'SA won't be spared'

"In that environment it's unlikely that we could be spared," he told a meeting of parliament's finance committees. He was explaining the reasons for maintaining a budget surplus and the spending plans in his 2008/09 budget on Wednesday.

Trust between banks, required to facilitate inter-bank loans, had been lost due to the crash of the US subprime mortgage sector, he said.

It had spread from banks in North America to Europe. Northern Rock in Britain was being nationalised and French bank Societe Generale had lost about €4bn in a trading scandal. Germany was looking much better but in Japan similar kinds of trends were in evidence, he said.

China was facing "huge" energy supply difficulties and its inflation rate had shot up from 1.8% in the year to December 2006, to 7.1% in the year to December 2007.

He said the estimated four percent economic growth for South Africa in 2008 was a "well-based number".

Capital markets had also "tightened quite considerably", making it an unpleasant place to try and borrow.

He also pointed out that South Africa had a 14%savings to GDP ratio and a 21% investment to GDP ratio. The resulting seven percent difference was the current account deficit which had to be financed by foreign savings.

China had a 45% investment to GDP ratio and a growth rate expected to slow to 9.5% in 2008 from 10% last year.

'Go and spend it'

Responding to questions from MPs, Manuel justified the money allocated over the next three years to settling outstanding land restitution claims. He warned that a higher allocation could run the risk of triggering "enormous speculative activity".

"If we had given R100bn and said 'go and spend it', it will result in a 10 times acceleration in the price of every hectare of land.

"It needs some support ... otherwise you just bankrupt everybody. Land transfer in itself doesn't give the land the value you would get by placing it under cultivation."

He said the almost R3bn allocated to land reform in 2008/09 - R10bn was budgeted for land reform for the next three years - was "well-considered".

Asked whether Eskom's R343bn expansion programme would not impose too high a burden on consumers, he said the country was so far off the global energy curve, it was unlikely that it would ever return to being among the world's cheapest when it came to electricity.

"What we don't know is the kind of [tariff] increase the [National Electricity] regulator would permit."

Responding to comments by opposition parties that the retirement benefit should have been raised to R1 000, instead of R940, he asked why the former was "sexier" than the latter.

Asked if there could not be price caps on essential items like bread to protect consumers, Manuel said this was difficult unless one had a system like China's, which had a government with the power to look into "every nook and cranny" of the economy.

He said a locally-manufactured loaf of bread changed hands about three times between its manufacture and its consumption. Premiums were slapped on the price at each step.

"There are many things you can do if you have an incredibly strong government [like China], that looks into every nook and cranny. If you want to do those things, then say it. Let's do it. [Then you have] a senior party member found guilty of corruption put before a firing squad."

- Sapa