SA Economy Shows Signs of Resilience

“These are the reasons for hope.”

By Sinazo Mkoko

Despite record levels of load shedding, South Africa’s economy grew by 0.9% in the first half of the year. This is according to the Minister of Finance, Enoch Godongwana, who delivered the Medium Term Budget Policy Statement (MTBPS) on Wednesday, November 1.

Tourism Growth

Hon. Gondongwana stated that the tourism sector grew more than 70% in the period, driven “by the arrival of more than 5.4 million international tourists.”

“This year we hosted the Formula-E, the BRICS Summit, and the Netball World Cup 2023, and this week we welcome up to 700 delegates to the 20th AGOA Forum in Johannesburg. “We have put our best foot forward and reminded the world of the beauty of our country, the warm spirit of our people, and the world-class facilities for doing business and investing,” he said.

He added that there are other sectors that also showed promising signs of growth, including the construction sector, which grew by 4.2%, the agriculture sector, which saw 7.8% growth, and the services sector, which increased by 1.5%.

Transformation of the Electricity Sector

Touching on the ongoing electricity crisis that South Africa is facing, Hon. Godongwana admitted that the country has experienced more power cuts in the year to September 2023 than in the whole of 2022. However, he stated that greater generation capacity from renewable energy investments, combined with the return of Eskom’s out-of-service units, should alleviate power outages in the medium term.

“Our electricity system is undergoing an enormously positive transformation. We are reaping the fruits of our efforts to reform the electricity sector, including the easing of restrictions on self-generation and encouraging private investment in the area. He acknowledged the potential revenue loss from private energy generation and the reality that traditional revenue models relied on by state companies such as Eskom face major disruption.

“It is for these reasons that our electricity reforms are holistic, evidence-based, and geared towards finding a balanced solution to our electricity supply challenges. They take into account not just a particular entity but the transformation of the sector as a whole.” Hon. Gondongwana.

He added that, as part of this approach, the review of Eskom’s coal-fired power stations commissioned by the National Treasury is complete. “Effective implementation of the recommendations will help transform the electricity sector. It will also inform revisions to Eskom’s corporate plan to bolster accountability and effective, informed oversight. The government will shortly share the findings of the report,” he said.

Domestic Outlook

On the domestic outlook, the minister stated that while the International Monetary Fund (IMF) forecasts global growth to slow from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024, they forecast a 0.8% growth in real GDP in 2023 in South Africa. This, he said, is 0.1% points lower than the growth projection at the time of the 2023 budget.

“Growth is projected to average 1.4 percent from 2024 to 2026. These growth rates are not sufficient to achieve our desired levels of development. However, our economy has shown signs of resilience. Real gross domestic product, a measure of economic performance, is now above pre-pandemic levels.”

Fiscal Outlook

Framing the country’s fiscal challenges, Hon. Godongwana stated that government spending has exceeded revenue since the 2008 global financial crisis. “These rising annual budget deficits have reached an extent where the government will have to borrow an average of R553-billion per year over the medium term. As a result, gross debt rises from R4.8-trillion in 2023/24 to R5.2-trillion in the next financial year. By 2025/26, it will exceed the R6-trillion mark.”

He added that they now expect gross government debt to reach 77% of GDP by 2025/26.

Municipal Debt Relief

Speaking about the financial conditions faced by municipalities across the country, the minister said dealing with the “Eskom problem without dealing with municipal non-payment and uptake of the debt relief programme would have been counterproductive.

“The debt-relief arrangement for Eskom outlined in the 2023 Budget noted that a large proportion of outstanding municipal debt is owed to Eskom. The national government has introduced support to relieve municipalities of their debt to Eskom.” He stated that upon application by a municipality, the debt to Eskom up to March 31, 2023, would be written off over a three-year period.

“By October 2023, 67 applications had been submitted, totaling R56.8-billion, or 97% of the total municipal debt owed to Eskom at the end of March 2023. Twenty eight applications have been approved; the remainder are being assessed and verified with provincial treasuries.” - Hon Godongwana.

Energy Transition

Touching on the issue of energy transition, Hon. Godongwana called for the integration of a low carbon economy into a comprehensive green growth strategy and industrialisation plans. He said the country’s trading partners are stepping up their efforts to reduce carbon emissions.

“Many countries are introducing carbon pricing mechanisms to make emissions more expensive and incentivise emissions reductions. In automotives, a major export and source of employment, the transition to New Energy Vehicles (NEVs) poses an existential threat to South African vehicle production. “This transition will require balancing domestic market demand, establishing renewable energy based charging infrastructure, and supporting production. The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy.” Hon. Gondongwana.

Business Leadership South Africa

The Business Leadership South Africa (BLSA) has welcomed the MTBPS, stating that it “delivers the fiscal discipline that is critical to business confidence.”

In a statement released, BLSA CEO Busi Mavuso praised the minister for his candour in his address. “The minister outlined the numerous challenges and acknowledged the risks. Among those is the weak outlook for the global economy, which is not supportive of SA’s growth prospects. Also, in the face of a strong campaign for him to spend more and allow debt to rise, he held the line firmly and highlighted the need for fiscal consolidation,” she said.

Responding to the debt-relief arrangement for Eskom outlined in the 2023 Budget, including support measures to relieve municipalities of debt to Eskom, BLSA said that the conditions have to be enforced, “otherwise the debt will simply build up again and the taxpayer will have to again pay the cost for dysfunctional municipalities.”

“Ultimately, BLSA wants to see a sustainable financial solution for Eskom that enables it to resume funding its own capital expenditure programme. The municipal debt programme can assist in one element of that, though the full solution needs comprehensive relief of Eskom’s existing debt. We had hoped for more detail on how this may be achieved,” they said.

Busi added that she expects criticism of this MTBPS for being ‘an austerity budget’. “But it delivers the fiscal discipline that is critical to business confidence. With business faith in the government as a custodian of the nation’s finances, companies will invest. That investment is key to driving growth, which will enable revenue to support government spending. Today’s MTBPS was a credible step towards delivering the growth that will support sustainable public spending allied with the reforms announced.”

Source: SA Gov | National Treasury