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SA must target 5% growth - ADB

FMCG SUPPLIER NEWS

Fin24.com - Oct 3rd 2012, 10:08

Johannesburg - South African labour unrest will only temporarily deter investors, but the country must grow faster to avoid serious pitfalls ahead, the African Development Bank's chief economist said on Tuesday.  

Mthuli Ncube, who is also vice president of the multilateral bank, said Africa's largest economy should be hitting levels of growth it has not seen in nearly half a decade.

"(The government should) come up with strategies that get South Africa to grow at five percent and above, to me that is the issue," Ncube said in an interview late on Monday.

"It's achievable. And it is not just South Africa, it is the entire southern African region. It is achievable, but it does require focus."

In the last quarter, South Africa's growth reached 3.2%, but it is forecast by the International Monetary Fund to ease back to 2.6% for the entire year.

While better than many developed nations, that rate lags well behind South Africa's emerging market peers and is unlikely to significantly alter official unemployment rates, which remain stubbornly high around 25%.

Ncube said that South Africa, the continent's top power, also needs like other African nations to better transform growth into jobs, particularly now when a large percentage of the population is of working age.

"What concerns me is the ability of this growth to create jobs, it is very important that the demographic dividend should be harnessed."

Last year a panel set out a National Development Plan for the country, which aimed at eliminating poverty and overhauling education, infrastructure and the health system by 2030.

But so far the agenda has languished.

"The plan that came out is a good one, I think we should start from there and look at ways of implementing that," said Ncube.

Concern that South Africa's political elite is not coming to terms with the country's problems recently resulted in Moody's and other agencies downgrading the country's credit rating.

However Ncube said he did not share the ratings agencies' concerns about institutional stasis.

"I'm not concerned about the political state, South Africa has very strong democratic institutions; I don't think there is that much to fear."

"The downgrade in my view should be around economic growth, around how to deal with it to absorb the global shocks that are impacting South Africa."

Looming large on the horizon is the risk of increased spillovers from Europe's debt crisis, which has already hit South Africa's tourism and other sectors.

But a decrease in China's break-neck growth is also of concern.

"The slowdown in China, which is driving commodity demand for most of Africa's commodities, it is a risk that is out there," said Ncube.

South African trade figures for August showed a significantly widening trade deficit with the rest of the world, in large part owing to a 17% decrease in the export of mineral products.

Industry sources say a slowdown in coal exports to China are part of that story.

But amid a wave of strikes and murmurs about mine nationalisations, many see risks of a domestic shock.

Ncube was upbeat, but said the government must remain engaged with the private sector.

"Certainly anything like that happening, strikes... it will affect investment, particularly in the short term, but at the same time you invest where the natural resources are."

"A lot of investors will be trying to see how these labour issues are resolved."

"The key pillar of the (jobs) strategy is dialogue with the private sector, because clearly it is the private sector that has been best suited to create jobs, to grow the companies, to establish new companies." 

Read more about: growth | supplier | economic

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