S.Africa set to trim growth forecasts in budget
AFP, 18 February 2008
South African Finance Minister Trevor Manuel is set to trim growth forecasts in this week's budget amid an energy crisis that has punctured optimism around the continent's biggest economy.
Manuel was able to paint a rosy picture of the economy a year ago when he forecast average annual growth of just over five percent until the end of the decade and posted the country's first-ever budget surplus.
But when he takes to the despatch box in parliament on Wednesday, analysts expect he will slash that prediction at a time when electricity rationing has forced the mining industry to operate at 90 percent capacity.
"With few sectors of the economy immune (from the power cuts), the implications for growth are likely to be far reaching," said Razia Khan, chief Africa analyst for Standard Chartered bank.
"Over time, especially as the government's infrastructure spending gets underway, we expect to see a gradual recovery. But we have revised down our full year GDP forecast for 2008 from an initial 4.8 percent to three percent."
South Africa's gross domestic product (GDP) has risen by more than five percent in each of the past four years, growing consistently since 1999.
But analysts warned last month that the country would battle to reach half that as a result of the power crisis that has affected everything from traffic regulation to factory production.
Pressure has also been building on the back of rising inflation fuelled by skyrocketing food and oil prices, as well as a slowing world economy.
Also, the annual rate of inflation, which the central bank aims to keep below six percent, has breached that mark consistently month-on-month since April last year, reaching 8.6 percent in December -- the highest in five years.
Last year, strong growth, comfortable inflation rates and better-than-expected revenue collection led Manuel to predict further surpluses of between 0.5 percent and 0.7 percent of GDP for the next four years, a prospect that seems increasingly doubtful.
"Whether it is because of declining revenue or increased expenditure, or both, it appears unlikely that South Africa will be able to announce another comfortable fiscal surplus," said Khan.
President Thabo Mbeki apologised for the energy crisis in his annual state of the nation address earlier this month, saying Manuel would give money to help beleaguered state power utility Eskom which plans to spend 300 billion (about 40 billion dollars) rand on improvement over the next five years.
"The minister of finance will provide more information in the budget speech on the support government will provide for the energy efficiency campaign and to Eskom," Mbeki told lawmakers.
But while expected to focus on infrastructure expansion, the minister will also be under pressure to be more generous in his social spending in line with resolutions taken by the ruling African National Congress at a December conference.
That gathering saw Mbeki ousted as party leader by axed former deputy state president Jacob Zuma who campaigned on a pro-poor ticket.
The COSATU labour federation, a Zuma ally, said more money must be doled out for poverty alleviation, job creation and the eradication of growing social inequalities.
"We ... want government to continue with its developmental agenda of increasing social grants and spending more money on health, housing and free education," Rudi Dicks, COSATU's labour market policy head told the City Press weekly on Sunday.
The main opposition Democratic Alliance, meanwhile, said the focus needs to be on infrastructure, proposing 50 billion rand for electricity expansion over five years and an immediate 14.5 billion rand to help the economy overcome the electricity crisis and stimulate foreign investment.
"We expect, in these times we are in, government coming up with a ... massive investment for infrastructural development to help sort out the electricity crisis," said George Glynnos, senior economist at Johannesburg-based Econometrix.
