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Zuma’s Hands Tied on Jobs as South African Economy Struggles

South African President Jacob Zuma may have little room to pledge new money to meet job targets in his state-of-the-nation speech today as economic growth slows, hindering his bid to be re-elected party leader this year.

Zuma, 69, will address lawmakers as the government prepares to cut its growth forecast for a second time in four months to below 3 percent and struggles to rein in a budget deficit of 5.5 percent of gross domestic product. He is scheduled to speak in Parliament at 7 p.m. in Cape Town.

“There is nothing else in the policy cupboard,” Frans Cronje, deputy chief executive officer of the Johannesburg-based South African Institute of Race Relations, a policy-research group, said in a telephone interview. “His hands are tied.”

The threat of Europe’s second recession in three years is undermining Zuma’s promise to create 5 million new jobs by 2020 and reduce the jobless rate from the highest of 61 countries tracked by Bloomberg. Zuma is already under pressure from his labor union allies and the youth wing of the ruling African National Congress, who want him to nationalize mines and spend more on projects to create jobs.

“Unless we embrace radical economic programs and in particular develop the capacity of the state to intervene in the economy and drive development, we are doomed,” the Congress of South African Trade Unions, the nation’s biggest labor group of 2 million members, said in an e-mail on Feb. 7.

No New Initiatives

The ANC Youth League, led by suspended leader Julius Malema, has threatened to oppose Zuma’s re-election at a party conference in December in favor of Deputy President Kgalema Motlanthe.

“Zuma’s state-of-the nation address will be shadowed, if not overshadowed, by the ANC election,” Pierre du Toit, a politics professor at the University of Stellenbosch, near Cape Town, said in a telephone interview. “I don’t think he has got any new initiatives up his sleeve.”

Africa’s biggest economy expanded an annualized 1.4 percent in the third quarter, close to a two-year low, as manufacturing and mining contracted. The government estimates the economy needs to expand 7 percent annually to cut the jobless rate to 14 percent by 2020 from 23.9 percent currently. The International Monetary Fund on Jan. 24 lowered its forecast for South African growth to 2.5 percent from 3.5 percent.

Tax Breaks

The rand has strengthened 6.3 percent against the dollar this year, reaching as high as 7.5366 today. The yield on the benchmark rand bond due in 2015 has dropped 12 basis points, or 0.12 percentage point, to 6.62 percent.

Last year, Zuma pledged 39 billion rand ($5.2 billion) to stimulate job creation, including tax breaks for the manufacturing industry and investments by state-owned Industrial Development Corp. Since then, Gordhan has pledged to narrow the budget deficit to 3.3 percent of GDP in the next three years to curb government debt.

“Challenging global conditions are expected to persist in 2012,” Johannes Khosa, an economist at Nedbank Group Ltd. in Johannesburg, said in a note to clients. “Job creation is likely to remain slow.”

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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