/ 23 February 2023

Why Godongwana had no choice but to prioritise energy

Godongwana: 'how Can A Policy To Create Jobs Be Wrong?'
Finance Minister Enoch Godongwana

Finance Minister Enoch Godongwana delivered his second national budget under a diverse global economic climate. The International Monetary Fund projects global economic growth to slow from 3.4% in 2022 to 2,9% in 2023. 

While global inflation is anticipated to fall to 6.6% in 2023 from 8,8% in 2022. In South Africa’s case, the reserve bank expects GDP growth to decline from 2,5% in 2022 to 0,3% in 2023 due to record levels of load-shedding. 

While inflation in 2022 and 2023 has continued to register above the reserve bank’s 3% to 6% target band, recording 6.9% in January 2023. Food inflation in particular has been driven by exogenous factors and the downside risks of load-shedding. 

The nature of the domestic and global economic outlook required the national treasury to prioritise country risks in a manner that would strengthen the resilience of the economy, enable recovery and create a growth path for the future. 

Given these imperatives, South Africa continues to provide a macroeconomic policy framework that could support growth and that is reflected through the South African Reserve Bank’s inflation targeting efforts, a flexible exchange rate and prudent fiscal policy. Government expenditure is forecasted to increase by 3.4% in the 2023-2024 fiscal year, illustrating fiscal discipline in a tough climate. 

Fiscal discipline and priority setting

Despite this, the national economy continues to be under severe strain and face structural headwinds which continue to constrain economic growth and recovery plans outlined in the Economic Reconstruction and Recovery Plan

One such structural impediment is the shortage in the availability and supply of electricity by Eskom. This impediment has had a negative effect on safety and security in the country, the availability of clean water, accelerated damages in public infrastructure and production losses. 

According to reserve bank estimates, the economy loses close to a R1 billion per day due to the negative effects of load-shedding. Therefore, while the issues that are related to safety and security, public infrastructure and social grant allocation among others are important areas of interest in the budget. 

The efficiencies in the provision of services in these areas are all dependent on whether there is reliable energy supply to facilitate the delivery of those services. Especially for the most vulnerable. 

Acknowledging the systematic nature with which the energy crisis in South Africa’s economy constraints production and growth. Godongwana tabled the Eskom Debt Relief Bill and the Solar Panel Tax Incentive to mitigate the risks that are exacerbated by load-shedding. Now, R254 billion of Eskom’s debt will be taken up by the national treasury so that the energy utility could have more capacity to diligently improve its performance and increase the electricity availability factor as an outcome. 

However, addressing the risks associated with South Africa’s energy deficit should not be limited to fiscal allocations in the budget. In order to register a bang for buck, there needs to be strengthened governance over the programme to drive efficiencies in Eskom. In addition to a broader strategic plan that can enable an energy mix that would enhance the modernisation of the South African economy and address its socio-economic objectives.

Minimal tax proposals in this year’s budget

Quite correctly, the biggest highlight of the budget was the support to aid individuals and businesses to source alternative energy sources to supplement the occurrence of load-shedding and in certain instances complete power outages. This includes ensuring that personal income tax brackets are adjusted for inflation so as to avoid bracket creep. 

The past fiscal year has seen record increases in the price of fuel. In light of that, no changes were made to the general fuel levy and Road Accident Fund levy, to soften the pass through effect. The main tax proposals this year have been related to sin taxes in the main. 

Furthermore, R15 billion has been set aside in the medium term for contingent liabilities. This allocation has proven to be crucial in the past, albeit not sufficient, it has been useful when South Africa has been faced with incidences of flooding, unexpected damage to infrastructure and even offsetting cost-push inflationary effects owing to other exogenous factors. 

Debt service costs over the medium term will continue to be significant averaging R366,8 billion a year stabilising at 73,6% of GDP in the medium term. 

Therefore, the trade-off that the treasury made in the budget in 2023-2024 needs to be fully realised by ensuring that there is more effective governance. More so, at the level of local government because beyond the medium term, the South African economy needs to be orientated towards increasing its productive capacity at a sustainable level to address the high level of unemployment and poverty. 

Resilience and effective governance

The word “jobs” or “job creation” was not mentioned in the budget speech this year. This was testament of the fact that the priority of the budget is to safeguard the resilience of the economy through the protection of households and industries, enabling recovery and creating a growth path for the future. 

However, the delivery of the budget and the associated bills for approval by parliament is not where it ends. Effective governance with regard to intergovernmental coordination, improvements in governance at local and provincial government is the ingredient that will give a material impact to the policy positions articulated in this year’s budget. 

The question therefore becomes, what will the minister and president do to ensure that it is achieved? Especially, in light of the gazetted national state of disaster

The efficacy of the response to this question, is what we would review in the next budget and remains the principal challenge of this budget. 

Ndumiso Hadebe is the chief economist at KH Equity Partners and advises the Gauteng provincial government cabinet. He also serves on the board of The Da Vinci Business School.

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.