February 15, 2006

Economic growth above forecast

South Africa’s economy may be shown to have grown by as much as 6 per cent in 2005 after full accounting is completed at the end of 2006, the country’s finance minister predicted. Trevor Manuel made the announcement as he outlined a draft budget for the coming year providing for some $3bn in tax relief and a further easing of stringent foreign exchange controls introduced during the apartheid era.

Sustained economic growth of 6 per cent is a central policy goal of President Thabo Mbeki’s government, which has promised to halve unemployment and poverty over the next decade.
The government’s Accelerated and Shared Growth Initiative aims to reduce barriers hindering business and promote investment in specific sectors, including tourism and business process outsourcing. South African businesses have been clamouring for a reduction of the tax and regulatory burdens they claim are stifling new investment. However, the government’s draft budget contained few new tax breaks for business. Of the R19.1bn in tax cuts, about two-thirds will go to individuals, mostly lower earners. While a 2 per cent regional levy will be eliminated. South Africa’s basic corporate tax of 29 per cent and a 12.5 per cent secondary tax on dividends remain unchanged.

Manuel announced the completion of a three-year exchange control and tax amnesty, which has seen R68.6bn, or more than $10bn, of foreign assets disclosed. South Africa will now ease restrictions on investing abroad, he said. Individuals will be allowed to invest up to R2m offshore, an increase from R750,000 previously. To encourage investment in other African countries, a current foreign direct investment threshold of 50 per cent will be lowered to 25 per cent, so that South African companies no longer have to take a majority stake in the African companies in which they invest. (Business Day, Johannesburg)

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