Sun, Oct 29, 2006 - Page 9 News List

South Africa has more money than it can spend

By Gershwin Wanneburg  /  JOHANNESBURG , REUTERS

South Africa has a problem many would envy -- more money than it can spend. In the 12 years since the fall of apartheid, ill-equipped officials have battled to distribute billions of dollars on vital programs from justice to social welfare.

Authorities say they are slowly getting better at dealing with such bottlenecks, but analysts say poor spending patterns still do not bode well for a multi-billion rand state spending plan meant to spur economic growth and create badly needed jobs.

Figures released by the National Treasury on Wednesday show nearly 9 billion rand (US$1.20 billion) in total went unspent in 2005/06 from the national and provincial budgets, up from just over 7 billion rand in 2004-2005.

Officials say that while a sizable chunk of that is because of inefficiency, it also reflects lower than expected debt service costs and cost cuts in some cases, as well as overlaps between provincial and national allocations.

South African Finance Minister Trevor Manuel unveiled the 2006-2007 medium-term budget on the same day and predicted South Africa's first ever budget surplus in 2007-2008 -- a coup for the steward of any economy, and especially one of an emerging market.

But Manuel immediately had to field questions on how he would defend this to critics who say conservative fiscal policy is untenable given widespread unemployment and poverty. He conceded underspending had hamstrung the executive's work.

Economists make a similar point.

"We can allocate all the resources we want to investment spending and infrastructure development [but] if there's no follow-through in spending, we won't get the economy moving in the way we want," said Colen Garrow, an economist at investment bank Brait.

South Africa's economy has been firing along over the past couple of years and last year chalked up growth of 4.9 percent -- the fastest pace of expansion in 24 years. But some economists say this demand-driven boom may fizzle out with consumers facing rising borrowing costs after having enjoyed the lowest level of interest rates in over two decades. They urge the government to take steps to fix structural weaknesses in the economy.


South African President Thabo Mbeki's government has committed 700 billion rand over seven years to upgrade rickety power and transport networks as it tries to reach a 6 percent growth rate in order to halve unemployment and cut poverty by 2014.

Economists say these projects may support the economy for now, but ultimately will not remove a core hurdle to future growth -- a dire shortage of key skilled professionals like engineers. That deficit is even more pressing as officials launch ambitious plans to improve public transport and build stadiums to accommodate some 500,000 tourists expected to stream into the country when it hosts the Soccer World Cup in 2010.

Analysts blame South Africa's small pool of skilled workers on crime and affirmative action -- the former repels foreigners who may help plug the skills gap while the latter has sparked an exodus of educated whites, they say.

Treasury officials say measures like easing immigration requirements to lure foreign skills should help while big projects may eventually yield a larger professional class as companies invest in training programs.

"The World Cup is not going to be the golden key to open the door ... it will not build dams and roads in rural areas," said Sampie Terreblanche, emeritus professor of economics at the University of Stellenbosch.

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