S.Africa's GDP growth estimated to rise by 1.1% in 2015 - CNBC Africa

S.Africa's GDP growth estimated to rise by 1.1% in 2015

Southern Africa

by Trust Matsilele 0

The government’s real gross domestic product estimate for 2015 is expected to rise to 2.5 per cent from 1.4 per cent estimated for 2014.

According to the Medium Term Budget Policy Statement (MTBPS), economic growth was expected to rise gradually over the medium term, reaching three per cent by 2017.

The change in estimates are a result of proposed government initiatives such promoting savings, salvaging the country’s ailing power utility and boosting private sector investments.

In finance minister Nhlanhla Nene’s MTBPS, South Africa’s economic performance has deteriorated over the past several years.

“A GDP growth of 1.4 per cent is estimated in 2014, down from 3.6 per cent in 2011,” said Nene.

However, the government is upbeat over future prospects.

“GDP growth is forecast to improve over the medium term as infrastructure constraints ease, private investment recovers and exports grow. However, recent trends have led to understandable concern about the country’s growth prospects.”

Nene also said faster economic growth was crucial to the country’s National Development Plan (NDP).

“Faster economic growth is both a key objective of the NDP and a necessary condition to raise the resources needed to fund the country’s social and economic transformation,” said Nene.

“The plan targets five per cent annual GDP growth as the minimum requirement to create employment, overcome poverty and reduce inequality. It seeks to achieve this through significant investment in South Africa’s people and infrastructure over an extended period.”

Nene, also turning to the delicate issue of Eskom, said completion of the programme was critical to the overall growth of the economy.

“The completion of major energy, transport and logistics projects over the medium term will boost the growth potential of the economy,” Nene said.

“A strong, sustainable electricity generation sector is necessary for the economy to grow more rapidly. Over the medium term, significant improvements to the reliability and performance of the distribution, transmission and generation system are being made, and additional power is being procured.”

He also said Eskom would receive a direct allocation of at least 20 billion rand, raised through the sale of non-core state assets.

Nene said this was not going to have an impact on the budget deficit as funds would be appropriated as they are realised.

“Eskom’s additional borrowing, expected to be about 50 billion rand over the medium term, will be accommodated within the existing guarantee facility. No new guarantees will be issued.”

The country through its medium-term strategic framework (MTSF) intends to expand energy supply through public and private investment, including procuring 2.5GW of privately supplied baseload electricity and signing cogeneration agreements for over 800MW to be added to the national grid.

The government is also set to expand rail capacity for coal exports between Mpumalanga and the Richards Bay Coal Terminal. Further building a new heavy-haul rail line from the Waterberg region, and increasing port capacity for iron exports via Saldanha and the Northern Cape corridor.

However, the Nene expressed concern over high levels of consumption and poor growth outcomes which have seen domestic savings lag behind.

According to the minister, government consumption contributes to a persistent deficit on the current account, which reached 6.2 per cent of the GDP in the second quarter of this year.

“This makes South Africa over reliant on foreign savings and vulnerable to shifts in global sentiment,” he warned.

Nene also urged government to moderate its consumption spending, which accounts for 56 per cent of consolidated non-interest expenditure in 2014/15.

According to Nene, greater space must be created for partnerships that draw private capital into public-sector infrastructure projects.

“Initiatives such as the independent power producer programme will grow in the years ahead, and will promote greater confidence in private investment in the broader economy.”

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