Chairperson, Ministers, hon members, colleagues, South Africa has escaped the wrath of the financial crisis, but it is set to suffer some setback in the real economy as a result. This is precisely so because we are not trading with ourselves but with the rest of the world. It is thus inconceivable that we can remain unscathed. To put on a brave face and tell the public that the damage to the real economy will be minimal is misleading. The cracks are beginning to show.
The domestic economic outlook since the crisis doesn't look rosy. The 2009 pre-budget analysis indicated that prior to the economic downturn expectations in GDP growth were expected to average around 4% per annum leading up to 2010. The 2008 Medium-Term Budget Policy Statement revised these growth forecasts down to 3% for 2009, 4% for 2010 and 4% for 2011, while other market analysts were less optimistic, expecting GDP growth to be as low as 0,7%.
The 2009 Budget Review indicates a 1,2% projection for growth this year, growing to 4% by 2011 against the backdrop of lower interest rates and declining debt levels. Some independent analysts have indicated that we may face a technical recession if the stimulus of developed economies is not as successful as anticipated.
The Finance Committee was informed during budget hearings that the 1,2% projected GDP growth was dependent on the Chinese construction industry. Should the industry slow down, our GDP would slump to below 1%. We still have to see how close to the truth that is.
The IMF expected world growth to be 3,4% in 2008 and have revised it three times so far to 0,5% growth. The US, the Eurozone and export-orientated economies, such as China and India have shown sharp declines. This is likely to lead to low export demand while commodity prices have declined sharply. This will have a severe impact on the mining and manufacturing sectors and is likely to lead to jobs loses domestically.
The deferred implementation of the mineral and petroleum royalty regime that will see the mining industry saving R1,8 billion in royalties is meant to minimise retrenchments in the industry. This is a welcomed move as it shows government's commitment to bringing about a better life for all.
The National Union of Mineworkers and Federation of Unions of South Africa have also endorsed this goodwill gesture from government. It is, however, not clear if such an approach is likely to stimulate the sector as the taxes were not in place before. Such a tax was likely to put political pressure on the sector to retain jobs but is unlikely to really stimulate production.
As a country's potential for economic growth is greatly influenced by its endowments of physical resources, namely, land, minerals and other raw materials and human resources, which is the number of people and most important, their level of skills, the R1,2 billion allocation for rural infrastructure and the R20,3 billion for the land reform programme indicates government's intention to intervene in the restructuring of the economy in empowering the rural poor and bringing them into the mainstream of the economy.
The R787 billion infrastructure spending offers a valuable opportunity to black entrepreneurs, even during these tough economic times. As we are pursuing a developmental state route, government has to decisively intervene to ensure that it is not only the elite and big industries that benefit. Benefits that should be expected from this investment include employment creation and poverty reduction.
Public sector borrowing is expected to finance the revenue short-fall in the light of the global downturn. As part of a stimulus approach, corporate taxes have remained the same while there has been a postponement of the R1,8 billion revenue collections from mining royalties, as I said before.
Over the past year corporate tax cuts have been implemented in favour of attracting foreign investment. More consideration needs to be given to attaching conditionality to tax cuts because tax cuts seem to have not resulted in reinvestment or increased savings by the corporate sector. Instead we have seen companies and directors of companies increasing their bonuses to the detriment of the workers.
Further, individuals still carry a large proportion of the tax burden. It would be prudent in the future to have further engagement with the private sector about the reinvestment of tax cuts in developing our economy.
Countries that are structurally similar to South Africa continue to attract investment while having high income tax rates. In the Pre-Budget Review we have indicated that South Africa is ranked lowest amongst the countries with the lowest tax rates, like the US at 39%, Canada, Tunisia and Brazil at 34%, India at 33%, and Tanzania at 30%.
The sound signal mechanisms and stability of institutions in these countries demonstrate that the policy and institutional perceptions of stability are as important in investment considerations. This suggests that lowering of corporate taxes is not the only mechanism for attracting investment.
South Africa is now ranked second in the world in terms of transparency, openness and oversight over the Budget, placing South African as a good destination for rational business expectations. We should start to rely more on this for attracting foreign investment.
The role of the Development Finance Institutes cannot be overemphasised. Under these bad economic conditions, it is imperative that they review their funding strategies and/or policies in order to minimise the impact of the crisis. I have previously pointed out from this podium that there is statistical evidence that they are not doing what they are supposed to do, and asked if the people that are leading these institutions have the same vision as the mandate of the political leadership in government.
Chairperson, as we brace ourselves for an increase in the fuel levy we should be looking forward to the more active involvement of the Competition Commission in the fight to alleviate poverty by making sure that the criminal behaviour of the likes of Sasol, Tiger Brands and other institutions is stopped at once.
Monopolies and uncompetitive behaviours are only adding to the woes of the population, particularly the poor. We would like to see price-fixing and collusion by mills and bakeries stopped so that the extra R50 added to the old age grant can put more food on the table. Together, we can do more. Thank you. [Applause.]