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Budget Speech 2015

Economic context



I turn now to the economic context within which the budget has been prepared.


Global economic growth is expected to remain sluggish over the period ahead, rising from 3.3 per cent in 2014 to 3½ per cent this year. There is considerable variation in economic performances between countries and economic trends are likely to be volatile. In the United States, 3.6 per cent growth is expected this year, but in Europe the outlook remains weak, and could still be destabilised by disagreements between debtor and creditor nations.


In emerging markets and developing economies, growth of about 4½ per cent is expected. China’s growth is expected to slow to 6.8 per cent this year. Amongst our neighbours in Africa, the recent shifts in commodity prices will benefit some countries and disadvantage others.


South Africa will benefit from the lower oil price, but our major mining exports have been negatively affected by the global slowdown. Our deepening trade and investment links with sub-Saharan Africa continue to offer favourable growth prospects. Exports to Africa grew by 19 per cent in 2013 and 11 per cent in 2014.


Fellow South Africans, our primary challenge is to deal with the structural and competitiveness challenges that hold back production and investment in our economy.


The most important of these is the security and reliability of energy supply.


Electricity shortages hold back growth in manufacturing and mining, and also inhibit investment in housing and raise costs for businesses and households.


Mainly for this reason, our projected economic growth for 2015 is just 2 per cent, down from 2.5 per cent indicated in October last year. We expect growth to rise to 3 per cent by 2017. Consumer price inflation peaked at 6.6 per cent in June last year. It has subsequently declined to just 4.4 per cent last month, and is expected to average 4.3 per cent in 2015, laying a foundation for economic growth.


Higher growth is possible, if we make good progress in responding to the electricity challenge or if export performance is stronger. The best short-term prospects for faster growth lie in less energy-intensive sectors such as tourism, agriculture, light manufacturing and housing construction. These are also sectors that employ more people, and so they contribute to more inclusive growth. Efforts to support these sectors have to be intensified.


Progress in agriculture and manufacturing employment requires a constructive labour relations environment, and well-targeted support for emerging enterprises. The Deputy President is leading a process at Nedlac in which social partners are tabling proposals on a framework for sustainable labour relations.


While the manufacturing sector has largely underperformed in recent years, there has been an encouraging growth in investment since 2010, particularly in upgrading machinery and equipment. The turnaround in footwear and textiles is also welcome, and should boost job creation over the period ahead. In agriculture we have seen investment and export growth in horticultural products such as grapes, citrus and tree nuts. Tourism and related services, oil and gas development, communications and information technology also offer many opportunities.


Although our fiscal position is constrained, there are considerable financial strengths on which South Africa's growth strategy can build.


1) Interest rates have remain ed moderate, which reflects the credibility of fiscal and monetary policy and the favourable inflation outlook. The capital market rates at which government and the corporate sector borrow have declined over the past year, signalling continued investor confidence in the South African economy.


2) The exchange rate depreciated by 11 per cent against the US dollar in 2014, after declining by 15 per cent in 2013. This coupled with low inflation contributes to our trade competitiveness, and partially offsets the deterioration in commodity prices.


3) South Africa has a buoyant capital market, is open to foreign investors and is a major contributor to direct investment elsewhere in Africa. Our banks and other financial institutions are well-capitalised. Our company law and tax frameworks are robust, and we have excellent property market institutions.


The first phase of implementation of the National Development Plan is elaborated in Government’s medium term strategic framework. If we remain united and energised around its implementation – government, labour, business and all South Africans –we will continue to make progress towards a just and prosperous future.