Manuel tables Budget statement

South Africa will continue to play a leading role in advancing the African agenda by committing about R540-million over four years to continental bodies such as the African Union. This is according to the Medium Term Budget Policy Statement (MTBPS) tabled in the National Assembly on Tuesday by Minister of Finance Trevor Manuel.

“Given our relative economic and technical advantages, South Africa will continue to play a leading role in advancing the African agenda with the objective of improving the international image and attractiveness of the African continent to international investors and tourists,” said the MTBPS.

Core activities include developing policies and structures for the AU, continuing with the activities identified under the New Partnership for Africa’s Development (Nepad) and ensuring that the AU and Nepad policies are harmonised.

The R540-million allocated by the Department of Foreign Affairs on the African agenda until 2007 goes to the Nepad secretariat (R155,5-million over four years), the AU (R84,5-million over four years) and the African Renaissance Fund (R300-million over four years).

Oil, arms cause bigger current account deficit

South Africa’s current account deficit widened to 2,5% of gross domestic product (GDP) in the first half of 2004, from 0,8% in 2003, but this was covered by a surplus in the financial account.

The MTBPS showed the 2004 second-quarter estimate of the current account deficit increased to 3,8% of GDP, but this was partly a consequence of one-off items such as new aircraft, a naval corvette and a large volume of crude oil imports.

Meanwhile, the volume of merchandise imports increased by 8,8% in the first half of 2004, explained in part by higher demand for capital goods, which made up about half of total imports.

The MTBPS said Europe remained South Africa’s largest trading partner; exports to Europe accounted for 34% of total exports, while 45% of South Africa’s imports originated from that continent.

There were opportunities to explore new markets in China and India, with the two countries accounting, respectively, for 2,5% and 1% of total exports, despite the fact that China accounted for almost a third of global growth in the past year.

Trade with other African countries — excluding trade between Southern African Customs Union members — has historically been low as a share of trade, with strengthened trade and investment links with the continent a “key” priority for the government in the medium term.

In June 2004, trade with other African countries accounted for 8,7% of South Africa’s total trade, compared with 8,1% in 1998.

Exports to Africa accounted for 13% of total exports in June 2004, while imports from the continent made up 4,5% of total imports, an improvement on the 3,4% achieved in 2003.

“The bulk of exports go to the Southern African Development Community region and are predominantly manufactured goods, followed by agriculture and mining products. The biggest trading partner in Africa remains Zimbabwe, although Nigeria is the largest supplier of imports from the continent,” stated the MTBPS.

On the back of strong portfolio investment, the financial account surplus increased to R40-billion in the first half of 2004, compared with R18,5-million in the first half of 2003.

Net capital inflows totalled R25,7-billion in the first half of 2004.

However, the attraction of sustainable foreign direct investment remained a challenge in the context of mature equity markets.

In the first half of 2004, non-residents acquired an “impressive” R17,8-billion of South Africa’s portfolio assets, while the net foreign direct investment decreased by R3,2-billion.

The current investment flows and strengthening of regional and bilateral agreements indicated South Africa’s confidence in untapped opportunities on the continent.

South Africa had direct investments of an estimated R14,2-billion in the rest of Africa, representing 7% of South African direct investment assets globally.

Africa in turn held an estimated R5,5-billion of assets in South Africa, representing 2,2% of total investment liabilities.

Economic divide

Highlighting the broad inequalities between the formal and informal sectors, the MTBPS said the annual Budget provides “considerable” direct income support to poor people, and also contributes to housing, local services and human development.

“The challenge is to broaden participation in sustainable economic activity, extend employment opportunities, build integrated communities and promote social and economic mobility, ultimately reducing dependency ratios.”

A central challenge of the Budget policy is achieving the appropriate balance between various aspects of public policy, such as income transfers and the provision of public services.

The government has also participated in a range of initiatives to complement its direct efforts, with key commitments and undertakings signed at last year’s Growth and Development Summit between business, labour, community organisations and the government.

Touching on the progress of some of the government’s undertakings, the MTBPS noted that by the end of June 2004, the Expanded Public Works Programme had created 37 995 direct jobs.

The initial focus of the programme has been the construction and maintenance of provincial roads, community-based care for HIV/Aids patients and land-care projects to minimise soil erosion in rural communities.

In the area of small business promotion, about 6 712 businesses had received discretionary grants.

Forex amnesty complete in May 2005

A total of 16 033 applications for government’s foreign-exchange amnesty had been adjudicated by September 2004, with total levies payable of about R826-million.

The MTBPS said the adjudication of all 43 000 applications — received before the February 29 deadline earlier this year — will be finalised by May next year.

The exchange-control amnesty, with accompanying tax measures, was announced in the 2003 Budget, providing taxpayers with the opportunity to regularise their offshore income and assets.

In November 2003, after receiving about 10 000 applications, Manuel announced an extension of the deadline for the submission of applications to February 29 this year.

A taxpayer can regularise his or her affairs by paying an exchange control levy of 10% of the market value of an illegal asset retained offshore, or 5% if that asset was repatriated.

In terms of applications approved for emigrants to transfer their remaining blocked assets abroad, a total amount of R238,2-million in respect of the 10% exit charge has been credited to the Corporation for Public Deposits.

Employment turnaround

The March 2004 Labour Force Survey showed an increase in total employment in the South African economy of about 419 000 jobs since March 2003.

It also showed the unemployment rate had declined from 31,2% in March 2003 to 27,8% in March this year.

“These estimates are subject to some statistical uncertainty, but are nonetheless encouraging indicators of a turnaround in the employment trend,” the MTBPS stated in a qualifying caveat.

The labour survey showed growth in employment across most of the formal sectors of the economy, indicative of a broad-based recovery in job creation between 2003 and 2004.

The most notable increases in employment were in non-gold mining and commercial agriculture.

A study published by the Human Sciences Research Council in August this year showed increased use of contract workers and casual workers, together with rising demand for more skilled and qualified workers.

Factors that had affected employment trends included technological change, labour market regulations, organisational change in enterprises and changing skills requirements.

Nominal payment per worker rose by 8,7% in 2003 and 8,9% in the year to the first quarter of 2004, against a growth of 5,9% in nominal unit labour costs.

Bargaining council agreements and wage settlements are again expected to lead to “nominal remuneration increases” above inflation in 2005.

The MTBPS said in keeping with the forward-looking approach to wage determination, the government had concluded a three-year settlement with public-sector unions providing for wage adjustments of 0,4% above CPIX (consumer inflation less mortgage costs) in 2005 and 2006. — Sapa