South African Finance Minister Gordhan Seeks Growth and Inclusiveness

As its economy slows, South Africa must keep a national infrastructure program alive without racking up big deficits. Finance Minister Pravin Gordhan wants the newest member of the BRICS group to pursue an economic expansion that creates opportunity for all.

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As the newest member of the BRICS group, South Africa has some catching up to do. In the mid-2000s, when it was growing at a pace of more than 5 percent, the country lagged the more dynamic economies of Brazil, Russia, India and China. Lately, falling commodity prices, mining strikes and weakness in Europe have hit South Africa’s growth. Output expanded by 2.5 percent in 2012, and the government recently lowered its forecast for this year by 0.3 point, to 2.7 percent.

The slowdown means a juggling act for Finance Minister Pravin Gordhan. He is seeking to maintain South Africa’s three-year, 1 trillion-rand ($110 billion) infrastructure program — seen as key to boosting the economy’s growth potential and reducing inequality — without aggravating a deficit projected to hit 5.2 percent of gross domestic product.

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A former Communist and antiapartheid activist, Gordhan, 64, headed the South African Revenue Service for a decade before President Jacob Zuma tapped him to replace Trevor Manuel as Finance minister in 2009. He spoke with International Editor Tom Buerkle after a Group of 20 meeting in Washington last month.

Can emerging-markets economies act as a global locomotive?

They have acted as a global locomotive. If we are to sustain that, then I think the surplus cash from the advanced countries, and perhaps even technology, needs to be transferred to long-term investments in the emerging markets.

If different parts of the globe might have an accident, how do we create a global system that will compensate? Ours was an unwitting compensation where as soon as the West went into the 2008–’09 period, it was the East and a few others, like Brazil, that picked up the slack. But size does matter. Europe is still a third of the global economy. If it gets flu, everybody’s going to sneeze.

How has the slowdown in emerging markets affected South Africa, and how are you responding?

We have our issues, including the aftermath of the mining strikes. That’s been accompanied by structural changes in the commodities market, where lower growth in China and elsewhere means lower commodity imports. It cost us about R11 billion in taxes last year.

Over the past two years, we’ve developed a broad-based National Development Plan. Our plan is to have a ten-year pipeline of infrastructure projects. Where we have been weak is largely on the social infrastructure side: schools, clinics, hospital revitalization, housing and roads. The aim of all of these investments is to increase the potential growth rate. We are talking about 5 percent for a sustained period. It could take three to five years.

How do you make growth more inclusive?

The most recent census demonstrates that on some basic services, like electricity, water and housing, access levels are 80 percent [of the population] or more. We’ve got to shift now from access to quality. One of the key elements is getting the education system right. Another thing is to create opportunities for first-time jobs. [On April 18] an agreement was signed between business, government and labor on measures to promote youth employment and entrepreneurship. The next [step] would be to get productivity going, get competitiveness going, get wages up. That would mean there’s better distribution and benefit-sharing.

Is the Black Economic Empowerment program working for South Africa?

It succeeded at one level. There’s a whole new generation of young people who are highly qualified, well paid, drive nice cars — perhaps sometimes more expensive than they can afford. And it’s introduced a very thin layer of people into the economy who are now owners of real economic assets. But at a wider level, the disproportionate ownership of wealth and land still remains the case. How we accelerate economic participation, give support to small businesses, create different kinds of infrastructure in residential areas is going to begin to make a difference in terms of evening out the inequalities.

Is BRICS just a marketing concept, or does it have real meaning for South Africa?

Let me take your mind back to the G-7 or the EU. Neither developed overnight, neither has total consensus on everything, and yet they find common areas of concern or interest that they are willing to act on. BRICS begins to reflect the development of new institutional forms. It needs to be given time to consolidate.

We agreed [on April 20] on a work plan [for a BRICS development bank]. Our target will be that by the time Brazil hosts the BRICS summit in 2014, we will be a long way down the road. There’s a huge infrastructure need in all of our countries, particularly on the African and Latin American continents. There are now emerging-markets surpluses. How we channel them into long-term investment is a wonderful opportunity.

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