News / Africa

South Africa Economy Sapped by Lower Exports to Europe

South African Finance Minister Pravin Gordhan delivers his 2013 budget speech at Parliament in Cape Town, Feb. 27, 2013.South African Finance Minister Pravin Gordhan delivers his 2013 budget speech at Parliament in Cape Town, Feb. 27, 2013.
South African Finance Minister Pravin Gordhan delivers his 2013 budget speech at Parliament in Cape Town, Feb. 27, 2013.
South African Finance Minister Pravin Gordhan delivers his 2013 budget speech at Parliament in Cape Town, Feb. 27, 2013.
Subdued European demand for its exports forced South Africa to cut its 2013 economic growth forecast on Wednesday, while missed revenue targets looked to be creating a wider budget deficit than first thought.

While vowing to keep a lid on overall spending, Finance Minister Pravin Gordhan committed to more social spending for South Africa's poorest, many who live in shanty townships and a are key support base for President Jacob Zuma as he gears up for general elections early next year.

"This government will not get to the point where we impose austerity on our people,'' Gordhan said, alluding to fiscal tightening measures that have triggered violent protests in European countries such as Greece.

In his three-year budget tabled to parliament, Gordhan said the 2013 budget deficit would be 4.6 percent of GDP, a bit larger than his last forecast in October. The deficit is slightly narrower than economists' forecasts, however, and a big decline from the 5.2 percent gap projected for 2012/13.

Mining sector

This year's shortfall was partly due to reduced tax and mineral rights revenue from the mining sector, hit by strikes last year that left more than 50 people dead and shaved 15 billion rand [$1.7 billion] of output from Africa's biggest economy.

South Africa remains the laggard among its peers in the BRICS group of leading emerging market economies, with China expecting growth of 8.2 percent this year, followed by 5.9 percent for India and 3.5 percent in Brazil.

With growth flatlining in Europe, South Africa's main export market, Gordhan was forced to cut this year's growth forecast once again to 2.7 percent - half South Africa's pre-2008 financial crisis average.

The relatively subdued longer-term outlook also means the economy has little chance of making any in-roads into the persistent 25 percent unemployment regarded as the main threat to social stability two decades after the end of apartheid.

"If growth continues along the present trajectory, substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending,'' said Gordhan.

Consumption muted

Domestic consumer demand, which accounts for about 60 percent of GDP, is likely to remain modest as households struggle to find jobs while existing debt levels remain high.

Gordhan said the government, still smarting from credit downgrades from Moody's, Standard & Poor's and Fitch, would keep a tight grip on its purse strings, with plans to reduce spending by 10.4 billion rand [$1.2 billion].

"The deficit is there because of the revenue loss that we have experienced, not because of expenditure," said Gordhan in a news conference before his speech to parliament.

The projected deficits are unlikely to improve South Africa's credit ratings, which now stand slightly above the investment grade cut-off, according to analysts.

"Under the circumstances, [the government] probably struck a reasonable balance given the fiscal constraints and difficult economic circumstances,'' said Renaissance Capital economist Elna Moolman.

"Today's budget was ratings negative - on its own it does not justify further downgrades, but at the same time it also will not allay the concerns of the ratings agencies sufficiently to rule out further downgrades down the line," said Moolman.

Basic services

Gordhan said the government, which has faced a series of protests against poor basic services in the impoverished townships, would continue pouring money into infrastructure, education and the health service.

Spending on social services, which have risen by 11 percent in the last five years, are expected to increase to 120 billion rand next year, said Gordhan.

The rand weakened after the budget, and was last at 8.8850 against the dollar, from 8.835 before Gordhan began his address.

Government bonds weakened, weighed down by plans to increase issuance to 165 billion rand a year during the next three years. The yield on the benchmark 2026 paper rose nearly 10 basis points to 7.31 percent.

You May Like

Video In US, Columbus Day Still Generates Controversy

Holiday marks date Columbus discovered Americas, but some are offended by legacy because he enslaved many natives he encountered More

Video Through Sports, Austria Tries to Give Migrants Traction

With 85,000 people expected to claim asylum in Austria this year, its government has made integration through joint physical activities a key objective More

Video Kickboxing Champion Shares Sport With Young Migrants

Pouring into Europe by hundreds of thousands, some migrants, especially youngsters, are finding sports a way to integrate into new host countries More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemeni
Henry Ridgwell
October 12, 2015 4:03 PM
The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemen

The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video No Resolution in Sight to US House Speaker Drama

Uncertainty grips the U.S. Congress, where no consensus replacement has emerged to succeed Republican House Speaker John Boehner after his surprise resignation announcement. Half of Congress is effectively leaderless weeks before America risks defaulting on its national debt and enduring another partial government shutdown.

Video New Art Exhibit Focuses on Hope

Out of struggle and despair often comes hope. That idea is behind a new art exhibit at the American Visionary Art Museum in Baltimore, Maryland. "The Big Hope Show" features 25 artists, some of whom overcame trauma and loss. VOA’s Deborah Block reports.

Video Columbus Day Still Generates Controversy as US Holiday

The second Monday of October is Columbus Day in the United States, honoring explorer Christopher Columbus and his discovery of the Americas. The achievement is a source of pride for many, but for some the holiday is marked by controversy. Adrianna Zhang has more.

Video Anger Simmers as Turks Begin to Bury Blast Victims

The Turkish army carried out new air strikes on Kurdistan Workers Party (PKK) targets on Sunday, a day after the banned group announced a unilateral cease fire. The air raids apparently are in retaliation for the Saturday bombing in Turkey's capital Ankara that killed at least 95 people and wounded more than 200 others. But as Zlatica Hoke reports, there are suspicions that Islamic State is involved.

Video Bombings a Sign of Turkey’s Deep Troubles

Turkey has begun a three-day period of mourning following Saturday’s bomb attacks in the capital, Ankara, that killed nearly 100 people. With contentious parliamentary elections three weeks away, the attacks highlight the challenges Turkey is facing as it struggles with ethnic friction, an ongoing migrant crisis, and growing tensions with Russia. VOA Europe correspondent Luis Ramirez reports.

Video Afghanistan’s Progress Aided by US Academic Center

Recent combat in Afghanistan has shifted world attention back to the central Asian nation’s continuing civil war and economic challenges. But, while there are many vexing problems facing Afghanistan’s government and people, a group of academics in Omaha, Nebraska has kept a strong faith in the nation’s future through programs to improve education. VOA’s Greg Flakus has more from Omaha, Nebraska.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video In 'He Named Me Malala,' Guggenheim Finds Normal in Extraordinary

Davis Guggenheim’s documentary "He Named Me Malala" offers a probing look into the life of 18-year-old Malala Yousafsai, the Pakistani teenager who, in 2012, was shot in the head by the Taliban for standing up for her right to education in her hometown in Pakistan's Swat Valley. Guggenheim shows how, since then, Malala has become a symbol not as a victim of brutal violence, but as an advocate for girls’ education throughout the world. VOA’s Penelope Poulou has more.

Video Paintable Solar Cells May Someday Replace Silicon-Based Panels

Solar panels today are still factory-manufactured, with the use of some highly toxic substances such as cadmium chloride. But a researcher at St. Mary’s College, Maryland, says we are close to being able to create solar panels by painting them on a suitable surface, using nontoxic solutions. VOA’s George Putic reports.

VOA Blogs