An upbeat Minister of Finance Trevor Manuel painted a rosy picture of the South African economy during his 10th Budget speech to the National Assembly on Wednesday, but also sounded a word of warning.
”Business confidence is strong; investment and employment creation have gained momentum; inflation and interest rates remain moderate,” he said.
Last year, the economy had grown more strongly than anticipated, and when the full accounting was done towards the end of this year, ”we may find that our economy grew by 5,5% or 6% last year”, instead of the 4,3% predicted in February 2005.
”The extraordinary pace of vehicle sales, rising house prices, traffic congestion and VAT [value-added tax] receipts all point towards this conclusion,” Manuel said.
Rising employee tax registrations and the records and financial performance of the Unemployment Insurance Fund confirmed employment is rising strongly.
Labour force and household survey data showed job creation is now proceeding at about 350 000 new opportunities a year, or about 1 500 new jobs each working day.
”We have indeed already achieved a considerable acceleration in sustainable growth, but we are mindful that the present buoyancy of business and consumer confidence is, in part, a cyclical trend,” he said.
Preliminary indications are that South African exports grew by more than 12% in real terms last year — a remarkable turnaround after several years of disappointing trade performance.
”However, our appetite for imported goods and services has also grown strongly, and so the deficit on the current account of the balance of payments has deteriorated from less than 1% of GDP in 2002 to over 4% last year.
”We rely increasingly on capital inflows from abroad to finance the excess of expenditure over the value of domestic production,” Manuel said.
The South African Reserve Bank’s gross foreign-exchange position improved from $14,9-billion at the end of December 2004 to $22,2-billion in January 2006.
”This is a healthy development, but we cannot assume that global circumstances will always work in our favour,” he said.
Two particular frontiers loom large in the period ahead — the challenges of investment and skills.
There are encouraging signs that the investment trend is upwards, with gross capital formation having increased by at least 8% a year since 2003.
Investment growth is anticipated to be between 9% and 10% a year over the next three years.
Public-sector infrastructure spending is also increasing sharply, as investment in electricity generation capacity, ports infrastructure, water schemes, roads and telecommunications projects all gain momentum.
”In sum … the economic outlook is exceedingly favourable — more promising than has been seen in 40 years — but we recognise the need for both constraint and redoubled efforts, so that we take full advantage of the opportunities before us.
”And our policy stance, unlike that of 40 years ago, emphasises development opportunities for all South Africans, built on a foundation of social solidarity and a shared economic destiny, a partnership in which citizens and the state face shared challenges, to meet shared joys,” Manuel said. — Sapa