Friday, February 03, 2006

[South Africa] SA wants higher economic growth to reduce poverty

from Business Day

GOVERNMENT should make the necessary intervention in the first or mainstream sector of the economy to ensure it achieves its 6% growth rate target by 2010, President Thabo Mbeki said on Friday.

But Mbeki, in his annual state of the nation address, gave few details about the form the intervention should take.

The ANC has mooted changes to labour legislation blamed by business and the International Monetary Fund for stifling job creation and hampering the country’s growth.

The local economy is divided into two sectors — the so-called first or mainstream economy, operating under a regulated enviroment, and the second economy which is unregulated and basically caters for country’s millions of unemployed.

"We should make the necessary interventions with regard to the first (mainstream) economy to accelerate progress towards the achievement of higher growth levels of economic growth and development of at least 6% a year," said Mbeki.

The government is seeking higher growth, from 4,5% currently, to halve unemployment and poverty which remain widespread more than a decade after the end of apartheid.

Unemployment is officially estimated at 26,7% but unofficial estimates go as high as 38,8%.

"We should move faster to address the challenges of poverty, underdevelopment and marginalisation confronting those caught within the second (unregulated) economy to ensure that the poor in our country share in our growing prosperity," said Mbeki.

Growth will be mainly driven by the government’s R370bn infrastructure spending programme started last year.

"The state-owned enterprises and the public sector as a whole, working in some instances through public-private partnerships, will make large investments in various sectors ... R370bn will be provided," said Mbeki.

The spending programme will cover the construction and upgrading of dams, power stations, road, railways and ports.

Mbeki lauded the economy’s strong performance in recent years, driven mainly by robust domestic consumption on the back of the lowest lending rates in more than two decades. The economy is enjoying its longest expansion on record.

"This has increased our imports more than our exports. Despite high commodity prices, the resultant balance of payments deficit has been financed by inflows from foreign capital," he said.

"We will increase the significance of supply-side drivers of our growth. A corollary of this is, of course, that we must ensure the international competitiveness of the goods and services we produce."

A strong rand currency has eroded the competitiveness of the country’s exports.

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