S.A economy in crisis

The South African economy is 'in crisis' says the
country's finance minister Pravin Gordhan.
The comments came ahead of his Budget speech, in
which he cut the country's growth forecast for 2016
to 0.9%, down from 1.7%.
He conceded the economy was struggling with
shrinking growth, 25% unemployment, and
widespread poverty.
The South African currency, the rand, which has
halved over the past five years, fell after the speech.
It dropped 2.25% to make one rand worth around
$0.0639.
In a briefing ahead of the Budget, Mr Gordhan said:
"There is no doubt about the fact that we are in
crisis."
The measures announced in Parliament were aimed
at stopping the country falling into recession and to
appease the rating agencies who have threatened to
downgrade South Africa to junk status, which
would raise borrowing costs for the country.
Mr Gordhan unveiled government spending cuts, a
civil service job freeze and some moderate tax rises.
These tax increases affect property sales, fuel, sugary
drinks, alcohol, tobacco and and capital gains, as
well as environmental levies, which are expected to
bring in an extra 18bn rand ($1.18bn; £840m).
He had been expected to announce plans on
privatising state assets - he fell short of that but
said the government was looking at the possibility
of merging the loss-making national carrier, South
African Airways, with the state-owned SA Express
airline "with a view to engaging with a potential
minority equity partner".
Privatisation has long been resisted by sections of
the ruling African National Congress.
Mr Gordhan was blunt on his outlook for the
country.
"We cannot spend money we do not have. We
cannot borrow beyond our ability to repay. Until we
ignite growth and generate more revenue we have to
be tough on ourselves."
Maike Currie, investment director at Fidelity
International, said she was unsure if the measures
announced would stop the rating agencies cutting
their outlook for the country, as they have warned:
"There was no increase in VAT, which has remained
unchanged at 14% for two decades now, or income
tax hike as the finance minister looked to moderate
the impact of tax increases on struggling South
African households amid a testing economic
backdrop.
"Whether this will be enough to appease rating
agencies and businesses, however remains to be
seen".
She added that it was interesting that Mr Gordhan
had focused on cutting down government spending
without enforcing austerity measures on everyday
South Africans, such as raising income tax.
Analysis: Lerato Mbele, presenter, Africa Business
Report:
In his Budget speech, South Africa's finance
minister Pravin Gordhan was cautiously optimistic
and realistic about the challenges facing the
country.
He spoke about the need to tackle wasteful
expenditure and was candid about corruption.
The most blatant example of misuse of public funds
is the Nkandla scandal where officials used
taxpayers money to renovate the president's private
country home.
His strategy seems to be that of spending less in
order to save more.
The minister said that his focus will be to reduce
the government deficit to 3.2% this year, and over
the next three years.
The rand weakened after he had finished speaking
which suggests the markets are not convinced that
the minister has a recovery plan that will lift
growth and convince the ratings agencies before they
take a decision around May or June.
Concern
The ruling ANC party faces municipal elections later
this year and much was riding on this Budget to
turn the economic situation around. Although the
country is rich in mineral resources it has been hit
hard by the fall in global commodity prices. South
Africa's farmers have also been hit by the worst
drought in more than a century.
Last December, President Jacob Zuma shocked the
nation and the business community by suddenly
replacing the well-respected finance minister
Nhlanhla Nene with an ally and backbencher David
Van Rooyen.
The markets took a dim view, with foreign investors
withdrawing money and there were complaints
within his own ruling African National Congress
party.
Four days later President Zuma did a U turn and
re-appointed Mr Gordhan who had served as finance
minister for five years to 2014.