Finance Minister Pravin Gordhan reinforced government's stated commitment to the highly contested National Development Plan (NDP) in his Medium-Term Budget Policy Statement (MTBPS) address to lawmakers, indicating that the plan offered a platform for dealing with a number of the domestic constraints to higher levels of economic growth and employment.

The National Treasury lowered its gross domestic product (GDP) growth forecast for 2013 to 2.1%, having forecast 2.7% in the February Budget. It also projected that the economy would expand by only 3% (3.5%) in 2014, 3.2% (3.8%) in 2015 and 3.5% in 2016.

While highlighting external headwinds, Gordhan acknowledged that labour disputes, electricity shortages and other supply-side disruptions had weighed on business and consumer confidence and growth.

These lower confidence levels were reflected in slower real gross domestic expenditure and household consumption, as well as in the performance of real gross fixed capital formation (GFCF) - GFCF, for instance, slowed to 4.1% in the first half of 2013, compared with 6% in the corresponding period of 2012.

South Africa’s trade balance also deteriorated, partly as a result of strikes in the mining and manufacturing sectors. South Africa reported a trade deficit of 2.6% of GDP in the first half of 2013, with the value of exports increasing by 14.2% during the period, while the value of imports increased by 15.8%.

The trade deficit also contributed to an elevated current account deficit of 6.5% of GDP, which is projected to remain at about 6% over the medium term.

“This means the economy is reliant on foreign savings to fund the gap between government revenue and spending, and the cost of infrastructure expansion,” the National Treasury stressed.

It also warned that, while the current account deficit had hitherto been comfortably financed by capital inflows, global capital allocation is likely to shift as the US monetary authorities taper their asset purchase programme.

Total net foreign capital inflows into South Africa declined by 4% in the first half of 2013 relative to the same period in 2012, while net purchases of bonds by international investors declined from R76-billion over the first nine months of 2012 to R37-billion over the same period in 2013. Net purchases of equities reversed, from an outflow of R5-billion to an inflow of R26-billion.

South Africa recorded R16.9-billion worth of net foreign direct investment in the first half of 2013, consisting largely of long-term loan financing extended by international firms to their domestic subsidiaries.

SELF-RELIANCE

Gordhan said government was responding to the current economic challenges by working to implement the NDP, manage medium-term risks and enact structural reforms to the economy.

“South Africa cannot rely on external developments to alleviate domestic growth constraints. Progress will require more collaborative partnerships across our society,” the National Treasury added in the MTBPS.

It also moved to clarify the role of the NDP relative to other government programmes, such as the Presidential Infrastructure Coordinating Commission, the Industrial Policy Action Plan, the National Education Collaboration Trust and the new phase of the Expanded Public Works Programme.

The MTBPS said these interrelated sectoral and developmental programmes gave greater content to the outcomes envisaged in the NDP. No specific mention was made of the New Growth Path policy, which was favoured by the Congress of South African Trade Unions.

Government, Gordhan indicated, was acting on key NDP proposals, including through its investments in economic and social infrastructure, supporting opportunities for young job seekers and small enterprises, bolstering regional integration and providing policy certainty to encourage long-term investment in mining and other sectors.

“The NDP provides a platform for increased collaboration between government, business, labour and civil society. Such cooperation on South Africa’s common goals will boost consumer and business confidence, and translate into higher levels of investment, employment and growth.”