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> Home > Newsroom > Economic Analysis of the State of the Nation Address

Economic Analysis of the State of the Nation Address

27 February 2006

1. Introduction

In his opening statements of the state of the nations address, on the 3rd February 2006, the President declared that South Africa has entered its age of Hope. He indicated that according to Grant Thornton International Business survey, Bureau for Economic Research (BER) and First National Bank, the consumer confidence index is high among the ordinary South Africans and that 84% of the business community is optimistic about the future of South Africa. This is very good for the economic prospect of the country; however, it poses a huge challenge to the three spheres of governments to meet these high expectations of the people. This sends a message to all governments to say: DELIVER, DELIVER, and DELIVER….

The address generally covered areas of:

• economic growth and development;
• capacity of government;
• service delivery;
• accelerated and shared growth initiative (ASGI-SA); and
• social development;

Hence the analysis of the state of the nations address summarises key issues raised, priorities of government, constraints in the economy, areas of concerns about the speech, outcomes of the speech and its impact on the economy and the province.

2. Key issues raised

The State of the Nation Address mainly focuses on government’s economic and social achievements since 1994 and future economic prospect as driven by Accelerated and Shared Growth Initiatives for South Africa (ASGI-SA) under the leadership of the Deputy President. The ASGISA consists of all limited set of interventions that intended to serve as a catalyst to shared growth and development of the country.

The following are the key issues that have been raised by President Thabo Mbeki on his 2006 State of the Nation’s address.

• The impressive growth rates of South Africa have been driven by high consumer demand financed through credit because of low interest rate environment.
• The importance of scarce skills, which have a negative impact on both private, and public have been highlighted. As a result of shortages of skills the government will be a launching a Joint Initiative on Priority Skills Acquisition within the few weeks to bring government, business, labour and civil society into search for practical answers to skills crisis.
• The government wants to increase a resource allocation for research and development, innovation, and increase a pool of researchers.
• Land reform was identified as a critical area for the transformation of the society.
• Housing development is being addressed which is going to boost the low and middle-income earners.
• The 2010 World Cup was highlighted as the important source of the development to the economy.
• The government will continue to support NEPAD and Africa Union for the sake of developing Africa.
• Indicated the commitment of our government to support NEPAD and African Union for the sake of developing Africa.

3. Priorities of the government

The State of the Nation addressed many priorities for the economic growth in the country. The President highlighted ASGISA as a key priority to accelerated economic growth and development. ASGISA has identified sectors with growth potential within the micro-economic reform programme as the:

• business process outsourcing;
• tourism, chemicals;
• bio-fuels, metals and metallurgy;
• wood, pulp, and paper;
• agriculture, the creative industries, and
• clothing and textiles.

The government is prioritizing the sectors, which are labour intensive for the creating of jobs to the unskilled and poor people, and it will like to continue to support the empowerment of women and people with the disabilities. The skills and infrastructure development and reduction of unemployment are amongst the key priorities of the government. The public sector investment in infrastructure development remains instrumental for the growth of the economy. The preparation of 2010 World Cup is important especially for infrastructure development.

4. Constraints in the economy

The president has identified infrastructure backlogs, service delivery, skills shortages, import-parity pricing, poverty, underdevelopment, and marginalization of people caught within second economy. Project Consolidate has recognized capacity constraints of municipalities arising from a shortage of properly qualified managers, technical personnel as a challenge for growth for local government. ASGISA identified other constraints such as the cost of doing business, high cost of intermediate inputs and confirmed the need to expand the SMME sector, and paying more attention on BBBEE.

5. Areas of concerns about the speech

The State of Nation address did not make emphasis on HIV/AIDS, which is still a major constraint to the economic growth if not addressed properly. There were concerns that the President did not address currency volatility and inflexible labour market regulations, which are among the constraints to the economic growth as identified by ASGISA.

6. Results and outcomes by the government since 1994

• Trade agreement has been reached with China to protect textile and clothing sector
• In an effort to address critical skills shortages, government completed the task of registering unemployed graduates, with over 60 000 in the database.
• 7 million children now receive child support grant, a total of 10 million of the citizens receive social grants and real social expenditure per person increased by 60% between 1983 and 2003
• Auditing of capacity for a number of departments has been completed and the remaining departments will be completed this year.

7. Commitments by government

The President has highlighted a number of commitments to increase the economic growth to the level of 6%. The state owned enterprises and public sector in collaboration with public private partnership (PPP) would make large investments in sectors like electricity, water, logistic and telecommunication infrastructure. The president highlighted ASGISA as a solution to reduce unemployment. Other partners should also help the ASGISA to solve the constraints to the economic growth.

The public sector will accelerate infrastructure investment in the underdeveloped urban and rural areas through municipal infrastructure grant, EPWP and other infrastructure fund to improve service delivery in second economy. EPWP is important to bridge the gap between two economies and poverty alleviation. The government will introduce the better supervision of infrastructure projects to ensure that capital budgets are spent without rollovers and that labour intensive methods are prioritized.

The government is committing to intervene to increase the number of schools to double Maths and Science graduates, introduction of no school fees in some schools and re-equipping and financing FET colleges. Expansion of health infrastructure, the refurbishment of existing clinics and re-opening of the nursing colleges to improve service delivery within the health and social services sector.

The state of the nation address has emphasized that the machinery of government, especially the local government should discharge its responsibilities effectively and efficiently, honouring the Batho Pele. The detailed assessment to improve the capacity of local government has been undertaken.

The government is committed to support the SMMEs with measures to ensure effectiveness of Apex fund, Mafisa, SEDA, Khula, the Umsobomvu youth fund, and the IDC small business initiative.

8. The impact on the budget

The issues raised by the president highlights key areas that government departments should address in their budgets. The budget in Mpumalanga province would make a significant impact if it could amongst many others address the following issues:

• Investment in infrastructure development (R372bn has been set aside for the next 3 years).
• Support on the SMMEs, because they have a potential to reduce poverty by creating to jobs by narrowing of the gap between the first and second economies.
• Education initiatives such as the no school fees policy, investment in schools infrastructure, etc.
• The constraints as identified by ASGI-SA.
• The focus on the EPWP has got the potential to create jobs for unemployed.
• Social development.

9. The economic impact on the economy and the province

The success of the ASGISA will help the economy to grow by 6%. As the province we need to continuously identify opportunities to contribute to the 6% growth target. The high level of business and consumer confidence will support the economic growth.

The successful planning of 2010 World Cup will have a positive spill over effect in the economy. Mpumalanga province has a key role to play in the preparations to ensure that the hosting of the event is a success in the province. An accelerated effort in this regard will pay dividends. The investment on the infrastructure from both public and private entities will make the country to grow.

The protection and development of the clothing and textile industry will have a positive impact to the economy especially for provinces such as the Western Cape, where this sector has an advantage. The EPWP will help to narrow down the gaps between first and second economies. It will also helps to create jobs for the poor people .The support given to the SMMEs will create more jobs for the unemployed people.

The interventions to the government departments after the auditing will help to address the problems of skills shortages. The intervention in the education sector will have a positive impact on our skills needs. The overall message from the state of the nation address suggest is that if we are committed as government to the communities, the mandates the economy will grow to accelerated levels.

The state of the nations address is commended for its commitment to service delivery, measurable outcomes and accountability in terms of making emphasis on deadlines to speed up serving the needs of the people. The address served as an example for all spheres of government as the president not only referred to challenges and commitments but also highlighted the outcomes and achievements of the government and indicated the future plans, which were measurable as highlighted, by specific indicators and timelines. This indicates the seriousness by government to accountability and commitment as reflected by measurable outcomes with impacts on the economy.