Cape Town - Finance Minister Trevor Manuel says the storm that is the current global economic meltdown is fiercer than anyone imagined and, although its course cannot be predicted, South Africa finds itself in a position of relative insulation and privilege compared to most other countries.
Tabling his medium-term budget policy statement, Manuel attributed South Africa's fortified position, including a positive growth outlook, to several factors, including the fact that government has been careful not to pursue populist economic policy, and that economic policy has never been designed for "populist appeal".
However, Manuel also drew the curtain on many years of a budget surplus, saying that a budget deficit was expected.
"We can say to our people 'Liduduma Lidule!' The thunder will pass. We can say to our people: our finances are in order, our banks are sound, our investment plans are in place, our course is firmly directed at our long-term growth and development challenges, and we will ride out this storm, whatever it takes, together, on the strength of a vision and a plan of action that we share," said Manuel.
He delivered his budget in the context of political upheaval in the ruling ANC as well as speculation that the party's communist and labour alliance partners were successfully pushing to make substantial structural changes to macro-economic policy.
"I am aware that our policies have sometimes been controversial. But, if our economic policies were designed for their populist appeal, if we tried to finance everything at once for everybody, then short-term gains would quickly give way to long-term misery.
"Our policies are aimed, instead, at sustainable progress for workers in our factories and on our farms and support for families through steadily rising social services and income transfers; businesses then can invest in the confidence of sound fiscal and financial environments, public services will continue to serve our children and our children's children," stated Manuel. He said that South Africa's saving grace also lies in the fact that, unlike many other countries, it has not had blind faith in unfettered markets.
"Our approach has been different. We have recognised that there is a creative strength in markets as they assist in mobilising resources, encouraging innovation and creating jobs. Madam Speaker, markets left without adequate supervision or regulation sometimes fail spectacularly," said Manuel, who presented a positive economic outlook in spite of a global environment that makes slower economic growth inevitable.
While growth in the global economy is forecast to fall from 5% in 2007 to 3.9% this year and perhaps less than 3% next year, the revised GDP growth estimate for South Africa this year is 3.7%, Next year, the economy is expected to grow by 3%, accelerating moderately in 2010 and beyond as the global economy recovers.
"Continuing investment in infrastructure contributes to the momentum of growth in South Africa and is also reflected in our ongoing current account deficit on the balance of payments, which means we need to continue to attract financial inflows from the rest of the world while improving our domestic saving performance as well," said Manuel.
He also warned that navigating the country through the changed economic environment would be tougher but, he said, South Africa would continue to expand and improve public services, and invest in the infrastructure required for future growth.
While South Africa would not escape being affected by the slowdown, Manuel said that it was imperative to plan for the time after the storm.
To accomplish this, Manuel highlighted several micro-economic policy areas where more needed to be done.
These include trade and industrial policy, labour market policy, enhancing competition in the economy, improving the skills base and improving the effectiveness of the state.
In his list of challenges that lie ahead, Manuel included the national savings rate which needs to be raised, the need to construct a more export-orientated economy as well as the need to create a more labour-intensive growth strategy.
- Fin24.com