While South Africa's gross domestic product (GDP) growth was expected to moderate in the second half of this year, after having accelerated to an annualised rate of 3,9% in the first six months, the economy was still expected to grow by 3% in 2010.

Economic growth in the second half of the year has been impacted on by volatility in mining and manufacturing production, owing to fluctuations in global demand, industrial action, rand volatility and regulatory uncertainty in the mining sector.

International economic growth has also been slowing during the second half of 2010, with the global economy remaining fragile.

Nevertheless, local GDP growth would further improve to 3,5% in 2011, 4,1% in 2012 and 4,4% in 2013, the National Treasury indicated in the Medium-Term Budget Policy Statement, released on Wednesday.

In the February Budget, the Treasury forecasted growth of 2,3% for 2010, followed by 3,2% in 2011 and 3,6% in 2012.

The Treasury's expectations of 3% growth in 2010 and 3,5% growth in 2011, were in line with the International Monetary Fund's latest forecast.

The outlook was improving, but it would take some time for the economy to reach full capacity and to be able to create more jobs.

"Unless we grow much faster and more inclusively, many of the people who lost their jobs during the recession and millions of other South Africans, particularly our youth, will struggle to find employment," Finance Minister Pravin Gordhan said.

It is estimated that the 2008/9 recession led to more than one-million job losses in the South African economy.

The National Treasury pointed out that private sector employment would only recover to pre-crisis levels by 2014 if GDP growth continued at its current trajectory.

In terms of South Africa's new long-term growth plan, unveiled on Tuesday, the country would aim to reduce unemployment from 25% to 15% over the next ten years, which would require the creation of five-million new jobs.

Employment was considered to be central to the country's new growth path.

Gordhan highlighted that, in order to achieve the five-million jobs target, the country would have to seek growth of more than 6% a year.

It would also be necessary to broaden participation and inclusive development, he stated.

The issue of job creation was seen as a "development gap", which would require a growth strategy that forges partnerships between government, business and labour to raise competiveness, expand production and create employment through increased investment and trade.

"South Africa's success in delivering the 2010 World Cup illustrates our ability to unite as a nation behind a common goal. We must draw on that experience and work to transform this economy into one that can grow fast enough to create the jobs that we need. To move forward we need to develop a national consensus, and the sense of urgency required to propel South Africa onto a new growth trajectory," said Gordhan.

Partnerships between government, business and labour were expected to assist in rapidly reducing youth unemployment, containing price and wage increases to support competitiveness and higher exports and to remove constraints to mining and industrial investment, including capacity limitations in energy, transport and telecommunications, stated the National Treasury.

COMPETITIVENESS

South Africa needed policies to support sustainable gains in productivity and international competitiveness.

The country's ranking in the latest Global Competitiveness Report dropped to 54 out of 139 countries, down from its ranking of 45 the year before, owing to poor performances in areas such as basic education, higher education and skills, labour-market efficiency, technological readiness and infrastructure.

Transport and communications costs in South Africa were currently higher than that of its major competitors, impacting on the country's ability to remain competitive.

The country would also have to do more work on containing its inflation and on aligning wage costs and productivity to improve its competitiveness.

This year, labour unions have demanded higher-than-inflation wage increases in many sectors of the economy.

Wage settlements averaged 8,3% in the first nine months of this year, compared with an average consumer price inflation of 4,7% over that same period. Public sector settlements, particularly those in State-owned enterprises and municipalities, were higher than that granted to the private sector.

These high wage settlements might have negatively impacted on companies' decision to rehire workers who were laid off during the recession, as well as to create new jobs, stated the Treasury.

Nevertheless, headline consumer price inflation was expected to remain below 6% over the next three years, with only moderate increases in food prices and a "relatively buoyant" exchange rate.

The strong rand, which has appreciated by 7,5% against the dollar and by 6,1% against a trade-weighted basket of currencies since December last year, has offset the impact of high real wage increases on inflation.

The National Treasury warned, however, that while inflation is low, inflationary pressures remain.

"The monetary policy stance will continue to target low and stable inflation to support a more competitive exchange rate and reduced investment costs through lower real interest rates. This will be accompanied by measures to contain inflationary pressures and build competitiveness," said Gordhan.

Meanwhile, to grow the economy, South Africa would also have to deal with infrastructure bottlenecks, skills deficiencies, State inefficiency and regulatory burdens on small businesses.

It is estimated that businesses with a turnover of less than R1-million faced regulatory compliance costs amounting to 8% of their total turnover, compared with less than 1% of turnover for large businesses with turnovers of above R25-million.

The National Treasury noted that social partners were in agreement that, as the country seeks a new growth path, support for small enterprises and the promotion of industrial development had to be enhanced.

Government's investment in the country's infrastructure would continue, with public sector investment up to 2014 to amount to R811,2-billion, of which 85,4% would be spent on economic infrastructure, such as electricity, water and sanitation and transport and logistics.

Further, by expanding its infrastructure and transport networks, South Africa could increase its manufacturing exports, while also increasing the country's role as a market for products from the Southern African region.

DEVELOPMENT FINANCE

Development finance institutions (DFIs) were expected to play a bigger role in contributing to the country's and the Southern African region's overall economic growth.

The National Treasury noted that the country could make more effective use of its DFIs to finance domestic and regional infrastructure development and enterprise development, as well as assisting in land reform and affordable housing initiatives.

The Development Bank of Southern Africa was looking at ways to expand its activities in the Southern African Development Community.

TAX REVENUES

Given the improving economic outlook, tax revenues will increase by a projected R31-billion to R679,2-billion in the 2010/11 financial year, representing 25,3% of GDP.

This was higher than the R598,7-billion in tax revenues collected in the previous financial year, which represented 24,4% of GDP.

Tax revenues would continue to improve to R751,4-billion in 2011/12, R840,1-billion in 2012/13 and to R943,8-billion in 2013/14. Revenues were expected to average at about 26% of GDP over the next three years.

This revenue had to grow in the longer term to enable the financing of government's spending commitments. This, in turn, would require higher economic growth and higher employment.

YOUTH EMPLOYMENT

Meanwhile, over the next three years, government has set the expansion of the further education and training capacity as a priority to enable more young people to find jobs.

National Treasury indicated that the probability of a young work-seeker, who does not have a tertiary qualification, finding a job within a year was only 25%.

Government was hoping to encourage youth employment in the business and nongovernmental sector through a tax incentive mechanism that would complement employment initiatives under the expanded public works programme (EPWP), which was already working towards creating 4,5-million new short-term jobs between this year and 2014.

The EPWP supports the creation of jobs through increasing the labour intensity of public sector projects and services.

A new performance-based incentive grant was established to encourage municipalities and provinces to use more labour while conducting their work.

A total of R6-billion in funds would be set aside over the next three years to fund projects under the youth employment initiative, which was aimed at providing young people with work experience in public service or community development, on-the-job and vocational training, and job-search assistance.

Of the total, R1-billion would be budgeted for these projects in 2011/12, R2-billion in 2012/13 and R3-billion in 2013/14.

In terms of skills development, government was also hoping that the Intsimbi National Tooling initiative would be able to grow its intake of people to 4 395 by 2015/16, up from 175 in 2010/11.

The initiative, which is led by the Department of Trade and Industry, supports skills development, transformation, building small business capacity, technology recapitalisation, competitiveness and export development in the tool, die and mould industry, which contributes to the overall manufacturing sector.