World Report

Now in the second year of its second decade of freedom, South Africa is committed to long-term policies to deal with the legacy of its divided past

President Thabo Mbeki

s the people of South Africa celebrated the 50th anniversary of their Freedom Charter recently, President Thabo Mbeki emphasised that the basic and fundamental vision behind it was of a South Africa that belongs to all its people, united in their diversity. “The challenge for all of us in the second decade of freedom is to make certain that we build this kind of South Africa,” he said.

The ruling African National Congress (ANC) has made extraordinary progress in the country since the apartheid system came to an end in 1994. Today’s South Africa boasts an open, competitive economy, a sustainable deficit, a broad-based tax structure and transparent social and economic policies.

However, the task of fully realising the dream behind the Freedom Charter was never going to be achieved overnight and dealing with the legacy of South Africa’s colonial and apartheid past requires unwavering long-term commitment. Mr Mbeki has called for the country’s second decade as a democratic nation to show “new and decisive advances” year by year.

The economic environment is positive. The prospects are of rising growth, low inflation, a low budget deficit, strong capital inflows and improving employment trends. Business and consumer confidence in the economy is high.

GDP growth this year is expected to rise to 4.3 percent, from 3.7 percent in 2004 – financial services, car manufacturing and tourism are among the strongest sectors. Inflation, which declined to 4.3 percent last year, is expected to remain well inside the target range of 3 to 6 percent. Thanks largely to the efforts of the South African Revenue Service (SARS), the budget deficit is down to around 1.5 percent of GDP.

Foreign capital totalling some R60 billion (£4 billion) flowed into the country last year, and the trend is expected to continue. A notable development is the return to South Africa of Barclays, the UK’s third biggest bank, which in May announced a $5.5 billion (£3 billion) deal for control of the country’s largest retail lender, Absa.

Barclays mega-deal is a vote of confidence that could encourage other foreign investors

The deal is the biggest direct foreign investment in the country and signals a major vote of confidence in the economy. Hopes are high that other foreign investors will follow Barclays’ example.

Mr Mbeki says the country’s positive balance sheet means the government is able to be bolder in its approach to meeting challenges such as providing more jobs, relief from the poverty trap, housing, better education and reliable health services, and broadening participation in economic activity.

Car manufacturing is one of the main drivers of growth in South Africa’s economy.

The capital investment programme is being expanded, with the focus on housing, rural and urban infrastructure, public transport and logistics, and water and electricity. The civil engineering industry will receive a huge boost as power plants are rehabilitated and ports upgraded in a multi-billion rand spending drive on infrastructure, partly funded through increased use of public-private partnerships (PPPs). Capital spending through PPPs is forecast to rise to more than R5 billion (£415 million) in 2007/8, compared with R2 billion (£165 million) in 2003.

Helping the uneducated and unskilled to find employment is a priority. The president has called on government, business and labour to work together to ensure that people get the necessary education and skills to play their role in the country’s development and reconstruction strategy.

A labour-intensive Expanded Public Works Programme is under way, providing work experience for the unemployed (unemployment currently stands at 30.5 percent, see page 5) while creating new infrastructure and services. Over the next five years, almost R22 billion (£1.8 billion) is to be put into a new National Skills Development Strategy.

At a more fundamental level, progress is being made with black economic empowerment. With the framework set out in the Black Economic Empowerment Act, passed in January last year, the government is hoping to accelerate a process that is regarded as vital to economic growth and development.