Simplifying Budget 2014: What foreigners will read from Pravin’s speech

South African Finance Minister Gordhan delivers his 2013 Budget speech at Parliament in Cape TownIt’s always important to pay attention to the way people elsewhere in the world will regard South Africa’s National Budget. As this Reuters piece is likely to be widely republished, it provides a useful insight into what foreigners will absorb. As always, Reuters is clear and balanced and its headline: “SA Government cuts Budget deficits despite election pressure”  speaks volumes. The news agency also reports that the immediate reaction from the investment markets was muted with both the Rand and bond rates little changed. As a local, I’m a lot more thankful than foreign investors seem to be. Not sure how many developing country Governments would have so steadfastly resisted temptation, in an election year.  And refuse to throw in a few voter sweeteners.   – AH

By Stella Mapenzauswa and Xola Potelwa

CAPE TOWN (Reuters) – South Africa cut this year’s growth forecast to 2.7 percent, saying deep challenges persisted after a 2009 recession and warning that delays to new infrastructure, especially in the power sector, posed risks to the continent’s largest economy.

Presenting a 1.3 trillion rand budget on Wednesday ahead of May 7 elections, Finance Minister Pravin Gordhan trimmed the deficit forecast to 4.0 percent of GDP for the 2014/15 year, lower than market expectations and slightly down from 4.1 percent seen in October.

Despite the imminent polls and voter discontent at 25 percent unemployment and shoddy public services, he vowed to contain spending – a pledge likely to please ratings agencies – while maintaining support for South Africa’s poorest.

The rand weakened marginally to 10.76 against the dollar, while government bonds eased, with the yield on the benchmark 2015 issue rising 4 basis points to 7.09 percent shortly after the numbers were released.

Revenue collection should be higher as export-earning firms benefitted from a weaker rand, he said. In addition, above-inflation wage increases should result in sustained personal income tax flows, while strong imports would boost customs revenue.

Gordhan said the African National Congress (ANC), which has run South Africa since the end of apartheid 20 years ago, would press on with plans to create six million new job opportunities by 2030 as growth hopefully returned to pre-crisis levels.

“We can’t say that we bounced back as many others have,” Gordhan told a news conference. “But we haven’t just become rabbits in the headlights.”

In its 2014 budget, the Treasury cut its growth forecast for this year from the 3 percent seen last October. It predicted a modest quickening to 3.5 percent by 2016.

This is a far cry from average growth of 5 percent recorded in the five years prior to the recession, and not enough to slash unemployment, one of the government’s main challenges ahead of the polls.

President Jacob Zuma’s administration has faced a wave of violent protests in mainly black townships where millions of South Africans still languish in poverty two decades after the end of white-minority rule.

Tens of thousands of miners have also gone on strike at the world’s top three platinum producers to press for higher wages.

“Government recognises that service-delivery shortcomings and social marginalisation are widespread and have led to heightened tensions,” the Treasury said.

In his speech to parliament, Gordhan also lashed out at what he called a negative narrative from some developed countries that placed blame for the current market turmoil on emerging nations.

Developing markets, which offer higher yields but more risk for investors, have sold off sharply since last year as the United States has started to wind up monetary stimulus that has pumped billions of dollars into the global system.

“These are voices from precisely those places where huge regulatory failures led to the financial earthquake we have experienced,” Gordhan said.

“Geo-political gamesmanship is the order of the day. Collaboration in addressing global challenges is deferred and global statesmanship is in retreat,” he said.