Johannesburg - South Africa’s key manufacturing sector is “coping” with challenges but the government needs to do more to support it, Finance Minister
Pravin Gordhan said on Wednesday.
“Over the past six to nine months it has risen, but it faces many pressures,” Gordhan told reporters in Johannesburg. “They seem to be coping but government needs to do more to support it.”
Gordan said the main challenges for the sector, which accounts for 16% of output in the economy, stemmed from the strength of the rand and the impact of the eurozone debt crisis on European economic growth. A third of South Africa’s exports are to Europe.
Data released this week showed that growth in manufacturing output quickened slightly to 0.6% year-on-year in volume terms in May, compared with 0.2% in April.
However, analysts said the expansion remained relatively sluggish after a 2009 recession, and backed the case for the central bank delaying the start of monetary tightening.
Policymakers have said the uncertainty of the eurozone
region’s growth is the main risk to the government’s growth forecast of 3.4%
this year.
With about a quarter of the labour force jobless, South
Africa’s high unemployment rate has contributed to an increased number of
violent protests and strikes this year.
The government has said the economy needs to grow by 7% a
year to make a meaningful dent on unemployment and any delay to double growth
rates will fuel instability, putting pressure on the ANC to adopt populist
economic policies.
Resisting pressure
So far, the government has not buckled to leftists demands,
which include strong intervention to weaken the rand, which they say will
support the manufacturing sector.
The government has undertaken a range of interventions,
including buying dollars and relaxing exchange control regulations, as it has
sought to rein in its volatile rand, one of the most traded emerging market
currencies.
Gordhan has previously dismissed stronger intervention to
weaken the currency and on Wednesday said government measures have worked.
“Since the start of 2011, the rand has weakened by 6.4%
against a trade-weighted basket of currencies and by 2.6% versus the dollar,”
Gordhan said in response to written questions in parliament.
“This suggests policy measures implemented thus far have
helped to prevent further nominal appreciation,” Gordhan said.
He added capital inflows, the main driver of the rand in the
past two years, were likely to remain volatile given Greece’s debt crisis and
the uncertain outlook for the United States. The rand has firmed by more than
7% against the dollar and the euro since the beginning of last year.
Many analysts expect it to remain resilient, softening to
about R6.9750/$ in the next six months.