Budget 2007: opinions of a Panel of Economists

FINANCE AND JOINT BUDGET COMMITTEES
27 February 2007
BUDGET 2007: OPINIONS OF A PANEL OF ECONOMISTS

Chairperson: Mr N Nene (ANC)

Documents handed out:
Efficient Group presentation
Bureau for Economic Research presentation
Industrial Development Corporation presentation

Audio Recording of the Meeting

SUMMARY
The Efficicent Group said that the fiscal deficit this year and next year was going to be in surplus for the first time in the country’s history as state revenue increased as well. The Minister did give some tax relief in principle, but in practice there was no real relief. In practice, all individuals end up paying for the taxes that companies had to pay as the companies would pass the costs on to the individual.

In terms of the expenditure, in 1994, social expenditure in health, education and housing was at 43% of total state expenditure. This figure was now at more than 50% which was a huge increase. During the same period, interest on state debt plunged.

Other interesting points were that UNESCO had stated that the population growth was growing negatively. The prevalence of HIV/AIDS was increasing, so it was not all good news even though the economy was doing really well. From 2003 there had been a big increase in social expenditure but despite this, South Africa’s human poverty index had been going down since 1998.

The Bureau for Economic Research said that weaker expectations pointed to a flattening out of global economic conditions. The inflation outlook had improved since the end of 2006 and the expectations appeared to be well-anchored. In terms of the 2007/08 budget, public sector spending was going to be more expansionary. The tax overruns were a function of the strong economic growth and sound fiscal finances.

The Industrial Development Corporation said that despite a sharp increase in commodity prices, rising interest rates and financial market volatility, the global economy still managed to grow at a rapid rate. The construction and the financial services sectors had posted well above economy average performances over the past three years but the pace of growth in manufacturing was marginally below the economy average.

Domestic demand had been a key driver behind the sector’s recovery in the past three years, mainly due to buoyant consumer spending and manufacturers had increasingly switched to the lucrative domestic market. The remarkable recovery in South Africa’s overall economic performance since 1994 had not translated into significant job creation in the formal non-agricultural sectors of the economy. The economy had become less labour-intensive over the years, although some reversal in this trend had been observed in more recent years.

However, a substantial improvement in overall economic activity was forecast within the manufacturing sector, as this sector was expected to benefit from strong domestic demand as well as from fairly strong global economic growth. The extent and nature of criminal activity in South Africa remained a major concern, with their impact felt among households and the business community alike. It was affecting confidence levels and raising costs to society at large.

MINUTES
Efficicent Group Presentation
Mr Dawie Roodt, the Chairman and Chief Economist, said that state expenditure went up suddenly in 1993. It began going down but since 2003 it had started going up again relative to Gross Domestic Product (GDP). The fiscal deficit this year and next year was going to be in surplus for the first time in the country’s history as state revenue increased as well.

The contribution on revenue from companies has increased significantly since 1994, and the contribution of personal income tax had been going down. Tax collected in 2006 was about R33 billion more than anticipated so the Minister had more money and flexibility. He did give some tax relief in principle, but in practice there was no real relief. In practice, all individuals end up paying for the taxes that companies had to pay as the companies would pass on the costs down to the individual. In total, since 1994, South Africans paid about R900 billion in taxes so in effect there was no real tax relief.

In terms of the expenditure, in 1994, social expenditure in health, education and housing was at 43% of total state expenditure. This figure was now at more than 50% which was a huge increase. During the same period, interest on state debt plunged. This was because the Minister increased the tax burden, raising state income, which in turn meant that he borrowed less, thus reducing the interest on that debt.

The money saved here was being spent on the social expenditure. However the pension funds were the ones who usually received the interest on the state debt. More money was now being channelled to the poor and they spent it. This was one of the contributing factors that was fuelling the high domestic demand. Many people argued that as a developing state, South Africa could not afford to have a fiscal surplus. He said that this was too simplistic a view, and it was evident that even though there was a surplus, all of the capital and social expenditure being undertaken by the Government showed that the state was very expansionary.

Other interesting points were that according to UNESCO, the population growth was growing negatively. The prevalence of HIV/AIDS was increasing, so it was not all good news even though the economy was doing really well. From 2003 there had been a big increase in social expenditure but despite this, South Africa’s human poverty index had been going down since 1998. This was worrying.

Bureau for Economic Research (BER) Presentation
Mr Pieter Laubscher, the Chief Economist, said that weaker expectations pointed to a flattening out of global economic conditions. The business cycle upswing was more than seven years old and growth was more stable and sustainable. Household consumption contributed 85% of the growth 2004/6. Net exports made a strong negative contribution (-2.4%) and the business and consumer confidence trends were at historical highs. There had been a relentless increase in business confidence since the third quarter of 1999. The RMB/BER business confidence index (BCI) had been above 80 index points since the end of 2004. Consumer confidence had increased sharply since 2004/5, and was currently close to historical peaks.

CPIX inflation had averaged within the 3 - 6% range for 41 consecutive months and was expected to be at 5.4% 2007 which, was up from 4.6% in the first quarter of 2006. The inflation outlook had improved since the end of 2006 and the expectations appeared to be well-anchored.

Long-term interest rates were at historical lows, despite an up-tick in the CPI and repo rate which was increased by 200 basis points during the second half of 2006 and the fiscal surplus boosted the bond market at the end of 2006. The current account deficit approached 6% of GDP but was handsomely financed. There had been poor export growth of only 3% per year between 2002 and 2006 but the capital account prospects remained promising.

In terms of the 2007/08 budget, public sector spending was going to be more expansionary. The tax overruns were a function of the strong economic growth and sound fiscal finances. The real non-interest expenditure grew by 7.7% per year over the MTEF and there was a net R12.4 billion tax relief for 2007/8. This would provide cyclical stimulus to the demand-side of the economy.
Personal tax relief amounted to R8.4 billion which meant that personal tax was a declining contributor to total revenue. This was an also an important driver of the consumer boom

Corporate taxes had been a key source of tax overruns and the corporate tax contribution to total tax revenue had recovered and there could be more scope to consider tax relief to stimulate the production side of the economy. State debt had been reduced for the second consecutive fiscal year and the smaller debt service burden created room for additional spending. Fiscal prudence provided a solid basis for future budgets instilled confidence.

The projected public sector borrowing requirement for 2009/10 was R32.3 billion (1.4% of GDP). This was conducive to lower long-term interest rates and a ‘crowding-in’ of private fixed investment. The budget was one aimed at supporting growth, even though it may not be anti-cyclical enough at this stage. Real Government wage growth was at 4.7% per year and the company tax proposals were marginally positive in terms of fixed investment. This would help bolsters consumer and business confidence.

Excise and duties were neutral in respect of inflation. The stimulus of the demand side of economy could put pressure on inflation but maybe the Government wage growth was negative for inflation. The budget stimulus would however keep the Reserve Bank ‘on the back foot.’ The budget should bolster investor confidence and the gradual exchange control relaxation taking place was positive. The current account would remain under pressure and the Rand would remain vulnerable to capital outflows.

Some of his positive general comments were that there were sound fiscal finances and there were generally stable expenditure and tax ratios, implying that there were no dramatic fiscal effects. Attention was being given to the issue of savings and Government’s own savings were positive. There was some evidence of delivery in terms of infrastructure spending, but it needed to be stepped up. On the downside, the combination of a ‘dovish’ monetary policy and a ‘stable’ fiscal policy at this point, may not be enough to address macro-economic imbalances reflected in the current account, which implied risk.

Industrial Development Corporation (IDC) Presentation
Mr Jorge Maia, Head of IDC Research and Information, said that despite a sharp increase in commodity prices to multi-year or all-time highs, rising interest rates and financial market volatility, the global economy still managed to grow at a rapid rate (world GDP was estimated to had expanded by 5.1% in 2006). A moderation in world GDP growth was forecast for 2007 as higher interest rates were expected to had an adverse impact on economic activity, particularly in the world’s developed economies. Nevertheless, the long-term outlook for the global economy remained positive, with real GDP growth averaging about 4.7% per annum over the period 2007-2011.

South Africa had the 27th largest economy in the world and the economy was increasingly dominated by services-related sectors, which was in line with international trends. The primary sectors like agriculture and mining had seen their share substantially reduced over the past five decades. Share of the manufacturing sector (the second largest sector of the economy) decreased sharply since the early 1990s in light of globalisation, trade liberalisation and an increasingly challenging global trading environment.

The pace of economic growth in South Africa had increased substantially since 1994 (average GDP growth of 3.8% per year, which was more than double the growth rate in the decade before 1994). The services sectors accounted for the major share of GDP growth in recent years. The manufacturing sector reported a recovery in 2004 and 2005, following a dismal performance in 2003 (mainly due to the impact of a strong Rand on the export-oriented sub-sectors).

The construction and the financial services sectors had posted well above economy average performances over the past three years but the pace of growth in manufacturing was marginally below the economy average. Amongst the services sectors, above average performances were recorded by financial; insurance services; communications; business services; motor trade; transport services and the retail trade over the past five years.

Within the manufacturing sector, above average performances were recorded by the transport equipment, furniture, as well as the metals and machinery industries over the past five years. The manufacturing sector recorded a substantial improvement in its growth performance over the past decade, with an average sectoral GDP growth of 3% per annum versus 0.5% per annum in the preceding ten years. A strong Rand adversely impacted on export-oriented manufacturing businesses in 2003, resulting in a 1.4% contraction in manufacturing GDP in that particular year.

Domestic demand had been a key driver behind the sector’s recovery in the past three years, mainly due to buoyant consumer spending and manufacturers had increasingly switched to the lucrative domestic market. Exports were still under pressure, although manufacturers were now less pessimistic regarding their future export potential. Local manufacturers focusing on the domestic market were increasingly challenged by cheap imports in light of a strong currency in recent years.

Business confidence remained at very high levels during 2006, providing a good indication that businesses were confident about the performance and prospects for the economy. Rising interest rates, higher inflation and increased import competition did not impact significantly on business confidence during 2006. Business confidence in manufacturing improved again in the fourth quarter of 2006, although it was slightly lower than that for the economy as a whole.

Fixed investment increased strongly over the past decade, and even more so over the period 2003 to 2005 and the manufacturing sector was experiencing the highest rates of production capacity utilisation of the past 35 years
. The strong growth of the domestic economy resulted in many sectors operating near full capacity. The relatively low levels of investment in manufacturing in recent years were perhaps an indication that businesses did not anticipate that the strong growth of the economy would be sustained over a prolonged period.

Utilisation of production capacity in manufacturing was close to 88% (full production was generally considered to be 85%). Urgent investments in new productive capacity were essential to sustain a higher economic growth momentum. Manufacturing fixed investment was forecast to expand rapidly (at an average rate of roughly 11% per year) over the next 5 years.

The sharp increase in domestic demand, including consumer spending and fixed investment,
resulted in a widening output gap. This was illustrating that the country was consuming increasingly more than it was able to produce, hence a rapid rise in import demand for both consumer and capital goods had emerged.

Robust economic growth, the strengthening of the Rand, as well as conducive domestic economic conditions in support of higher private consumption expenditure, saw the demand for imported consumer goods as well as for capital goods (such as machinery and equipment, automotives, aircraft and other transport equipment) increasing sharply since 2003. Demand for imported consumer goods increased by 60% between 2003 and 2005 but nonetheless, capital goods still dominated the import basket.

The import demand for mineral products (mainly crude oil) increased by 68% in 2006, with oil now accounting for close to 15% of all merchandise imports. China was becoming a progressively larger source of imports, with its share in the import basket rising from 1.7% in 1994 to just over 10% last year. South Africa’s export propensity (the exports-to- GDP ratio) increased sharply from 22% in 1994 to 33% by 2002, but declined thereafter as a strengthening Rand took its toll on the price competitiveness of export-oriented business enterprises.

The remarkable recovery in South Africa’s overall economic performance since 1994 had not translated into significant job creation in the formal non-agricultural sectors of the economy. The economy had become less labour-intensive over the years, although some reversal in this trend had been observed in more recent years. Nevertheless, in the year to March 2006, 544 000 new jobs were created in the economy (515 000 in year to March 2005), with 347 000 of these jobs being in the trade sector.

Manufacturing businesses continued to retrench workers to cut costs as they strove
to remain competitive. However, increased capital deepening and a move towards modern technology was evident in the workplace. The clothing and textiles sub-sector was the most labour-intensive and chemicals production was highly capital-intensive in nature, with less than one job opportunity being created for every R1 million of turnover. The manufacturing sector on the other hand, created approximately 1.5 job opportunities per R1 million of output. Micro enterprises (which had an annual turnover of less than R5 million) were the most labour-intensive, while large enterprises (turnover of over R51 million a year) were significantly less labour-intensive.

The economic forecasts for the next five years were that GDP growth estimates for 2006 had been revised upward, from 4.4% to 4.9%. Fixed investment was forecast to increase rapidly on the back of Government’s R410 billion infrastructure programme, accompanied by higher levels of private sector fixed investment.

Eskom and Transnet were planning to spend R178 billion over the next five years (2006/07 to 2010/11). These capex programmes would have an enormous impact on the economy, including in the demand for inputs, the industrial development of important sectors such as manufacturing of capital goods and transport equipment and the crowding-in of private sector investment through more effective infrastructure.

The capital expenditure programme’s 40% import leakage ratio (that is, imports as a percentage of output) was excessively high if compared to an average of 11.2% for the economy as a whole
Domestic spending on construction and items in key areas of manufacture would be significant. It was going to be highly capital intensive, with a total cost per job of R2.4 million and was forecast to contribute an additional 35% to national GDP over the next five years.

Over the five-year period, value added in the construction sector would be 42% higher relative
to its 2004 level. Employment creation in this sector was projected at roughly 33 000 additional workers due to the programme, which was equivalent to 10% of its labour force in 2004.

A number of previously viable industries that were strong candidates for revival included: forging and casting; boilers; tooling and several sub-component manufacturers. A number of existing industries had been identified for expansion or for developing an export orientation such as locomotives (refurbishment and/or upgrading), wagons and coaches; railway sleepers; transformers; pumps; valves; taps; cables; overhead transmission lines and conductors. Areas for new investment by multi-nationals were the production of components for turbines, and the assembly of turbines and production of components of engines (electric as well as diesel).

In terms of inflation, CPIX inflation averaged 4.6% in 2006, compared to 3.9% in 2005. Rising petrol prices (particularly over the first eight months of the year) along with an acceleration
in food prices contributed to this higher inflation rate. Upside risks for inflation were the demand-pull backed by high levels of credit extension, whilst further food price increases also posed a risk. A fairly benign oil price outlook would alleviate some inflationary pressures in the future however.

Rising inflation during 2006 forced the Monetary Policy Committee (MPC) to hike interest rates
by 200 basis points since June last year. However, at its latest meeting on the 15^th of February 2007) the MPC decided to leave the repo rate unchanged at 9% (with prime at 12.5%). Nonetheless, the MPC did warn that risks to the inflation outlook did remain, which could influence the future monetary policy stance.

A widening gap on the balance of payments, along with emerging market jitters, put renewed
pressure on the Rand during 2006. The currency depreciated from R5.95/USD in late January 2006 to R7.98/USD by early October 2006 (a 34% depreciation over this period). A moderate depreciation of the Rand was forecast for the next five years as a substantial current account deficit was likely to put the currency under pressure.

A substantial improvement in overall economic activity was forecast within the manufacturing
sector, as this sector was expected to benefit from strong domestic demand as well as from fairly
strong global economic growth. The construction sector would expand rapidly due to increased activity linked to the capital expenditure progammes and the public sector and private sector construction activities. The electricity and transport sectors were also likely to expand faster than the national average.

The manufacturing sector was expected to see a rapid increase in fixed investment activity over the next five years, as many sub-sectors were operating close to, or at full capacity. Government’s multi-billion Rand spending on public infrastructure, the 2010 World Cup and the Gautrain would all provide a major stimulus to fixed investment and higher rates of economic growth. Rapid fixed investment growth of 10% per year over the period 2006 to 2010 would result in the investment-to-GDP ratio rising from 17% in 2005 to 23% by 2010.

Manufacturing exports were projected to grow at a substantially faster pace due to a gradual
depreciation of the Rand, which should improve the price competitiveness of export-oriented
manufacturing enterprises. Mining exports would still benefit from strong global demand for commodities and a weaker Rand over the forecast period. Gold exports were forecast to continue their long-term declining trend and exports of non-gold mining industries were forecast to increase rapidly, by more than 5.5% per annum.

The high import-intensity of fixed investment activity in South Africa should result in a rapid increase in import demand over the forecast period. The capex programme had an estimated import leakage (import-output ratio) of 40%, which compared unfavourably with an average import leakage of 12% for the economy as a whole. Higher levels of economic activity would result in more goods being transported throughout the country, thereby increasing the demand for fuel, leading to increased imports of crude oil. Robust consumer demand should continue to be reflected in fairly high levels of imported consumer goods.

He did note that strong GDP growth, underpinned by fixed investment activity, was likely to exert pressure on the balance of payments over the forecast period. The current account deficit was likely to remain at uncomfortably high levels, but an increasing portion of imported goods would consist of capital equipment (machinery, equipment and transport equipment).

Against the background of higher levels of economic activity, it was projected that the labour absorption capacity of the economy would improve. Approximately 1.17 million new jobs were forecast to be created over the period 2006 to 2010 in the formal sectors of the economy. The manufacturing sector could experience a moderate improvement in job creation levels, with roughly 87 000 new jobs to be created until 2010. The main contribution to job creation would emanate from the financial and business services sectors, with close to 480 000 additional jobs.

The key objective of ASGISA was to halve unemployment and poverty by 2014. This could be achieved only if GDP growth was increased to an average 6% or more per annum, and the investment/GDP ratio was increased to around 25% of GDP compared to the current ratio of 17% (2005). Strong GDP growth was forecast for the economy, with an average growth rate of about 5% per year for the period 2007 to 2011. Although a fairly high growth trajectory was forecast for the period 2012 to 2014, it would be challenging to exceed the 6% mark.

In 2005, total fixed investment by the manufacturing sector stood at about R40 billion. Over the next five years, the cumulative investment spending under the base case scenario would amount to just over R260 billion (more than six times the investment spend of 2005), or an annual average of R52.6 billion per year. In order to achieve the ASGISA target of 6% GDP growth, fixed investment activity for the economy had to accelerate by more than 13% per year over the period
2011 to 2014, implying that an additional R55 billion in manufacturing investment over the period relative, to the base case scenario.

In conclusion, South Africa was currently enjoying the longest sustained period of economic growth since World War II, with the current upswing in the business cycle already in its seventh year. South Africa was partaking in many of the challenges of the globalisation process, including confronting an increasingly competitive environment that called for productivity growth; lower production costs; technological innovation; capital deepening and job losses in many instances, as well as the identification of increasingly difficult to find niches in the marketplace. Competitive forces gave opportunities for technological upgrading, innovation, expansion (economies of scale) and global joint ventures or partnerships.

South Africa’s general economic stability and sound macro-economic management and fundamentals were widely acknowledged and this was reflected in the sovereign ratings. Inflation was under control and at levels last seen in the 1960s. Although inflationary pressures had recently been mounting on the back of rising fuel and food prices, the long-term outlook was positive, with the interest rate cycle likely to be shallower than in the past. Prudent fiscal policy and continued improvements in tax collections resulted in a shift in the Government balance from progressively lower deficits towards a budget surplus which enabled a developmental approach to fiscal expenditure going forward.

The Rand was likely to come under pressure due sustained deficits on the current account of the
balance of payments, emerging market jitters and tighter global liquidity conditions, and concerns about the country’s ability to continue attracting substantial foreign capital inflows on a sustained basis. The consideration of measures to reduce volatility, while retaining a floating exchange rate and ensuring that the currency supports balanced growth, would be welcomed.

Business and consumer confidence levels were at all-time highs, underpinning the strong
growth performance of the South African economy. Consumer spending would remain robust,
boosted significantly by an emerging black middle class, while fixed investment expenditure
by the public and private sectors would be in response to infrastructural and supply constraints
relative to demand. The efficiency and affordability of physical support infrastructure such as competitive port, rail and telecommunications infrastructure, was deemed critical to raise economic efficiencies. The integrated roll-out of infrastructure was also crucial.

The improvement in overall economic activity in South Africa since 1994 had not translated into a
generalised improvement in human development. A vicious cycle of poverty was evident in concentrated segments of the population, typically reinforced by low education levels, location, access to healthcare, and a lack of access to economic opportunities. This presented major challenges, which required concerted intervention aimed principally at wealth creation, redistribution and access to basic services.

Skills shortages were developing in a variety of sectors due to a mismatch between supply and demand, which posed a major constraint on the country’s development and growth potential. The importance of efforts to resolve this problem cannot be over-emphasised.

The extent and nature of criminal activity in South Africa remained a major concern, with their impact felt among households and the business community alike. It was affecting confidence levels and raising costs to society at large. The allocation of additional resources to combating crime was highly welcomed.

The resolution of the unemployment crisis was key to alleviating many of South Africa’s ills. Despite a reasonably good overall economic performance since 1994, the labour absorption capacity of the economy had not lived up to expectations. Global competitive forces had played their role in this regard, but domestic factors could not be downplayed. Domestic factors included the capital-intensive bias of the economy and further capital deepening over time in response to challenging labour market conditions (such as productivity versus labour costs, skills and industrial relations).

Addressing the unemployment and poverty challenges was a primary national objective, with economic as well as social policies and strategies of Government focusing on halving their magnitude by 2014. The IDC as an implementing agent was both directly and indirectly playing an increasing role in their roll-out. South Africa had a range of comparative advantages that, if fully exploited, would lead to a higher growth trajectory.

Sectoral development was approached from various angles, including macro-economic interventions such as ASGISA and, within the industrial policy framework there were customised sector programmes as well as measures to assist the development of strong economic clusters.

IDC interventions would take numerous forms, including direct financial support, project development, entrepreneurial development, business support to emerging and established businesses facing new challenges, and assistance to Government in strategy formulation and implementation.

Opportunities arising from the capital expenditure programme had to be secured by South Africa to maximise and sustain the economic benefits. Supplier development had to form an integral part of business planning processes and they had to be adopted timeously with appropriate
support mechanisms, and without compromising the procurement capability as well as the roll-out of the expenditure programmes.

The focus of the strategy should be on long-term supplier industry development and upgrading, thus requiring continuity of procurement. Therefore, the approach to infrastructure upgrading, maintenance and construction should be continuous, rather than a “big-bang,” once-off intervention. This would promote investment in internationally competitive capabilities in supplier sectors, leading to reduced costs through increased efficiencies, reducing the dependency on imports and foreign exchange exposure and developing niche export competencies.

Discussion
Dr Rabie (DA) asked for Dr Roodt’s views on Capital Gains Tax (CGT) and whether it was necessary. Wouldn’t abolishing transfer duty reduce revenue?

Dr Roodt replied that CGT was a policing tax and was a means employed to get people to start paying their taxes. The amounts collected had not been substantial and he was wary of taxing capital, and this was why he also wanted the transfer duty scrapped.

Mr I Davidson (DA) commented that Dr Roodt was inaccurate in comparing South Africa to OECD countries. It would be better if other developing countries were used in comparison. He asked how the scrapping of the STC would affect the effective tax rate and what the effect would be on foreign direct investment. He asked the IDC how sustainable the Government investment in infrastructure be in growing the economy if for example, the manufacturing capacity ceiling had been reached. What were their comments on the current productivity levels?

Dr Roodt replied that the effective tax rate would come down with the abolishment of the STC but it would be a small decline. What the measure did do was open the door for the Minister to do something about the level of the dividend rate.

Mr Maia replied that it was sustainable because this investment would be supported by imports and spending consumption locally. The consumer base was growing and more people still had to be integrated into the economy. Productivity was critical. It had grown, but at insufficient levels when compared to other developing countries. This highlighted why skills development was so necessary.

Mr Bici (UDM) asked what he would advise the Minister in terms of the poor performance of Government Departments.

Dr Roodt replied that he would tell the Minister to overhaul the tax system and make it cheaper and improve the efficiency of tax expenditure in the Departments.

Dr Van Dyk (DA) lamented that there was very little on the way of solutions in Dr Roodt’s presentation. What else could be done?

Dr Roodt replied that giving back money to the taxpayers could be a starting measure.

Mr M Johnson (ANC) asked Dr Roodt if South Africa was in a position to meet the Millennium Development Goals such as halving unemployment and poverty. He asked the IDC to what extent the current growth was sustainable at the current levels after 2010.

Dr Roodt replied that just setting targets of 6% growth was not enough. Why did the Government not aim for 9% for example? The goal should be to maximise economic growth, not trying to halve unemployment. Growing the economy created jobs, not the creation of artificial employment.

Mr Maia replied that 2010 was just seen as a goalpost but there was going to be a lot of capital expenditure beyond 2010. It was important to maintain the growth momentum after 2010 and it was sustainable because the economy was growing.

Ms J Fubbs (ANC) asked the IDCwhy South Africa had to import so much cement.

Mr Maia replied that expenditure required to expand cement production was immense. There were only a small number of large companies in this area so making decisions about expansion were difficult. The industry had also underestimated the demand in the economy and many had planned late.

The meeting was adjourned