Investments boost economy South Africa

5 July 2007, by Shaun Benton - BuaNews

The rise in fixed investment has stabilised the South African economy, and will protect it from any sudden downturn that might result from a fall in commodity prices or domestic consumption, Trade and Industry Minister Mandisi Mpahlwa has said. Briefing the media in Pretoria this week, Mpahlwa also quelled concerns around issues like the recent spate of interest rate hikes and their effect on economic growth. While the economy has been growing since 1999, and registering an average growth of 4.5% since 2004, many have seen this as being driven by high global commodity prices, along with strong domestic consumer demand.

Mpahlwa however claimed that the growth in South Africa's gross domestic product (GDP) was more deep-rooted. "It's not only fuelled by consumer demand, which is also still strong, but it's also growth that is fuelled by rising levels of investment in the economy and therefore we haven't found reason to think that there may be a downturn in the growth performance of the economy."

Fixed investment in the South African economy reached 19.2% last year, growing constantly since the 2002 level of 15.4%, and is moving closer to the Accelerated and Shared Growth Initiative for South Africa's (Asgi-SA) target of fixed investment contributing 25% to GDP.

With GDP growing by almost 5% in 2005 and 2006, which was already higher than the Asgi-SA target of 4.5% economic growth until 2009, Mpahlwa said current growth was being built on solid foundations. At the same time, government officials have pointed out in recent months that about 500 000 jobs have been created each year over the past three years, providing strong prospects for meeting another target linked to the Millennium Development Goals, that of halving unemployment by 2014.

Underscoring the importance of higher levels of fixed investment in the economy and the impact of this job creation, Mpahlwa said: "We also believe this growth to be of a qualitatively different kind than we have seen in the past because its also a growth that is giving us quite a lot of job creation."

"The reality is that jobs are being created on a scale that we have not seen in South Africa for a very long time," he said. Official statistics place South Africa's unemployment level at about 25%, while less precise unofficial statistics, which consider issues such as "discouraged job-seekers", or people who had given up looking for work, put unemployment at around 40% of the productive population.

The minister referred to a recent media report that said that South Africa would need around 740 000 jobs a year to halve unemployment if one looks at the "expanded definition" of unemployment, indicating that even these targets were not out of reach. outh Africa is currently creating about 500 000 jobs per year, and with increasing fixed investment Mpahlwa expressed confidence that the government's aim to halve unemployment by 2014 was within reach.

But he said issues such as consistent policy formulation and implementation and perhaps more importantly, the strengthening of capacity, were vital to achieving these targets. "Both figures show us that some of these things are actually doable, and if we remain consistent, strengthen capacity, we will achieve these objectives," Mr Mpahlwa said. And other interventions by government need to be made, he said, such as increasing the supply of capital goods, which are facing increased limitations.

Such an intervention, he said, would involve for instance leveraging the government's ongoing infrastructure investment, which currently stands at about R416-billion, to promote the supply of capital goods so desperately needed by an expanding economy.

This is being done through measures like the Department of Public Enterprises' competitive supplier development programme, which is moving to boost local supply chains and increase their capacity to deliver the quality products needed.