Vukani Mde

Political Correspondent

SA had to grapple with its low skills base, control inflation and telecommunications costs and achieve a competitive level for the rand to achieve the desired 6% growth rate, Reserve Bank governor Tito Mboweni said yesterday.

Mboweni was speaking to delegates attending the third national congress of the Federated Unions of SA (Fedusa) in Johannesburg.

He said the economy had grown at a robust 5% in the second quarter of this year and was projected to achieve an overall gross domestic product (GDP) growth rate of more than 4% for the whole year.

Labour productivity had also grown 2,5% during the quarter, with wage settlements coming in at a "relatively modest" 6%.

This had resulted in per capita growth of 2,5% for the year, improving the real living standards of South Africans, he said.

"This (growth) is driven by strong increases in value-added manufacturing, strong consumer demand and a more competitive exchange rate."

Mboweni said there had also been solid performance from all sectors of the economy, including a "bumper maize crop", and this boded well for achieving government’s target of long-term GDP growth of 6%, as well as the creation of jobs in the private sector.

However Mboweni cautioned that even a growth rate of 6% would not be enough to absorb the majority of the 26% of unemployed South Africans. This was due largely to the low skills of the unemployed and the radically changed nature of the economy, he said.

Public Enterprises Minister Alec Erwin said SA would realistically achieve its 6% growth target only by 2010. "Hope is not a strategy, and strategy takes time. It’s not overnight," he said.

"Economic growth rate can’t jump just like that. It’ll take time, and we are driving towards it."

Mboweni also warned that the Reserve Bank would not allow second-round effects from oil prices to develop into an inflationary spiral, signalling that the next move in rates could be upwards.

The central bank cut its key repo rate 6,5 percentage points between June 2003 and April this year.

Its monetary policy committee left interest rates unchanged last month, citing record-high oil prices as one of the threats to an otherwise favourable inflation outlook.

Mboweni said the Bank was committed to ensuring that hard-won gains in the fight against inflation would not be surrendered.

"With international oil prices at record highs, there is not a shortage of factors fuelling inflation.

"But monetary policy will not allow this to develop into an inflationary spiral," Mboweni said.

He did not specify what action the bank would take. The bank has previously expressed concern about the inflationary effect on the economy of soaring crude prices.

"The Bank therefore has the responsibility to keep inflation down, and ensure that any second-round effects from oil prices will not go uncurbed," Mboweni said.