Treasury called South Africa’s fiscal response to the crisis ‘among the biggest in the world’ (Treasury 2009a, p. 6) but the rapid expansion in spending could not be sustained unless the economy, and revenues, picked up fairly soon. Even so, in order to shrink the budget deficit to 4 per cent of the GDP by 2012, the Treasury planned to increase expenditure by only 1 per cent a year in real terms for the next three years. That contrasted with an average growth in spending of 9 per cent a year in 2006 to 2009 (Treasury 2009a, p. 38).
The risk, in South Africa as around the world, was that the lack of fiscal space after 2010 could limit government’s ability to accelerate the recovery or address any renewed downturn. Internationally, this situation may cause a double-dip recession, with a further decline in the global economy as stimulus packages wind down in the course of 2010.
The fiscal response to the crisis centred on carrying out infrastructure investment plans initiated in the mid-2000s. South Africa benefited from the fact that these programmes were planned before the recession started. Expenditure from 2009 to 2011 was expected to split almost evenly between general government and state-owned enterprise, mostly Eskom and Transnet. Altogether, public investment was expected to total almost R270 billion in 2010, and around R300 billion in each of the next two years (Treasury 2009a, p. 44).
As the following table shows, in the year to the third quarter of 2009, a sharp jump in public investment contrasted with a steep decline in private investment. As a result, total gross fixed capital formation climbed 2 per cent in the nine months to mid-2009, although it then fell 1 per cent in the third quarter of 2009. It peaked at 23.7 per cent of GDP in the first quarter of 2009, before the drop in private investment pushed it back down to 22.5 per cent in the third quarter of that year (SARB 2010, p. S-150).
Table 13: Gross fixed capital formation by type of organisation, 1999 to 2009, in constant 2005 prices, annualised and seasonally adjusted
Source: Data on gross fixed capital formation by type of organisation in South African Reserve Bank. Zipped data files on national accounts for the Quarterly Bulletin No 254, December 2009. Downloaded from www.reservebank.co.za in January 2010.
The impact of the expansionary fiscal policy was reflected in GDP and employment trends by sector. Value added in general government and construction combined climbed by almost 5 per cent in 2009, while the rest of the economy shrank by 3 per cent.
Table 14: Change in value added by sector, 2009
Source: Calculated from data on seasonally adjusted value added by industry in constant (2005) prices in Statistics South Africa. GDP data to fourth quarter 2009. Excel spreadsheet downloaded from www.statssa.gov.za in April 2010.
The employment data also pointed to the impact of the stimulus package, although less unambiguously. As the following chart shows, employment in utilities and social services, which were largely in government hands, declined relatively little between the fourth quarter of 2008 and the third quarter of 2009, and then expanded. Construction saw a steep fall for most of 2009, largely because investment in housing plummeted by 11 per cent (SARB 2010, p. S-120). But the sector grew relatively rapidly in the last quarter of 2009.
In contrast to the large scale fiscal response, the government’s efforts to support companies and individuals affected by the downturn seemed largely ineffective. The government agreed these measures with organised business, labour and community representatives under the auspices of the National Economic, Development and Labour Council (NEDLAC) in February 2009 (NEDLAC 2009). They included:
Introduction of a ‘training layoff’, using sector training funds to support retrenched workers while they obtained a qualification;
Provision of funds through the Industrial Development Corporation (IDC) to companies facing hardship because of the economic downturn;
Strategies targeted at stressed sectors;
Tightening up on illegal imports of consumer goods;
Encouraging local procurement by government departments and companies; and
Growth in the national public employment scheme, the Expanded Public Works Programme (EPWP).
Government estimates indicated that these programmes, taken together, created or saved a total of around 100 000 full-time employment opportunities (Zuma 2009) – that is, about 10 per cent of all the opportunities lost by the third quarter of 2009.
Table 15: Change in employment by sector, third quarter 2008 to third quarter 2009
Source: Calculated from data on employment by main industry in Statistics South Africa. Quarterly Labour Force Survey. Third quarters 2008 and 2009. Databases downloaded from www.statssa.gov.za in December 2009.
The IDC set aside R6 billion for the three years from 2009 to 2011, which was supplemented by R2 billion from the Unemployment Insurance Fund. By November 2009 it had extended around R1.5 billion in loans to thirty companies, largely in mining (Nkwinti 2009). In December, the government reported that the IDC had thirty-three applications in the pipeline, for a total of R2 billion, and that it had saved an estimated 7 700 jobs (Zuma 2009). By this estimate, each job saved had cost the IDC around R130 000.
Ensuring local procurement of inputs by the state could potentially compensate companies for the decline in private demand, but in the event, efforts to implement the government commitment in this area proved halting. Attempts to encourage local procurement of inputs for the infrastructure investment programme were burdened by short lead times on many tenders as well as the strong rand – factors that made it hard for local producers to gear up to compete. Only in December 2009 did the government officially propose that departments set aside points in the tender process for local procurement (Zuma 2009). Even then, as of early 2010 no formal communication had been sent to departments by the Treasury.
Table 16: Estimated employment impact of microeconomic measures in response to the international economic crisis
Notes: (a) The EPWP created some 224 000 short-term employment opportunities. The estimate given here reflects past estimates by the programme of the ratio between full-time employment equivalents (FTE) and employment opportunities in the programme. Source: For employment data, President JG Zuma, ‘Media statement by President JG Zuma following the report back by the leadership group of the framework response to the economic crisis, Presidential Guesthouse, Pretoria, 3 December 2009’. Downloaded from
