World Bank sees 5% SA growth in 2005

PRETORIA – Growth in South Africa’s economy looks set to accelerate to five per cent this year in an upswing which is having tremendous impact on the rest of the world’s poorest continent, the World Bank said last week.

Ritva Reinikka – country director for the institution in Botswana, Lesotho, Namibia and South Africa – said research showed that the spillover effect of prosperity in Africa’s powerhouse was greater than elsewhere in the world. “If this is really the case, economic growth in South Africa is important for poverty reduction on the continent,” she said.”This means that reaching (the official target of) six per cent annual growth is not just important for this country but for the rest of Africa,” she told Reuters in an interview.Reinikka was referring to an International Monetary Fund study which showed that a one percentage point increase in South Africa’s economic growth was associated with gains of between 1/2-3/4 percentage point over the whole of sub-Saharan Africa.This was surprising, as elsewhere in the world the knock-on gains of an accelerating economy amounted to just 0,4 percentage points and were confined to neighbouring countries, she said.The study completed earlier this year was based on data for the period 1960-1999, but reasons for the link are speculative.Reinikka said South Africa was on course to achieve the government’s target of six per cent annual growth by 2010, although steps were needed to remove officially identified constraints, which include currency volatility and reform of the regulatory environment.”It is achievable and should be achieved.It is welcome that the government has adapted a more pro-growth strategy,” she said.South Africa plans to spend 320 billion rand on infrastructure over the coming years in its efforts to boost growth and reduce a steep jobless rate of 26 per cent.Reinikka said that revised data from Statistics South Africa already showed the economy would probably grow by five per cent this year – well beyond official forecasts for a 4,4 per cent rise.The data released last week also revised growth in 2004 up to 4,5 per cent from 3,7 per cent previously – its fastest pace since 1984, when the economy expanded by 5,1 per cent.Achieving a “stable and competitive” exchange rate was crucial because of the impact that the rand’s volatility had on South Africa’s exports, Reinikka said.She did not say what level would be appropriate for the unit but pointed out that its depreciation so far in 2005 was good news for exporters, after three consecutive years of gains.”Export growth is absolutely vital for growth and jobs – this is an issue,” she said.”The economy cannot grow on the basis of domestic demand alone.”South Africa’s economy has been driven mainly by domestic demand over the past couple of years, after the central bank reduced its key repo rate by 6,5 percentage points to seven per cent, driving commercial lending rates to near-record lows.World Bank research showed that during 2004 imports amounted to 27 per cent of GDP while exports comprised 22 per cent, Reinikka said.Creating more small and medium-sized enterprises was also key to boosting growth and employment in South Africa, where the sector contributed 42 per cent of the country’s GDP, she noted.South Africa’s skill shortage was an issue but one which could probably be overcome, she said.- Nampa-Reuters”If this is really the case, economic growth in South Africa is important for poverty reduction on the continent,” she said.”This means that reaching (the official target of) six per cent annual growth is not just important for this country but for the rest of Africa,” she told Reuters in an interview.Reinikka was referring to an International Monetary Fund study which showed that a one percentage point increase in South Africa’s economic growth was associated with gains of between 1/2-3/4 percentage point over the whole of sub-Saharan Africa.This was surprising, as elsewhere in the world the knock-on gains of an accelerating economy amounted to just 0,4 percentage points and were confined to neighbouring countries, she said.The study completed earlier this year was based on data for the period 1960-1999, but reasons for the link are speculative.Reinikka said South Africa was on course to achieve the government’s target of six per cent annual growth by 2010, although steps were needed to remove officially identified constraints, which include currency volatility and reform of the regulatory environment.”It is achievable and should be achieved.It is welcome that the government has adapted a more pro-growth strategy,” she said.South Africa plans to spend 320 billion rand on infrastructure over the coming years in its efforts to boost growth and reduce a steep jobless rate of 26 per cent.Reinikka said that revised data from Statistics South Africa already showed the economy would probably grow by five per cent this year – well beyond official forecasts for a 4,4 per cent rise.The data released last week also revised growth in 2004 up to 4,5 per cent from 3,7 per cent previously – its fastest pace since 1984, when the economy expanded by 5,1 per cent.Achieving a “stable and competitive” exchange rate was crucial because of the impact that the rand’s volatility had on South Africa’s exports, Reinikka said.She did not say what level would be appropriate for the unit but pointed out that its depreciation so far in 2005 was good news for exporters, after three consecutive years of gains.”Export growth is absolutely vital for growth and jobs – this is an issue,” she said.”The economy cannot grow on the basis of domestic demand alone.”South Africa’s economy has been driven mainly by domestic demand over the past couple of years, after the central bank reduced its key repo rate by 6,5 percentage points to seven per cent, driving commercial lending rates to near-record lows.World Bank research showed that during 2004 imports amounted to 27 per cent of GDP while exports comprised 22 per cent, Reinikka said.Creating more small and medium-sized enterprises was also key to boosting growth and employment in South Africa, where the sector contributed 42 per cent of the country’s GDP, she noted.South Africa’s skill shortage was an issue but one which could probably be overcome, she said.- Nampa-Reuters