ELIMINATION OF POVERTY
Slow GDP growth ‘will curtail NDP targets’
SA’s economy is not growing fast enough to meet National Development Plan targets
SA is unlikely to meet its National Development Plan (NDP) targets because it has recorded dismal growth rates for successive years, according to analysts.
President Jacob Zuma said in his state of the nation address the economy was expected to grow 1.3% in 2017, up from the 0.5% forecast for 2016. Despite the uncertain global environment, SA had entered a period of recovery, Zuma proclaimed.
But the economy is not growing fast enough to create much-needed jobs.
The NDP, a long-term plan articulating the country’s vision to eliminate poverty and reduce inequality by 2030, was adopted by the Cabinet in 2012. It proposes creating 11-million jobs by 2030 and to reduce unemployment. To achieve some of these goals, the NDP notes that by 2030 GDP should have increased 2.7 times in real terms, which requires average annual GDP growth of 5.4% over the period.
"It doesn’t look like we will be meeting them [NDP targets] in the foreseeable future," said Investec economist Kamilla Kaplan, noting the NDP looks at GDP growth of more than 5% to bring the unemployment rate down from the current 27% to 14% by 2020.
"We are anticipating only a modest recovery in GDP growth, from stagnation in 2016, to only 2% by 2020. The weak growth backdrop suggests that meeting NDP targets will be challenging."
Structural reforms would contribute in lifting the economy on to a sustainable growth path, said Kaplan. These would include enhancing the ease of doing business and ensuring policy certainty.
An expansion of the private sector would lift investment rates and employment.
That was particularly important because the onus of job creation was on the private sector, Kaplan said.
Given its fiscal constraints, the state has little room to expand the public service.
Zuma said in his address that a programme to stimulate the economy would focus on a few key areas to reignite growth. These areas were industrialisation, mining and beneficiation, agriculture, agroprocessing, energy, small and medium enterprises, managing workplace conflict, attracting investment, growing the oceans economy, tourism, and broadband roll-out.
Policy uncertainty is perceived to have restrained private sector investment, which has dampened growth.Kamilla Kaplan
Zuma said the interaction that the government started in 2016 with business and labour, known as the CEO Initiative, had been most helpful and was crucial in SA’s avoiding credit ratings downgrades.
Kaplan said with its focus on transformation and regulatory action, the state of the nation address provided little by way of defined new policy initiatives to place the economy on a sustainable and faster economic growth path. The persistence of legislative and regulatory uncertainty had been contributing to weak economic growth, and by extension to higher unemployment, she said.
"Policy uncertainty is perceived to have restrained private sector investment, which has dampened growth. Efforts to finalise the national minimum wage, mining sector legislation, as well as improved labour relations, as evidenced by the absence of prolonged strike action in 2016, could lend some support to business confidence," said Kaplan.
The 2017 budget, which will be delivered by Finance Minister Pravin Gordhan next week, will be monitored for any allocation of resources and commitment to the transformation policy outlined in the state of the nation address, she said.
"It is, however, expected that the budget will maintain the path of fiscal consolidation, particularly as SA’s sovereign credit rating remains at risk of a downgrade," said Kaplan.
According to University of Stellenbosch Business School economics professor Andre Roux, SA’s economy needs complete restructuring.
"We almost need a complete restructuring of the economy. We rely too heavily on raw materials for export. The country is [also] experiencing a savings deficit which leads to an inability to invest and, without investment, one cannot ensure economic growth."
The increase in state debt, the rise in unemployment, the decline in terms of trade, the growth in the number of discouraged work-seekers who give up trying and the prevalence of poverty, were all matters of concern, Roux said.