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Nene optimistic on economy despite challenges

Cape Town – Global economic growth is expected to remain sluggish, rising from 3.3% in 2014 to 3.5% this year, said Finance Minister Nhlanhla Nene. That affects South Africa’s outlook as well.

Nene said growth of about 4.5% is expected in emerging markets and developing economies. China’s growth is expected to slow to 6.8% this year. Among our neighbours in Africa recent shifts in commodity prices will benefit some countries and disadvantage others.

South Africa will benefit from the lower oil price, but our major commodity 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, Nene said.

Exports to Africa grew by 19% in 2013 and 11% in 2014. “However, 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 constraints 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%, down from 2.5% indicated in October last year. We expect growth to rise to 3% by 2017,” Nene said.

Consumer price inflation peaked at 6.6% in June last year. It has subsequently declined to just 4.4% last month and is expected to average 4.3%  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.

Nene also said progress in agriculture and manufacturing employment requires a constructive labour relations environment, and well-targeted support for emerging enterprises. 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.

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

- Interest rates have remained 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.

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

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

 

Source – Fin24