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26 Feb 2008 17:26
South African government plans to halve poverty and unemployment by 2014 appeared increasingly at risk on Tuesday as official statistics confirmed fears of a downturn in economic growth.
Figures released by Statistics South Africa showed a drop in gross domestic product (GDP) growth to 5,1% last year from 5,4% in 2006.
Analysts said the country would battle to reach 4% this year on the back of a crippling national electricity crisis.
“Power cuts which began last year ... have now engulfed the entire country and the impact is likely to bring the GDP to less than 4% this year,” said Daniel Makina, a University of South Africa economics lecturer.
“The situation can only be attenuated if the prices of precious metals double in the international market,” he said.
South Africa is one of the world’s largest gold and diamond producers.
Last year, the government said it needed to achieve GDP growth of 4,5% between 2005 and 2009, and 6% between 2010 and 2014 to reach its target of halving a near 30% official unemployment rate and rampant poverty.
4% GDP growth
“I don’t think they are going to get anywhere close to that to be quite honest with you,” said George Glynos, an analyst with the Econometrix consultancy.
“For this year, a forecast of about 4% GDP growth will be reasonable.”
In addition to the power crisis, he said higher interest rates, raised eight times since April 2005 to the current level of 14,5%, were also hampering investment and growth.
“You do not expect economic growth and investment in an environment where you have high interest rates and inflation.
Inflation is detrimental to growth.”
Rising food and fuel prices pushed the inflation above 8% in December, far above the official target of less than 6%.
Eskom began rationing electricity use across South Africa, curbing mines to 90% of their historic use.
Diamond, gold and platinum mines were shut for a week last month and thousands of workers are at risk of losing their jobs.
Load-shedding has disrupted everything from manufacturing to traffic lights in what the government has labelled a national emergency.
Finance Minister Trevor Manuel earlier this month trimmed his growth forecast to 4% for 2008 from the 5% he predicted a year ago and the 4,5% estimate given only in October.
Statistics South Africa said on Tuesday that GDP grew 5,3% in the fourth quarter of last year compared to a year earlier.
The main contributors to growth were the finance, real estate and business services industry, manufacturing and construction, and general government services, it said in a statement.
Construction has boomed as South Africa prepares to host the 2010 Soccer World Cup, the first time it will be held on African soil.
Glynos said the fourth quarter figures may help reassure investors that economic prospects were “not as desperate and bad as it looked at the beginning of the year” but this depended on the government’s ability to contain the power crisis.
“We should wait until the end of the first quarter of this year and see if it will tell a better story on economic growth,” said Makina.
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