With limited room left in monetary and fiscal policy, South Africa needed to focus on structural factors to promote growth and employment, and strengthen investor confidence, Business Unity South Africa (Busa) deputy CEO Raymond Parsons said Wednesday.
Speaking at a pre-2012 Budget media briefing, he added that the local business sector looked to the forthcoming Budget, which Finance Minister Pravin Gordhan will deliver on February 22, to reinforce this strategic direction.
South Africa’s ranking in the 'Global Competitiveness Survey' continued to slowly decline, echoing recent observations that the administrative burden of regulation was too high, especially for small businesses.
Parsons pointed out that focus therefore needed to shift to structural factors that could strengthen South Africa’s economic performance.
South Africa’s ranking in terms of the “ease of doing business” also declined, owing mostly to the difficulties associated with trading across borders, registering property, enforcing contracts and starting a business.
This coincided with the recent survey published by international accounting firm Grant Thornton, which highlighted “over-regulation and red tape” as the biggest current constraints to business expansion in South Africa. This was especially relevant to small business.
Parsons empasised that South Africa needed to boost informal small, micro, and medium-sized enterprise (SMMEs), as probably as much as 80% of the jobs needed to reduce unemployment could come from small businesses.
“SMME development and entrepreneurship are crucial areas in improving economic development, in implementing government pro-poor policies successfully, and in achieving the United Nations millennium development goals,” he said.
Further, Parsons stated that the next step for South Africa after the Budget announcement was to implement effectively what has been agreed and funded, and to deliver on promises by building on its economic strengths and addressing its weaknesses.
“2012 needs to be the year in which South Africa must see more tangible outcomes from key programmes like the New Growth Path (NGP) and the National Development Plan. This must be a game-changing year for implementation.”
However, he noted that this year could be something of a watershed in terms of fiscal, monetary, industrial and political policy in South Africa, while the outcome of the nationalisation debate would be important.
Recent downward revisions of growth forecasts for the global economy largely reflected the ongoing European sovereign debt crisis, and the likelihood of a mild recession in the eurozone also presented serious challenges for the South African economy.
Taking into account the global and domestic trajectory, Busa downgraded its 2012 gross domestic product forecasts to 2.7%, down from 3% and its 2013 forecast to 3.3%, from 3.8%.
The South African Reserve Bank and the International Monetary Fund (IMF) recently slashed their forecast for the South African economy to 2.8% and 2.5%, respectively. Reuters quoted Gordhan as saying last week that the country’s economy would probably grow “a little faster” than the 2.5% predicted by the IMF.
Despite the slower growth, the South African economy could still create about 200 000 jobs a year in the formal sector, Parsons said, but stressed that it remained far short of the NGP’s employment targets.
He said Busa therefore hoped the 2012 Budget would maintain the focus on prioritising job creation, poverty reduction, infrastructural development and economic growth articulated in the government’s Medium-Term Budget Policy Statement.
“We also hope the government will build on lessons learned in the 2009 response to the global economic downturn, particularly the need to respond on a broad front in effective dialogue with key economic partners. The message of the 2012 Budget needs to underpin business confidence,” Parsons pointed out.
He said key issues for business in the 2012 Budget would include the challenge of debt sustainability, the need to avoid tax shocks at a delicate stage of the business cycle, an update on the carbon tax proposal, increased focus on sound provincial fiscal management, progress on the implementation of the youth wage subsidy and reaffirmation of the government’s commitment to predictability and policy.