South Africa South Africa at a Glance: 2007-08
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Country Report South Africa South Africa at a glance: 2007-08 OVERVIEW The ruling African National Congress (ANC) is expected to maintain its overwhelming hegemony during the forecast period. However, the party and its leadership will be preoccupied with maintaining party unity and an orderly process of electing a successor to Thabo Mbeki as ANC president at the party!s national congress in December 2007. Assuming a sound mix of fiscal and monetary policy combined with public-sector wage moderation, weaker administered prices and lower private-sector unit labour costs (owing to productivity gains), inflation is expected to remain within the target range of 3-6% in 2007-08. Further growth in construction and continued expansion in total domestic demand is expected to support real GDP growth of 4.5% in 2007 and 5.1% in 2008. Fairly strong global demand and high commodity prices will help to boost exports, but rising imports mean that the current account is forecast to remain in deficit, although the deficit should narrow in 2007-08. Key changes from last month Political outlook • Political prospects remain unchanged from the previous month. Economic policy outlook • The South African Reserve Bank (SARB, the central bank) raised interest rates by a further 50 basis points in December, taking the benchmark repurchase (repo) rate to 9%. The SARB based its decision mainly on the risks posed by high rates of growth in household spending and consumer credit and by the threat to inflation posed by the depreciation in the exchange rate. Although the risk from international oil prices has abated, food price inflation is rising significantly and is likely to continue to do so in the coming months. There is a possibility that the Monetary Policy Committee will leave interest rates on hold when it next meets, in February, and that they will remain unchanged for most of 2007. Economic forecast • The rand has strengthened since October, rising by 9% against the US dollar and 6% against the euro by early December, helped by a weaker US dollar, higher commodity prices and foreign investor interest. The likelihood of a sustained sharp downward movement in the rand is small, and the Economist Intelligence Unit now expects the rand to average R7.40:US$1 in 2007 and R7.85:US$1 in 2008. December 2006 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. 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South Africa 1 Contents South Africa 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2007-08 7 Political outlook 8 Economic policy outlook 10 Economic forecast 14 The political scene 17 Economic policy 21 The domestic economy 21 Economic trends 25 Financial services 25 Manufacturing 26 Mining 27 Infrastructure 30 Foreign trade and payments List of tables 10 International assumptions summary 11 Gross domestic product by expenditure 13 Forecast summary 17 Macroeconomic projections, 2006-09 18 Revised national budget, fiscal years (Apr-Mar) 22 Gross domestic product 23 Inflation as measured by CPIX 24 Employment and unemployment 30 Current account 31 Foreign direct investment inflows into Sub-Saharan Africa List of figures 14 Gross domestic product 14 Consumer price inflation 18 Spending proportions for social services, 2006/07 26 Vehicle production and exports Country Report December 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 South Africa 3 South Africa December 2006 Summary Outlook for 2007-08 The ruling African National Congress (ANC) is expected to maintain its overwhelming hegemony during the forecast period. Economic policy will continue to focus on increasing economic growth and investment in order to create employment. Further growth in construction and continued expansion in total domestic demand is expected to support real GDP growth of 4.5% in 2007 and 5.1% in 2008. Fairly strong global demand and high commodity prices will help to boost exports, but rising imports mean that the current account is forecast to remain in deficit, although the deficit should narrow in 2007-08. The political scene The corruption charges against the former deputy president, Jacob Zuma, were dramatically thrown out of court even before the trial properly commenced. He is perceived as the standard-bearer of the left and could act as a rallying point as the ANC seeks a successor to the president, who is due to stand down in 2009. The leader of the main opposition party, the DA, has announced that he will not stand for election as party leader at the DA!s congress in May 2007. Economic policy The National Treasury!s medium-term budget policy statement, announced on October 25th, contained few surprises, with state spending forecast to increase by 7% annually in real terms over the 2007-09 period, well above the projected annual average GDP growth rate of around 4.5%. The SARB has continued to tighten monetary policy, raising interest rates by a further 50 basis points, to 9%, at the MPC!s December meeting in response to high energy prices, continued high credit growth and concerns about producer inflation. The domestic economy Real GDP growth eased slightly, to 4.7%, in the third quarter of 2006, making the current economic upswing the longest on record, approaching seven years of expansion. Activity was underpinned by robust growth in the financial sector, continued strength in wholesale and retail trade, and double-digit growth in construction. The rand has strengthened since October, helped by a weaker US dollar, higher commodity prices, and foreign investor interest. The vehicle sector has continued to post solid performances, due to cheaper credit. Foreign trade and payments According to data from UNCTAD, South Africa was the largest recipient of foreign direct investment in Africa in 2005, mainly because of Barclays Bank!s acquisition of Amalgamated Banks of South Africa (ABSA). The deficit on the current account eased slightly to 6.1% of GDP in the second quarter of this year, owing largely to a lower invisibles deficit offsetting a widening trade deficit. Editors: Pratibha Thaker (editor); David Cowan (consulting editor) Editorial closing date: December 8th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report December 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 4 South Africa Political structure Official name Republic of South Africa Form of state A federal state, consisting of a national government and nine provincial governments Legal system Based on Roman-Dutch law and the 1996 constitution, in force since February 4th 1997 National legislature Bicameral parliament elected every five years, comprising the 400-seat National Assembly and the 90-seat National Council of Provinces Electoral system List system of proportional representation based on universal adult suffrage National elections April 14th 2004; the next election is to be held in 2009 Head of state President, elected by the National Assembly; currently Thabo Mbeki; under the constitution, the president is permitted to serve a maximum of two five-year terms; Mr Mbeki is serving his second term National government African National Congress Main political parties The African National