Slow growth threatens South Africa's poverty targets
Friday, 29 February 2008

HTML clipboard Agence France-Presse . Johannesburg

South African government plans to halve poverty and unemployment by 2014 appeared increasingly at risk Tuesday as official statistics confirmed fears of a downturn in economic growth.

Figures released by Statistics South Africa showed a drop in gross domestic product growth to 5.1 per cent last year from 5.4 per cent in 2006.

Analysts said the country would battle to reach 4.0 per cent this year on the back of a crippling national electricity crisis. 'Power cuts which began last year ... have now engulfed the entire country and the impact is likely to bring the GDP to less than four per cent this year,' Daniel Makina, a University of South Africa economics lecturer, told AFP.

'The situation can only be attenuated if the prices of precious metals double in the international market,' he said. South Africa is one of the world's largest gold and diamond producers. Last year, the government said it needed to achieve GDP growth of 4.5 per cent between 2005 and 2009, and six per cent between 2010 and 2014 to reach its target of halving a near 30 per cent official unemployment rate and rampant poverty, most recently estimated at nine 9.0 of the population living on less than one US dollar a day.

'I don't think they are going to get anywhere close to that to be quite honest with you,' said George Glynos, an analyst with the Econometrix consultancy. 'For this year, a forecast of about four per cent GDP growth will be reasonable.' On top of the power crisis, he said higher interest rates, raised eight times since April 2005 to the current level of 14.5 per cent, were also hampering investment and growth.

'You do not expect economic growth and investment in an environment where you have high interest rates and inflation. Inflation is detrimental to growth.' Rising food and fuel prices pushed the inflation above 8.0 per cent in December, far above the official target of less than 6.0 per cent. State power utility Eskom began rationing electricity use across South Africa, the continent's economic powerhouse—curbing mines to 90 per cent of their historic use.

Diamond, gold and platinum mines were shut for a week last month and thousands of workers are at risk of losing their jobs. Controlled power blackouts have disrupted everything from manufacturing to traffic lights in what the government has labelled a national emergency. Finance Minister Trevor Manuel earlier this month trimmed his growth forecast to 4.0 per cent for 2008 from the 5.0 per cent he predicted a year ago and the 4.5 per cent estimate given only in October.

Statistics South Africa said Tuesday GDP grew 5.3 per cent in the fourth quarter of last year compared to a year earlier. The main contributors to growth were the finance, real estate and business services industry, manufacturing and construction, and general government services, it said in a statement.

Construction has boomed as South Africa prepares to host the 2010 football World Cup, the first time it will be held on African soil. Glynos said the fourth quarter figures may help reassure investors that economic prospects were 'not as desperate and bad as it looked at the beginning of the year' but this depended on the government's ability to contain the power crisis.

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