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China-Africa Trade Information Service
info.afrindex.com
China-Africa Trade Information Service
Weak business confidence in South Africa and low profitability weigh on investment flows, Finance Minister Pravin Gordhan has said in his 2017 Budget Overview.
According to the 2017 Budget. The key features of the framework for the 2017 Budget include the following:
• Expenditure is within the envelope projected in last year’s budget.
• An additional R28 billion will be raised in taxes.
• The budget deficit for 2017/18 will be 3.1 per cent of GDP, in line with our fiscal
consolidation commitment.
• Government debt will stabilise at about 48 per cent of GDP over the next three years.
• Redistribution in support of education, health services and municipal functions in rural
areas remains the central thrust of our spending programmes.
• Government’s wage bill has stabilised. Procurement reforms continue to improve the
effectiveness of public spending and opening opportunities for small business
participation.
• Our state-owned companies and finance institutions play a substantial role in
infrastructure investment and financing development. Their borrowing requirements
are taken into account in the overall fiscal framework.
During the first three quarters of 2016, investment in fixed capital fell by 3.9% - the first decline since 2010. Private business investment showed the largest decline, while public corporations also invested less as they delay capital expenditure plans.
Gordhan said investment growth was expected to recover moderately, from 1.5% in 2017 to 2.8% in 2019.
"In South Africa, the ratio of investment to GDP, at just over 20% in 2015, compared with more than 40% in China and over 30% in India and Indonesia."
This is far lower than the targets set out in the National Development Plan (NDP) which envisages an investment ratio of 30% of GDP by 2030, of which 10% is expected to come from the public sector.
The rand
The rand, which traded at R16.38/$ at the beginning of 2016, strengthened considerably and closed the year at R13.84/$.
Current account deficit
The current account deficit remained stable during 2016. The current account deficit stood at 4.1% in the third quarter of 2016, down from 4.3% recorded in 2015.
The persistent current account deficit was a sign of insufficient levels of domestic savings to fund domestic investment and the high reliance on foreign savings. "This increases South Africa's vulnerability to capital outflows," Gordhan said.
Inflation
Headline inflation increased to 6.4% in 2016, from 4.6% in 2015. The higher inflation rate was largely driven by higher food prices (10.8%, compared with 5.1% in 2015) and petrol prices (1.6%, compared with -10.7% in 2015).
The Reserve Bank had increased the repo rate by two percentage points since the beginning of 2014 to anchor inflation expectations within the target band of 3% to 6%, Gordhan said.
Headline inflation was projected to remain above 6% in 2017 and to decline to 5.7% in 2018. The main contributor to declining inflation over the medium term was lower food price inflation.
As it was stated in the 2017 Budget: In order to boost investment in the short term, there are several specific imperatives:
• Finalising legislation relating to mining development and land redistribution.
• Implementing the transition from analogue to digital television, which will release
spectrum for broadband services.
• Continuing our independent power producer programme, both in renewables and to
take advantage of gas investment opportunities.
• Further strengthening of economic regulatory functions and streamlining investment
approval processes.
• Production-friendly industrial relations and prompt resolution of disputes.
• An enabling environment for small enterprises and support through leveraging both
public and private sector procurement budgets.
• Focused support on labour-intensive sectors, including agriculture, agro-processing
and tourism-related services.
• Strengthening regional ties and trade links.
• Safeguarding South Africa’s investment-grade credit rating.
