustainable, realistic fiscal framework that promotes transformation, a stable labour relations environment and reliable electricity supply will go a long way to reduce risk perceptions.

• Addressing shortcomings in state infrastructure planning and execution.


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