South Africa is expected to launch a slate of new spending to shore up its economy against the global downturn when Finance Minister Trevor Manuel unveils the budget Wednesday, economists said. With campaigning for general elections now underway, Manuel is also likely to outline the plans of the ruling African National Congress (ANC) to reduce poverty and unemployment in a nation struggling to bridge a gaping social divide.
Economists predict that with revenues down and spending promises up, the budget deficit could grow from 1.6 percent of gross domestic product - in the last estimate in October - to as much as 3.5 percent. Manuel has long defended South Africa's orthodox economic policies against calls for greater social spending and argues that the conservative policies have so far shielded the country from the worst of the global crisis.
But in October he announced South Africa's first budget deficit since 2005, as exports slow and commodities prices drop. Four months ago, Manuel warned that growth in 2009 would slow to 3.0 percent, after four years of expansion at 5.0 percent a year, but economists say that estimate will have to be revised down again.
"Our own forecast indicates something closer to one percent," said Sanlam Group economist Jac Laubscher. South African companies have already started slashing thousands of jobs, with AngloPlatinum saying Monday that 10,000 contract and mine worker jobs would be cut this year. Such drastic cuts cause particular pain when unemployment already stands officially at 23 percent but is believed to be nearly 40 percent.
South African President Kgalema Motlanthe told reporters in parliament on Sunday that a task force was looking at ways to save jobs, including hiring more staff in the public sector to boost employment. But he insisted that the government would not create special funds to shore up companies, and economists expect that any added stimulus will come in the form of an expanded social security net.
Motlanthe said in his state of the nation address Friday that government would expand assistance to youth and the elderly, and so far has seen no need for large corporate bailouts of the kind recently seen in rich countries. "In the rest of the world fiscal policies have adjusted hugely to provide for the economic crisis, but South Africa is not affected as much," said Ben Smit of the Bureau for Economic Research in Cape Town.
"So there may be some measures aimed at stimulating the economy purely because we are in a cyclical downswing," he said. "Broadly speaking these will be measures aimed at putting more money into the hands of the less fortunate." That would also dovetail with ANC election promises to do more to fight poverty in a country where 43 percent of the population lives on less than two dollars a day.
"Being an election year, we can expect a lot of pressure on social expenditure," said Fanie Joubert of Econometrix. The ANC government "wants to propose things that will get more people to vote for them," he said. Independent economist Mike Schussler of T-sec brokerage said the government could also spend more on infrastructure to provide jobs but also called for corporate tax cuts to help companies stay afloat.
"There should be a lot more expenditure on infrastructure to keep the economy ticking a bit. Companies need tax breaks, if they don't get tax breaks we lose jobs," he said. Joubert said he believed South Africa's economic growth could slow to zero this year. "We expect if we get 0.0 percent for this year we will be lucky. Growth is very, very (much) under pressure," he said.