Budget 2023

Weak growth drags down transformation efforts

Pretoria - Economic growth has averaged 1.9% per year between 2010 and 2016, and with growth projections for 2017 revised down to less than a percent, it is proving to be a constraint to transformation efforts, Treasury said in the medium term budget policy statement on Wednesday.

According to the mini budget announced by Finance Minister Malusi Gigaba on Wednesday, the persistent weak economic growth is "reinforcing" the country’s socio-economic exclusion.

More than 30 million South Africans live in poverty, and unemployment is at its highest rate since September 2003, at 27.7%. Wealth also remains highly concentrated, with 95% of it in the hands of 10% of the population, said Gigaba.

Quoting OR Tambo in his address, Gigaba reiterated the importance of achieving economic transformation.

"The issues as to how the wealth of the country is redistributed for the benefit of all our people, how the economy is remoulded in order that all South Africans may thrive and prosper, are of prime importance and should find their solutions in the context of democracy."

"Low levels of economic opportunity for a large proportion of the population undermine growth potential and the realisation of the constitutional vision of a more equal society," the policy statement read.

Treasury revised down growth projections from 1.3% to 0.7% and, in the medium term, expected growth to reach 1.9% in 2020.

Gigaba stressed the importance of economic growth to create opportunities for employment and for large and small businesses to thrive. Growth would also allow the population to accumulate wealth, support the increase of government revenues and support the expansion of social programmes.

"Growth is, therefore, a precondition for our ability to deliver on the promise for a better life for all," he said, explaining that economic growth and transformation were mutually reinforcing.

"We cannot allow a repeat of the past, where periods of relatively high economic growth were characterised by an uneven accrual of economic benefits."

As a result of economic exclusion in the past, black ownership and management of the economy remains low and employment equity is a persistent challenge. Markets are highly concentrated, there is low competition and high barriers to entry.

"Prospective market entrants find it extremely difficult to break in, as dominant companies enjoy seemingly insurmountable advantages."

Segregated spatial planning also the affected travel costs and job searches of South Africans, preventing them from participating in the economy.

"These distortions are unsustainable," Gigaba said.

Earlier this year, Gigaba highlighted transformation goals as part of government’s 14-point plan to boost confidence in the economy.

Transformation and competitive outcomes were to be achieved through sector reforms.

So far, the Preferential Procurement Policy Framework Act Regulations took effect on April 1 2017. The Financial Sector Regulation Act was signed into law on August 21, 2017. The Government Technical Advisory Centre had been commissioned to set up a fund to benefit small and medium enterprises, with a particular focus on start-ups, the policy statement indicated in an update.

Government would continue to focus on inclusive growth, transformation and competitiveness, the policy statement emphasised.

"Inclusive growth reduces poverty and inequality and provides the resources to support critical social spending."

Having broad-based economic transformation would also give those who were previously marginalised access to the economy, in turn generating new businesses and wealth.

Government was also making efforts to improve competitiveness in the economy by deconcentrating industries and breaking down structural barriers for new economic activity, among other things.

"A competitive economy sells goods and services to the rest of the world and attracts investment to support its own development."

However, Treasury explained the major challenge for these economic policies was implementation.

* Visit our Mini Budget Special Issue for all the news, views and analysis.

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