London - On Wednesday, Finance Minister Enoch Godongwana presents what is arguably his and one of the ruling ANC government’s most important National Budgets, which primarily sets out the state of the nation’s finances and the revenue, expenditure and public debt service burden projections for the 2023/2024 financial year.
Faced with poly-economic, governance, capacity, societal and delivery deficit prospects, Godongwana gave as a taster of what to expect on Wednesday, in his pre-budget Medium Term Budget Policy Statement last October, when his mood was somewhat sombre stating the obvious to millions of compatriots declaring: “South Africa’s economy has underperformed for many years.
Several long-standing structural impediments continue to hamper growth. These include unreliable electricity supply, costly and inefficient ports and rail network, crime and corruption, weak state capacity, and high levels of market concentration and barriers to entry that suppress the emergence and growth of small businesses.”
In the last six months, he has assumed a much more visible profile on the international stage starting at the Autumn annual meetings of the IMF/World Bank Group in Washington last September.
He even stood in for a chastened President Cyril Ramaphosa to lead the South African government delegation to the high-profile World Economic Forum in Davos in late January after the president abruptly withdrew from speaking at the event because he had to deal with an energy crisis at home where Eskom had just “placed the country into Stage 6 load shedding until further notice.”
Earlier Ramaphosa dodged an impeachment vote in parliament and was even re-elected as the ANC leader in December 2022.
It is as if Godongwana, the erstwhile economics guru on the ANC NEC, may be the beneficiary of unintended consequences as a possible successor to Ramaphosa, albeit ANC history may be stacked against him.
Unlike in other countries such as the UK and Malaysia, no finance minister has progressed to the top job in an ANC administration since the onset of democracy in 1994.
The question remains how realistic, and pragmatic will Godongwana be when he presents his 2023 budget?
On the one hand he comes across as a keen but partly shackled supporter of market economics and fiscal discipline “to address the needs of South Africans and secure our future stability and prosperity.”
On the other hand, he sometimes lapses into the ideology-driven rhetoric of aspirations, so entrenched in the ANC’s narrative under Ramaphosa, largely to appease the pro-state interventionist faction within his party.
He knows that the government, let alone the National Treasury, is nowhere near to delivering on the holy grail metric of real GDP growth over the medium to longer term.
Most economists believe for the ANC to start delivering on its rightful transformation agenda with its manifold economic and societal promises, the economy will have to register a minimum 5% GDP growth annually.
The Treasury’s 2022 Budget projected economic growth of 2.1% in 2022, only to revise down to 1.9%.
GDP growth is expected to average an unsustainable 1.6% over the medium term.
One can perhaps excuse Godongwana’s exuberance at Davos when his mood was positively upbeat and optimistic, tinged with the usual disclaimers: “South Africa is on the road to economic recovery: the world recognises that,” declared the minister.
“We have a long way to go, and the economic outlook is fraught with risks and uncertainties. It will not be easy, but the WEF Meeting has shown us that we are not walking alone. Many people still believe in our country. We must believe in ourselves.”
But the Treasury’s own figures don’t match with this misplaced optimism.
True, government revenues are projected to rise from R1 882.2bn (28.3% of GDP) in 2022/23 to R1 952.8bn (27.7% of GDP) in 2023/24 to R2 072.2bn (27.5% of GDP) in 2024/25, but so is government spending from R2 205.3bn (33.2% of GDP) to R2 241.7bn (31.7% of GDP) to R2 364.1bn (31.4% of GDP) for the same period.
There is some good news in that the overall budget deficit is declining.
But whether this trajectory continues will depend on the success of the Treasury in reining in bloated public sector wages and the widening and subsequent rising costs of welfare safety nets especially in additional grants beyond the rightly-supported vulnerable, poor and disadvantaged South Africans, perhaps as a sop to ease the impact of the cost-of-living crisis leading up to the 2024 general election.
One area, which Godongwana has been rightly championing, not only on behalf of Africa but the developing world in general, is a move towards grant funding as opposed to the more costly traditional concessionary loans and other commercial arrangements.
He strongly called for this in his address to the Development Committee meeting of the World Bank at its Autumn Annual Meetings in September and reiterated this to US Secretary of Treasury Janet Yellen during her visit to South Africa at the end of January.
He knows that public budgets alone won’t be able to fill Africa’s estimated US$100bn climate-related infrastructure funding gap.
While acknowledging the US$8.5bn commitment to South Africa’s Just Energy Transition Partnership by the US, EU and UK, he strongly reminded Yellen that these were mostly in the form of concessionary loans and other commercial arrangements instead of “a much larger grant-funding component.”
He has good reason to do so.
According to Treasury projections, South Africa’s debt service costs is expected to rise from R307.7bn (4.6% of GDP) in 2022/23 to R332.2b in 2023/24 (4.7% of GDP), R352.9bn 2024/25 (4.7% of GDP), and to R380.7bn (4.8%) in 2025/26.
At the EU leaders’ summit in Ethiopia a few days ago, in the presence of President Ramaphosa, Godongwana’s sentiments received welcome support from UN Secretary General Antonio Guterres, who warned that the global financial system is “dysfunctional and unfair” and is “failing developing countries”.
Developing countries, Guterres lamented, are denied debt relief and are being charged “extortionate interest rates, with vital systems as a consequence starved of investment”. He is keen for a rethink of the global financial architecture to reflect the “needs of developing countries”.
In Davos, Godongwana’s message to South Africans and foreign investors was unequivocal: “Our society is undergoing rapid transformation, presenting us with as many challenges as it does opportunities.
“We must pull together, across borders and political affiliations, to understand and overcome these challenges, and take full advantage of the opportunities.”
The reality is that no one owes South Africa a living. Enough of this civil service tourism in wealthy Switzerland and of ANC speak “about the ambitious suite of reforms – in energy, infrastructure development, food security, job creation and the green transition – that the country is implementing to create a sustainable, vibrant, and inclusive economy.”
Like charity, earning respect and confidence begins at home. How can South Africans trust their government when ministers have a callous disregard in refusing to take any responsibility for a self-inflicted energy crisis?
How can Godongwana expect foreign investors to come in droves when by his own admission the country’s socio-economic landscape is fraught with problems and uncertainties including the scourge of corruption?
When they wake up on Wednesday, will Budget 2023 be business as usual and more of the same for millions of hapless South Africans? Or will Godongwana’s Budget finally signal the gusts of true change in the ANC’s year of reckoning?
* Parker is an economist and writer based in London
Cape Times
* The views expressed do not necessarily reflect the views of IOL or Independent Media.