(African Budgetary Series) South Africa: Hoping for an Economic Rebound in 2017

South Africa's Budget 2017

South Africa alone accounts for 20 percent of Africa’s GDP, thus, its economic performance carries considerable weight on the continent.

Economically, 2016 was a year to be forgotten with negative sectoral performance leading to weak economic growth. Key industries such as agriculture, mining and electricity all experienced substantial challenges which held back economic expansion.

The agriculture sector was still recovering from droughts, which have now eased, while mining reform disputes and weak commodity prices saw the loss of 80,000 mining related jobs. South Africa’s electricity deficit caused severe shortages throughout 2016 reducing productivity across the spectrum.

The hand-off into 2017 has not been smooth either as the unemployment rate reach nearly 28 percent or 6.2 million people in the first quarter; the highest unemployment figure since 2003. Over the past decade, women in South Africa have been slightly decreasing their share of labor force participation as a share of males. Currently, for every 100 males in the work force their are 65 females, a decade ago there were 67. Females, particularly black women, are the most vulnerable of joblessness in South Africa.

South Africa's poor economic performance 2016

Source: Leanwords and South African Treasury

The South African economy is projected to improve from its disappointing 0.3 percent growth (2016) to 1.3 percent in 2017 and 2 percent in 2018. The African Development Bank was less optimistic in its projections; expecting a more subdued 0.8 percent growth in 2017 and 1.6 percent in 2018.

Source: Leanwords, African Development Bank, and South African Treasury

To spur positive growth, the government has embarked on a 1.6 Trillion Rand budget in 2017. Spending areas that will be given priority are education, health, infrastructure and service enhancements in rural areas.

Educational improvement will be essential as the government acknowledged that half of all children in grade 5 cannot read adequately in any language.

The growth debt servicing cost is of major concern as it was the 4th highest expenditure on the budget at 162.4 Billion Rand (comprising 10 percent of the total budget). Debt servicing expenditures were higher than spending on police, employment and labor affairs and economic infrastructure. Debt servicing is expected to grow 10.5 percent until 2020-2021.

South Africa's 2017 Budget on Education

Source: Leanwords, and South African Treasury

The current budget anticipates 1.4 Trillion Rand in revenues resulting in a budgetary shortfall of 3.1 percent of GDP.

Combatting poor revenue collection performance has been a priority of the government. The budget aims to raise an additional 28 Billion Rand through increase fuel taxes (39 cents per litre increase) and a tax increase on high earners.

No VAT increase was implemented, however, a sugar tax will likely come into effect later this year or early 2018 pending Parliamentary approval.

South Africa's Income Tax and VAT

Source: Leanwords, South African Treasury

Another economic highlight in 2016 was the downgrade of RSA’s sovereign debt to non-investment grade, otherwise known as junk status, by credit agency, S&P.

They highlighted concerns of rising net debt levels and political instability as major reasons for the downgrade. In response, the government has committed to improving deficit performance over the medium term.

The deficit is expected to fall from its current rate of -3.1 of GDP to -2.6 percent by 2019/20.

South Africa Budget 2017

Source: Leanwords, and South African Treasury

South Africa will have to face its rising net debt, which is approaching 50 percent of GDP over the medium term. The majority of loans are from domestic sources reducing foreign exchange risk and external credit dependency.

The African Budgetary Series (ABS) offers regular, analytical insight into African economics. We provide a refreshing and objective look into issues that are driving African economies.

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