Africa ResearchBulletin Economic,

Financial andTechnical Series

Volume 49 Number 2 February 16th–March 15th 2012

SOUTH AFRICABudget 2012

(Rands 100 = £0.84 ⁄ $1.32 ⁄ €1.0)

An investment-led growth pathfeaturing massive public sectorinfrastructure spending will increaseself-reliant development.

Growth will slow to just 2.7% in 2012,a level the government hopes to boostwith a massive building and investmentdrive, Finance Minister Pravin Gordhansaid on February 22nd when he pre-sented the 2012 budget to parliament.

The outlook puts Africa’s biggest econ-omy well below regional forecasts (5.5%predicted for sub-Saharan Africa) andfar below the 7% that officials say isneeded to reduce unemployment andpoverty in one of the world’s mostunequal societies, reported AFP from CapeTown (22 ⁄ 2).

The government has identified majorcapital investments and listed 43 pro-jects worth Rand (R) 3.2 trn ($414bn,€313bn), which the minister said were‘‘ambitious but not unmanageable.’’About one quarter of the projects arealready financed. The government is stillconsidering the feasibility of the rest ofthe schemes in energy, housing, trans-port, education and water that would becompleted by 2020.

‘‘We are beginning an exciting phase inthe South African economy ... We aretaking an investment-led path,’’ Gord-han told reporters before presenting hisbudget. Total government revenue for2012 ⁄ 13 is estimated at R905bn, or27.4% of GDP while the R1.06trn ofspending passes the trillion mark for thefirst time.

Growth is expected to improve to 3.6%in 2013, before rising to 4.2% in 2014,but Gordhan warned that more neededto be done in a country where one inthree of the workforce has no job. ‘‘Wehave to implement a strategy for fasterand more inclusive economic growth,’’he told lawmakers in the nationally tele-vised speech.

‘‘We still have doubts about whetherEurope has the will and the capacity toresolve its challenges in a way in whichit creates less uncertainty around theworld,’’ Gordhan told reporters. ‘‘It’s inthat context that government is sayingwe can’t wait for Europe’s recovery.’’

The R845bn plans already green-lightedfor the next three years include 300bn inenergy and 262bn in transport and logis-tics. The government is also wooing pri-vate investors, having taken pains tosoothe rattled investors by dismissingcalls to nationalise mines and land riches.

With one of the world’s biggest gapsbetween rich and poor, social spendingmakes up 57% of total expendituresbut jobs and economic growth are thekey to better incomes and less poverty,the minister said. He told journalistsat the pre-budget press conference:‘‘We have a pipeline of projects andthe discipline required to implementthem effectively. We have the resourcesto carry them forward without sacrific-ing fiscal sustainability,’’ the FinancialMail, Johannesburg reported (28 ⁄ 2).

Rampant joblessness dipped marginallyin 2011 to 23.9% but rises to around

BOTSWANAMOZAMBIQUE

SWAZILAND

LESOTHO

NAMIBIA

Gaborone

KgalagadiTransfrontier

ParkJohannesburg

Soweto

Upington

Springbok BloemfonteinMaseru

Umtata

Durban

Pretoria

MaputoMbabane

Nelspruit

KrugerNational

Park

Garden RouteMossel Bay Port Elizabeth

East London

Port St Johns

The Shipwreck Coast

Cape TownCape of

Good Hope Cape Agulhas

Grahamstown

George Jeffrey’s Bay

Lusikisiki

Ladysmith

BergvilleDrakensbergOrange

River

GreaterSt LuciaWetland Park

I N D I A NO C E A N

250 km150 miles

00

Ip

SOUTH AFRICA

This issue pp. 19435–470

Drought and Famine

Oxfam Appeal 19441

Country Reports 19442

Libya

Fragile Situation 19443

Budget 2012 19448

Zambia

Cleaner Government? 19446

Egypt

Economic Change? 19450

Kenya

Lamu Port Project 19457

Contents

Continental Developments 19437

Policy and Practice 19441

Transport andCommunications 19456

Commodities 19460

Industries 19466

Rates 19469

Index 19470

Published monthly since 1964 http://www.wileyonline.com/journal/arbe

� Blackwell Publishing Ltd. 2012. ISSN 0001 9852

33% when workers who have given uphope of finding a job are included.

The expected budget deficit is 4.6% ofGDP, down from 4.8% in 2011 and setto fall to 3% in 2014. The currentaccount deficit is forecast to widenfrom 3.3% in 2011 to 4.4% of GDP in2014. South Africa’s total debt isexpected to rise to 36% of GDP in2012 (R.1.35trn, $175.5bn) and to reach38.5% of GDP by 2014 ⁄ 15 (R 1.54trn).

Deficit Management Praised

The main thrust of the 2012 nationalbudget is not about reining in debt, asit was in the mini budget, but about gal-vanising society behind a national effortto place South Africa on an investment-led growth path, said The Financial Mail.

‘‘This is a shift that we haven’t seen inthe past 10 years,’’ said Pan-AfricanCapital Holdings chief economist Iraj A-bedian, heralding the budget for mark-ing a move from an era of redistributionto one that puts the focus on growth.

It helps that Gordhan (mindful of thescrutiny of credit rating agencies, two ofwhich have placed South Africa on a neg-ative ratings watch), is able to announcea welcome drop in the expected budgetdeficit thanks to a fortuitous R5.7bn rev-enue overrun combined with governmentunder-spending of R6.7bn.

Opposition parties and analysts havelargely given the budget the thumbs up,especially on plans to manage the defi-cit, though certain issues – includingfreeway tolling plans, business taxes,infrastructure spending and youth andpublic service wages – were still of con-cern, the South Africa Press Agency,SAPA, reported (23 ⁄ 2).

Cosatu expressed the most vocal dissat-isfaction, with general secretaryZwelinzima Vavi vowing to press aheadwith protests against e-tolling plans inGauteng despite lower tolling tariffs (30cents a km as opposed to 66 cents orig-inally planned).

The National Education, Health andAllied Workers’ Union (Nehawu), alsoslammed the plans. ‘‘The proposed‘appropriation of R5.8bn does notaddress the workers demands as far asthe Gauteng freeway tolling is con-cerned,’’ Nehawu general secretary Fik-ile Majola said. Nehawu also said itwould ‘‘vehemently oppose’’ attemptsby the treasury to bring about ‘‘wagemoderation’’ in the public service.

Most of the improvement in the budgetdeficit will have to come from such amoderation. Over the past five years,the public sector wage bill has risenfrom R156bn to R314bn and nowconstitutes 40% of consolidated non-interest expenditure.

The 2012 budget allows for only a5% cost of living adjustment for allgovernment employees, exclusive ofpay progression. As a result, theaverage real growth of spending onwages will decline from 9.4% between2007 ⁄ 2008 and 2010 ⁄ 2011 to a mere1% over the next three fiscal years,said The Financial Mail (28 ⁄ 2).

Asked how government plans toachieve this overnight suppression inwage growth, given the power of public-sector unions to bring service deliveryto a halt, Gordhan said South Africawas ‘‘working towards a social com-pact’’ which required stakeholdergroupings to stop the finger-pointing,co-operate and make sacrifices for thegreater good.

Analysts in general expressed cautiousapproval of Gordhan’s mix of increasedspending, marginal income tax cuts anda healthy outlook for shrinking thegovernment’s budget deficit.

‘‘I was impressed the minister managedto balance an increase in spending withsome tax cuts and still forecast a defi-cit,’’ Gina Schoeman, senior economistat Absa Capital told the Mail & Guardian(23 ⁄ 2).

Business Unity South Africa (Busa)praised Gordhan for delivering a bud-

get that is ‘‘credible, broadly balancedand confidence building’’.

‘‘It rightly emphasised the need for acollaborative effort from all South Afri-cans to work together to realise a rap-idly growing, vibrant and inclusive job-rich economy against the backdrop of aweak global economic outlook,’’ No-maxabiso Majokweni, Busa’s chiefexecutive, said.

This was echoed by opposition UnitedDemocratic Movement (UDM), whofelt Gordhan did the best he could‘‘under the circumstances,’’ UDM dep-uty secretary general NqabayomziKwankwa said.

The DA’s (Democratic Alliance)spokesperson on finance, Tim Harris,bemoaned the fact Gordhan failed toelaborate on the proposed implementa-tion of the youth wage subsidy butcommended Gordhan for bringing thebudget deficit ‘‘under control’’.

Of the wide-ranging measures to combatcorruption and improve delivery capac-ity, IFP leader Mangosuthu Buthelezisaid he hoped it was not ‘‘lip service’’.

Neren Rau, the chief executive of theSouth African Chamber of Commerceand Industry (Sacci), expressed concernover increases in business taxes, comingat ‘‘a time when liquidity is fairly tight.’’

South Africa – Consolidated Fiscal Framework 2011 ⁄ 12–2014 ⁄ 15

2011 ⁄ 12 2012 ⁄ 12 2013 ⁄ 14 2014 ⁄ 15

Revisedestimate Medium term estimates

Revenue (R millions) 830.2 940.8 1005.9 1118.2Percentage of GDP 27.7% 27.4% 27.8% 28%Expenditure (R millions) 972.5 1,058.3 1,149.1 1,239.7Percentage of GDP 32.5% 32.1% 31.7% 31%Budget Balance )142.3 )153.5 )143.3 )121.5Percentage of GDP )4.8% )4.6% )4% )3%GDP 2,885.5 3,301.4 3,622.2 3,997.0

Government spending by functionGeneral Public Services 52,068 51,991 55,413 58,631Defence 38,367 41,617 44,348 46,992Public Order and Safety 90,554 97,991 104,530 110,575Economic Infrastructure 81,494 83,595 90,224 98,298Economic Services& Environmental Protection

53,077 61,393 66,439 70,575

Local government, Housing& Community Amenities

107,482 120,051 129,576 139,322

Health 113,796 121,906 130,536 139352Recreation & Culture 9,043 8,571 9,543 9,940Education 195,483 207,281 223,100 236,067Social Protection 144,693 157,930 171,394 184,792Science & Technology 9,856 10,797 11,333 12,116Allocated Expenditure 895,903 963,123 1036,435 1106,660Debt Service cost 76,645 89,388 100,806 109,039Contingency Reserve – 5,780 11,854 24,000Unallocated – 30 30 –Consolidated Expenditure 972,547 1,058,321 1,149,125 1239,699

(South African Treasury, http://www.oldmutual.co.za)

19436 – Africa Research Bulletin

A B C

� Blackwell Publishing Ltd. 2012.

However, the budget ‘‘shows SouthAfrica can expand its economy unlikemany developed countries facing eco-nomic crises, Sacci said, welcoming the‘‘pragmatic approach to management ofpublic finances’’, Fin24 reported (22 ⁄ 2).

Trade union Solidarity said South Afri-ca’s middle classes were the biggest los-

ers.’’A sizeable increase in the fuel levy,ostensible relief from personal incometax and the implementation of the con-troversial tolling system on Gautenghighways make the... middle class thebiggest losers,’’ Solidarity researcherPiet le Roux said.

Union federation Fedusa, meanwhilesaid it was ‘‘cautiously optimistic but‘‘the excessively high unemploymentrate of 23.9% remains a great con-cern,’’ general-secretary Dennis Georgesaid in a statement. (Sources as referencedin text)

COOPERATION ANDTRADE

DR CONGOKabila Targets the Land

A law intended to revitalise agricul-ture risks scaring off needed foreigninvestment.

The new law on ‘Fundamental Princi-ples of Agriculture’ removes the rightof foreigners to own farmland in DRCongo and seems certain to discourageexternal investment in the alreadyneglected sector. The law specifies thattitles to land may be held only by aperson of Congolese nationality or by alegal entity of which the state and ⁄orCongolese hold a majority of shares.The upshot is that foreign landownersmust now reduce their shares to a max-imum of 49% by the end of 2012,reports Africa Confidential, London(2 ⁄ 3). President Kabila’s Parti du Peu-ple pour la Reconstruction et la Democ-ratie (PPRD) government claims thelaw will encourage national food self-sufficiency and promote rural economicdevelopment.

The law’s supporters say the Presidentis trying to restrict the over-exploitationof land by foreigners, although itsopponents doubt whether locals wouldbe any less likely to exhaust the landthan foreigners. Opponents believe thelaw is discriminatory and should berejected. If the government really wereaiming for food self-sufficiency andrural development, the argument goes,it would issue tariffs and taxes to deterimports and favour Congolese domesticproduction, regardless of the national-ity of business owners.

The Congolese Federation of Enter-prises has written a letter to the govern-ment calling the law, which is set to gointo effect in June, ‘‘discriminatory’’and a ‘‘catastrophe’’ and appealing forit to be amended, Reuters reports (5 ⁄ 3).

The Confederation nationale des produc-teurs agricoles (Conapac), which repre-sents small farmers, says the law is neitherunconstitutional nor inimical to foreigninvestment. It disagrees, however, withArticles 82 and 83, under which foreignfarmers and foodstuff importers haveonly a year to divest. Conapac thinks theyshould be allowed gradually to transferownership to Congolese. It favours thelaw because it could help protect againstthe massive ‘land grabs’ that have beengoing on in other countries, where enor-mous acreage is leased to foreigners withinadequate safeguards.

Several of Congo’s existing agriculturalinvestors, including a unit of Canada’sFeronia, say the law has created uncer-tainty over their projects and wouldprobably stifle new investment. A Wes-tern diplomat, who also asked not tobe named, said three potential investorshad abandoned investment plans sincethe law was passed.

Hardest hit by the new provisions, saysAfrica Confidential, are the remainingBelgian interests in the economy. GeorgeForrest, in addition to his concerns inmining, cement, civil engineering andbanking, owns – with his friend AldoVastapane – 44,000 head of cattle inKatanga, where a subsidiary of the For-rest group, Agrifood, also grows rice.William Damseaux, the country’s mainimporter and exporter of food, is one ofcentral Africa’s largest cattle farmers,with 13,000 head on six farms owned bythe Societe des elevages du Bandunduoccidental (SEBO), a subsidiary of theBelgo-Congolese Damseaux family’s So-ciete d’organisation, de participation et demanagement (Orgaman) empire. The Lip-pens family, through its Finasucre sub-sidiary, owns 60% of the biggest sugarrefinery, the Sucrerie de Kwilu Ngongo,with the rest owned by the state. HorstGebbers, a German, and Etienne Ernyfrom France own Pharmakina, a pharma-ceutical company whose anti-malariadrugs derive from 400 hectares plantedwith quinine (cinchona) trees.

Belgian lawyer Michel Lion claims thatthe new law contravenes the Organisa-

tion pour l’harmonisation en Afrique dudroit des affaires (OHADA), a 16-nationFrancophone group to harmonise busi-ness law which DR Congo is due to joinin a few weeks. Some in Kinshasa sus-pect that Kabila really wants to helpsome of his friends to own agriculturalland. (Sources as referenced in text)

NIGER – NIGERIATraders Badly Hit

Terrorism forces the authorities toclose the border, with tragicconsequences for one community.

For generations, Diffa, the arid south-eastern corner of Niger, has benefitedfrom being closer to Nigeria than tocommercial centres in Niger; staplegrains, fuel, clothing and other items atattractive prices have made their wayacross the border.

Diffa’s main outputs – livestock, dairyproduce and red peppers – have alsofound a ready market in Nigeria. Com-mon languages and family ties havestrengthened links to such an extentthat the Nigerian naira is Diffa’s maincurrency.

But Nigeria’s latest export, Boko Ha-ram militants, is less welcome: It hasforced the authorities to close the bor-der, with tragic consequences for Diffa,just as it is trying to deal with theworst drought in recent years.

The price of staple grains like millethas doubled, while livestock prices haveplummeted at a time when the region’svillages and pastoral camps are strug-gling with drought-related food insecu-rity.

‘‘We realise the negative impact the bor-der closure has had, but we have to putout the fires in our house when our neigh-bour is trying to put out the fire in itshouse,’’ said Tinni Djibo, assistant secre-tary-general of Diffa. He said that when-ever members of Boko Haram, whosereported base (Maiduguri), is only about130km south of Diffa, have felt the heat,they have rushed up toNiger.

The Tobou community, one of the majorpastoral groups in Niger, are now unableto sell their camels at N’guel Kolo, one ofthe biggest livestock markets in theregion, as buyers from Nigeria failed to

Continental Developments

February 16th–March 15th 2012 Africa Research Bulletin – 19437

A B C

� Blackwell Publishing Ltd. 2012.