Despite the sluggish local economic growth brought about by the 2008 global recession, Finance Minister Pravin Gordhan has not gone back on his 2013 growth projections.
Pravin Gordhan's budget has provided for a million jobs in agriculture. Image: GCIS
Tabling his 2014 Budget Speech in Parliament on Wednesday (26 February), Gordhan projected the gross domestic product (GDP) to increase from 2.7% in 2014 to 3.4% in 2016.
Over the next five years, Gordhan said government would focus its efforts on economic growth. This would be backed by plans to increase investment in electricity and transport infrastructure.
Despite the South African economy performing below its potential - which saw growth declining from 2.5% in 2012 to 1.8% in the fourth quarter of last, the minister said bold decisions were needed going forward.
He added that an increased spend on public infrastructure would encourage private investment, while stronger employment growth would contribute to increased household consumption.
"Potential domestic risks include further delays to the introduction of new infrastructure, particularly additional electricity capacity, higher inflation as a result of the Rand's weakness and protracted labour disputes which could depress consumer and business confidence," he said.More focus on jobs
Gordhan said that when Jacob Zuma was elected in 2009, the economy had shed almost a million jobs and the country's revenue levels had gone down sharply.
"We stabilised the economy and ensured a recovery by implementing aggressive fiscal adjustment. When global trade went into reverse, we took steps to improve competitiveness of businesses within the framework of the Industrial Policy Action Plan.
"We accelerated infrastructure investment and we expanded financial assistance to businesses in distress," said Gordhan.
He said the response to the crisis was founded on a principle of government, business, labour and communities working together - under the facilitation by the National Economic Development and Labour Council (Nedlac).
The 24% unemployment rate is unsustainable so government is investing heavily in creating 6m work opportunities for young people Image: Come Recommended
"We have recorded positive growth since 2010," he said. "We have more than recovered the jobs that were lost. And we have initiated a co-ordinated infrastructure investment programme, organised into 17 Strategic Integrated Projects to catalyse opportunities in mining, industry, agriculture and services across the country. We have saved this country from the worst."
The unemployment rate remains at an average of 24% - which Gordhan said was unsustainable.
He said government had a strategy in place to deal with the high levels of unemployment. This included stepping up the implementation of the Expanded Public Works Programme; the implementation of the Community Work Programme in every municipality by 2017; the introduction of the Youth Employment Tax Incentive last month - which has already recorded 56 000 beneficiaries and the establishment of the Special Economic Zones, industrial incentives and support for small agriculture and labour-intensive sectors.
Gordhan said skills development and Further Education and Training (FET) programmes had been ramped-up while government had stepped-up its support for Small and Medium Enterprises and the fostered partnerships with the private and public sector development agencies through the Jobs Fund.Deficit to be decreased, inflation to stabilise
Gordhan said despite slower growth, the 2013/14 budget deficit is projected to be 4% of GDP, lower than projected in October. He said the deficit will narrow to 2.8% of GDP over the next three years, with net debt stabilising at about 45% of GDP in 2016/17.
"Investment is forecast to increase by about 5% a year and the current account deficit will average 5.8% of GDP over the medium term, while consumer price inflation will return to levels within the target band between 2015 and 2016," he said.
He said the Consumer Price Inflation (CPI) is expected to breach the upper band of the target in 2014, reaching 6.2%, declining to 5.5% by 2016.Measures to boost growth
The agricultural sector will benefit from a R7bn investment in small farms. Image: Code Innovation
Gordhan said over the next three years, inclusive growth - as envisaged by the National Development Plan - will be government's motto.
To boost growth, he said several measures and investments would be undertaken. These include:
- Allocating R10.3bn towards manufacturing development incentives in addition to tax relief offered through incentive programmes;
- A R15.2bn injection from the Economic Competitiveness and Support Programme to assist businesses upgrade their machinery and increase productivity over the next three years;
- Channelling R3.6bn to special economic zones to promote value-added exports and create jobs in economically disadvantaged parts of the country;
- Allocating R620m to the digital broadcast migration programme;
- To create one million jobs in agriculture by 2030, government will spend R7bn on conditional grants to 435,000 subsistence farmers and 54,500 smallholder farmers.
Minister Gordhan said pressures from developed economies affected the vitality of currency in emerging economies - including South Africa.
"The global economic outlook remains unsteady - some of the advanced economies have returned to growth, others continue to lag. The slowdown in quantitative easing by the Federal Reserve has caused further uncertainty to financial markets, currency volatility and capital outflows from emerging markets," he said.
To counter unemployment levels, especially among young people, government aims to create six million work opportunities over the next five years.
"Increased support and tax relief for entrepreneurs and small businesses is proposed. Incentives for industry are strengthened, including funding for special economic zones," he said.