t t mboweni : the challenge of stronger economic growth and development in south africa address by mr t t mboweni, governor of the south african reserve bank, at the fedusa third national congress, gold reef city, 15 and 16 september 2005. * * * introduction thank you for your invitation to speak at the fedusa third national congress. a constructive dialogue between labour and the other social partners is crucial for fostering community consensus on those issues that are important for accelerating growth and improving the quality of life of all south africans. i welcome the opportunity to be part of this dialogue. in speaking about the challenge of stronger economic growth and development i will first briefly review where our economy currently stands, paying due attention to the statutory mandate of the south african reserve bank. the second part of the address will be directed at the debate on how much growth is needed for south africa to absorb the unemployed within a reasonable timeframe, and – perhaps more importantly – what needs to be done to boost our growth and development momentum accordingly. recent economic developments by this time we all know that south africa's economic growth rate in the second quarter of 2005 amounted to 4, 8 per cent, compared with 3, 5 per cent in the first quarter. most analysts forecast that real gross domestic product will increase by around 4 per cent in the full calendar year 2005, signifying an increase of more than 2½ per cent in real income per capita. what is particularly gratifying about the current growth environment is that our economy has enjoyed twenty - three quarters of uninterrupted economic expansion. this is the longest upswing in the recorded economic history of south africa. the current recovery has the properties of a well - trained long - distance runner, rather than the characteristics of an unfit sprinter loaded with steroids performing admirably for just a fleeting moment. the improvement in growth in the second quarter of 2005 was mainly brought about by a sharp increase in real value added in manufacturing, which reflected rising domestic final demand and stronger export demand for certain categories of goods, alongside a somewhat more competitive level of the exchange value of the rand. real output of the agricultural sector was bolstered by a bumper maize crop which was predominantly harvested in the second quarter, while simultaneously almost all the other main sectors of the economy displayed solid growth too. enterprise - surveyed employment outside the agricultural sector recorded successive increases in each of the five quarters to september 2004. private - sector job opportunities benefited most from the economic recovery, but

there was also a moderate increase in public - sector employment. the pick - up in enterprise - surveyed employment was, however, not sustained in the last quarter of 2004 and the first quarter of 2005. over the year to march 2005 enterprise - surveyed employment rose, on balance, by 111 000. the strongest increases were recorded in the community, social and personal services and trade sectors, while employment in gold mining, finance and manufacturing shrank over this one - year period. whereas the enterprise survey measures formal employment in the main non - agricultural sectors of the economy, results from household surveys measures all employment. household survey data indicate that total employment in south africa expanded by some 500 000 jobs over the year to march 2005, but roughly half of this increase was in the informal, domestic service and agricultural sectors. 1 / 5 returning to the narrower data based on the enterprise surveys, it is estimated that labour productivity rose by 2, 6 per cent in the year to the first quarter of 2005. workers engaged in more strike action in the recent past : man - days lost to industrial action increased more than three - fold from the first half of 2004 to the first half of 2005. nevertheless, nominal remuneration per worker rose by 8, 7 per cent in the year to march 2005, noticeably slower than previously. allowing for productivity changes, unit labour cost increased by 5, 9 per cent in the year to march 2005, i. e. 1, 3 percentage points lower than the average rate of increase in 2004. wage settlements averaged 6 per cent in the first half of 2005. these wage settlements and remuneration increases are modest compared to the high nominal increases recorded in the 1970s and 1980s. however, those distant increases were eroded by equally high inflation. after allowing for fiscal drag they did little if anything to improve the average worker's real disposable income. currently inflation is much lower, and as a consequence there is far less money illusion and inflationary distortion which misdirect economic decisions. in july 2005 cpix - inflation amounted to 4, 2 per cent, registering its 23rd successive month within the inflation target range of 3 to 6 per cent. although one cannot deny that it has been a difficult journey to low inflation, the benefits are apparent : more certainty regarding the future purchasing power of the money in our pockets, better planning, especially of cash - flows for those households and businesses using credit and accordingly having to make interest payments. the cash - flow improvement follows because sustained low