Gearing up for tough times

If Treasurer Trevor Manuel’s budget is anything to go by, government wants to gear the economy up for tough times.

“The storm we spoke of last year has broken, and it is more severe than anyone anticipated,” said Manuel. “What started off as a financial crisis may well become a second Great Depression.”

Domestic GDP growth is projected to slow to 1,2% in 2009/10, following an estimated growth rate of 3,1% in 2008, compared to the International Monetary Fund’s world growth projections of 0,5% for 2009/10, down from 3,4% the previous year.

“The period of slower growth ahead is likely to be characterised by rising unemployment, declining business profitability and the closure of some companies,” stated the Budget Review.

“In economic terms, the period ahead will be the most challenging yet faced by South Africa’s democracy,” stated the Budget Review. “Boldness is required because of the severity of the situation, yet care must be taken so that ill-conceived or poorly executed interventions do not burden future generations.”

In defence of the budget’s projected deficit of 3,8% of GDP (R94-billion) in 2009/10 Manuel said: “We are borrowing not to rescue failed banks or to artificially delay the restructuring of our industry and trade, but to construct the roads and the power stations, the classrooms and the hospital wards, to modernise technology and transform public service delivery, as the foundations of growth and broad-based development in the decades ahead.”

Although increased public infrastructure spending is one of the cornerstones of Manuel’s strategy to survive the economic downturn, he also announced a number of support mechanisms for corporate South Africa.

“Government will work with business and organised labour to protect work opportunities and accelerate skills development over the period ahead,” said Manuel.

The public works programme, one of government’s building blocks for decreasing unemployment, was a big winner with a further R4,1-billion set aside for the second phase of the programme.

The mining industry has also been singled out for assistance. Manuel announced that he had proposed for the mining royalties regime to be postponed until 2010.

“This provides a boost to the industry of about R1,8-billion, which will assist in mining job losses,” said Manuel.

Manuel also announced a further bail-out of R1,6-billion for South African Airways’ turnaround strategy, but the announcement was greeted by boos and jeers in Parliament. Manuel did stress that he hopes this will not be a “recurring allocation”.

Manuel said that this time of restructuring is the perfect opportunity to address regulatory and microeconomic barriers to competitiveness, promising detailed sector analysis and ongoing consultation.

Although he commended the competition authorities for making progress in dismantling price-setting cartels, he said that major sectors are still dominated by dominant companies with very little competition.

Manuel said that often government regulation and red tape act as barriers to entry for new competitors.

“The necessary policy response is to lower such barriers, encourage new entrants into the market and foster greater competition.”

R1,6-billion has been added to industrial development and small enterprise support programmes and R1,8-billion has been allocated to rural development and small farmer support.

A further R1-billion has been allocated to electricity demand management and it is accompanied by tax incentives for investment in energy-efficient technologies.

The budget allocated R870-million over the next three years to the new automotive development programme, which has been designed to replace the motor industry development programme.

Manuel also announced that the Development Bank of Southern Africa (DBSA) is considering broadening the Siyenza Manje project, which aimed to bring in skills support for municipal infrastructure investment.

His budget speech also mentioned that the treasury was considering strengthening the balance sheet of the DBSA and the Land Bank.

The Industrial Development Corporation is currently assessing its role as a partner in supporting investment and employment in sectors affected by the economic downturn.

Manuel has also proposed a supplementary depreciation allowance, to be introduced as an incentive for investments by companies in energy-efficient equipment.

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Lloyd Gedye
Lloyd Gedye
Lloyd Gedye is a freelance journalist and one of the founders of The Con.

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