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Did the budget speech address SA's current challenges?

22 February 2024 Photo SUPPLIED

Opinion article by Eugene Msizi Buthelezi, nGAP Lecturer in the Department of Economics and Finance, University of the Free State.

Finance Minister Enoch Godongwana delivered the 2024 National Budget Speech on Wednesday 21 February 2024. The speech centred around promoting economic growth, addressing inequality, and ensuring sustainable development in South Africa. Minister Godongwana emphasised the importance of expanding the national pie through economic measures while also focusing on the distribution of resources to achieve social and economic justice. Monetary policy spillover to fiscal policy was evident, as the minister referenced the utilisation of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). This budget speech came at a time of significant economic challenges in South Africa, including the following:

Falling economic growth projection, reflecting that there are still persistent challenges in addressing unemployment, poverty, and inequality.
Eskom's financial woes and operational inefficiencies, which remain a critical concern.
Rising government debt, budget deficits, and debt-service expenses are among current pressing issues.
Tax adjustments, which are needed more than ever to bolster government revenue, alongside social grant increases to support vulnerable populations.
Public-private partnerships for economic growth, job creation, and enhanced productivity.

Domestic economy and fiscal outlook

The growth outlook for South Africa between 2024 and 2026 is expected to average 1,6%, indicating a shortfall of 3,4% from the targeted economic growth of 5% as outlined in the National Development Plan's vision for 2030. This discrepancy reflects the challenges facing the South African economy in addressing issues such as unemployment, poverty, and inequality. Nevertheless, the minister pointed out key policy initiatives in the budget speech. This included the implementation of measures to enhance procurement efficiency and promote local industrialisation. Moreover, structural reform in sectors such as electricity, logistics, water, and telecommunications to stimulate growth.

On the other hand, the elephant in the room – Eskom – remains a significant challenge in the South African economy. Eskom, the state-owned electricity utility, has been plagued by financial difficulties, operational inefficiencies, and power supply constraints, leading to frequent load shedding and disruption of economic activities. However, in the 2024 Budget Speech, Eskom was granted a debt-relief plan to alleviate its financial burden and allow the entity to focus on its core business operations. It was noted that Eskom's coal-fired power stations are being fixed and renewable energy projects are in the pipeline to promote and further enhance energy security. These interventions will ensure operational efficiency, enhance energy security, reduce reliance on fossil fuels, reduce the frequency of load shedding, and minimise disruptions to businesses and households. Despite this, Eskom may still require significant financial investments, potentially increasing the financial burden. Moreover, integrating renewable energy and restructuring Eskom's operations may face resistance or challenges in implementation, leading to transitional disruptions.

In terms of infrastructure, the minister pointed out that partnerships between the public and private sectors to finance projects are key to delivering infrastructure projects. It is expected that infrastructure investment will stimulate economic growth, create jobs, and boost productivity. However, large-scale infrastructure projects carry financial risks, including cost overruns, delays, and potential budget deficits that could strain public finances. Fiscal authorities have shown a lack of monitoring and evaluation, as the public is still awaiting a report on the generation of sustainable employment and infrastructure projects that have contributed to the overall economic growth, which is a point of concern. On the other hand, infrastructure investment may be vulnerable to corruption, mismanagement, and lack of transparency, leading to inefficiencies and suboptimal outcomes. These are some of the aspects that fiscal authorities need to look at and put necessary measures in place to ensure the success of infrastructure projects. Some of the key macroeconomic variables that were highlighted in the budget speech are the following:

The national government's debt, which is projected to reach approximately 75,3% of the Gross Domestic Product (GDP) by 2025/26.
The budget deficit for 2023/24, which is expected to worsen to 4,9% of the GDP.
The debt-service expenses which are anticipated to increase is now estimated at R356 billion, representing more than 20% of revenue – surpassing the budgets allocated for social protection, health, or peace and security.

Given the economic challenges reflected in these macroeconomic variables, the minister has indicated that immediate reform will be through the 30% utilisation of the GFECRA, which has grown to more than R500 billion. Therefore, the government plans to use R150 billion from GFECRA, expecting a decline of approximately R30,2 billion in government debt servicing costs over the 2024 Medium Term Expenditure Framework (MTEF). The use of the account is effective, because the account provides liquidity in times of need, allowing the government to meet its financial obligations without resorting to external borrowing. Given that the account resides with monetary authorities in the South African Reserve Bank (SARB), fiscal authorities will find that GFECRA has restrictions on utilisation, limiting the government's flexibility in responding to immediate financial needs or emergencies. Moreover, depending on the size and management of the GFECRA, it could impact market perceptions of the country's financial health and credibility.

Tax and revenue

The weak performance of the economy has been identified as a significant factor contributing to a sharp decline in tax revenue collection for 2023/24. It has been observed that tax revenue for 2023/24 is R56,1 billion lower than estimated in 2023. The minister highlighted the implementation of a global minimum corporate tax, which is projected to generate R8 billion in corporate tax revenue by 2026/27. Additionally, measures will be taken to target multinational corporations with annual revenue exceeding a certain threshold. General solutions for revenue generation were proposed, which included the following:

Focusing on excise duties for alcohol products, with increases ranging between 6,7% and 7,2% for 2024/25
A 4,7% increase in tobacco excise duties on cigarettes.

Implementing these tax proposals and improving revenue collection will boost government revenue, allowing for the funding of essential services, infrastructure projects, and social programmes. This enhanced revenue generation will also contribute to fiscal stability by reducing budget deficits and public debt levels over time. However, fiscal authorities must prioritise modernising tax administration and combating illicit activities to enhance tax compliance, ensuring that all taxpayers contribute their fair share.

Social security and government spending

In the budget speech, the minister demonstrated an awareness of the pressing realities confronting South African society by announcing adjustments to social grants in line with inflation. The grant changes included, among others

R50 increase to the foster care grant;
Child Support Grant increases from R510 to R530;
Older Person’s Grant increases by R90 on 1 April and R10 in October 2024; and
COVID-19 Social Relief of Distress Grant of R350.

However, it is crucial to recognise that these increases may still fall short of adequately addressing the needs of those living below the poverty line, especially considering the high levels of unemployment and the rising cost of living. Moreover, while there is a commendable effort to provide support through these grant adjustments, fiscal constraints pose significant limitations. The government must navigate carefully to ensure that these increases are sustainable within the broader fiscal framework. Balancing the imperative to support vulnerable populations with fiscal prudence is a delicate task, requiring careful consideration of both short-term relief measures and long-term fiscal sustainability. Ultimately, while the announced increases in social grants represent a step towards addressing the immediate needs of vulnerable communities, policy makers must continue evaluating and refining these measures to ensure they effectively alleviate poverty and inequality while remaining fiscally responsible. Other critical government spending was pointed out in the budget speech, including the following:

An additional R25,7 billion was allocated to the education sector’s wages.
Childhood development grants increased to R2 billion over the medium term.
The health sector to be allocated a total of R848 billion over the Medium-Term Expenditure Framework (MTEF) for health.
An allocation of R61,4 billion for employment programmes over the medium term.
A R7,4 billion for the Presidential Employment Initiative.

The effectiveness of government spending by increasing wages in the education sector is welcome, as it could attract and retain qualified educators. However, it is essential to consider whether these increases are accompanied by measures to address broader challenges within the education system. Simply increasing wages without addressing issues such as inadequate infrastructure, resource shortages, and administrative inefficiencies may limit the overall impact on educational outcomes. To maximise effectiveness, it is crucial for the government to also invest in building new schools, providing resources for the day-to-day running of schools, and implementing reforms to improve the quality of education.

On the other hand, regarding spending on employment programmes and initiatives to address unemployment, effectiveness will depend on fiscal authorities' design and implementation of these programmes. Allocating funds to employment programmes could potentially create job opportunities and reduce unemployment rates, particularly among artisans and recent graduates. However, there is still a need for alignment of employment programmes with the needs of the labour market, the provision of relevant skills training and support services, and the creation of sustainable job opportunities. Additionally, effective monitoring and evaluation mechanisms are essential to ensure that spending on employment programmes yields tangible outcomes.

In conclusion, the 2024 Budget Speech touched upon various critical challenges facing the nation, including economic growth constraints, Eskom's challenges, rising government debt, tax revenue shortfalls, and the need for social security enhancements. The budget speech regained the need to address these challenges effectively and pointed out the importance of ensuring that fiscal policies prioritise equitable distribution of resources and effective management of public finances. Key areas for fiscal policy focus included continued investment in infrastructure projects, coupled with public-private partnerships, which can stimulate economic growth, create jobs, and enhance productivity. It has been noted that enhancing revenue generation through effective tax policies, such as corporate tax reforms and excise duty adjustments, can bolster government revenue. On the other hand, social grant adjustments were deemed to be vital for supporting vulnerable populations, but efforts to address poverty and inequality should extend beyond grant increases. The speech acknowledged that investments in education, health care, and employment programmes are essential to promote inclusive growth and reduce socio-economic disparities.

Did the budget speech address current challenges? Yes, the 2024 Budget Speech addressed many of the current challenges facing South Africa. However, moving forward, fiscal authorities need to prioritise structural reforms, innovation, and inclusive economic development strategies to address South Africa's economic and social challenges effectively. Exploring opportunities for public-private collaboration, leveraging technology for efficient service delivery, and promoting entrepreneurship and small business development can contribute to long-term sustainable growth and prosperity. Additionally, maintaining a conducive policy environment, fostering investor confidence, and strengthening governance and institutional capacity are crucial for achieving lasting economic resilience and social progress.

The views presented here are mine, they do not represent the views and policy position of the institution I am affiliated with. I do this for community outreach as a person in academics only.

News Archive

Media: ANC can learn a lesson from Moshoeshoe

2006-05-20

27/05/2006 20:32 - (SA)
ANC can learn a lesson from Moshoeshoe
ON 2004, the University of the Free State turned 100 years old. As part of its centenary celebrations, the idea of the Moshoeshoe Memorial Lecture was mooted as part of another idea: to promote the study of the meaning of Moshoeshoe.

This lecture comes at a critical point in South Africa's still-new democracy. There are indications that the value of public engagement that Moshoeshoe prized highly through his lipitso [community gatherings], and now also a prized feature in our democracy, may be under serious threat. It is for this reason that I would like to dedicate this lecture to all those in our country and elsewhere who daily or weekly, or however frequently, have had the courage to express their considered opinions on pressing matters facing our society. They may be columnists, editors, commentators, artists of all kinds, academics and writers of letters to the editor, non-violent protesters with their placards and cartoonists who put a mirror in front of our eyes.

There is a remarkable story of how Moshoeshoe dealt with Mzilikazi, the aggressor who attacked Thaba Bosiu and failed. So when Mzilikazi retreated from Thaba Bosiu with a bruised ego after failing to take over the mountain, Moshoeshoe, in an unexpected turn of events, sent him cattle to return home bruised but grateful for the generosity of a victorious target of his aggression. At least he would not starve along the way. It was a devastating act of magnanimity which signalled a phenomenal role change.

"If only you had asked," Moshoeshoe seemed to be saying, "I could have given you some cattle. Have them anyway."

It was impossible for Mzilikazi not to have felt ashamed. At the same time, he could still present himself to his people as one who was so feared that even in defeat he was given cattle. At any rate, he never returned.

I look at our situation in South Africa and find that the wisdom of Moshoeshoe's method produced one of the defining moments that led to South Africa's momentous transition to democracy. Part of Nelson Mandela's legacy is precisely this: what I have called counter-intuitive leadership and the immense possibilities it offers for re-imagining whole societies.

A number of events in the past 12 months have made me wonder whether we are faced with a new situation that may have arisen. An increasing number of highly intelligent, sensitive and highly committed South Africans across the class, racial and cultural spectrum confess to feeling uncertain and vulnerable as never before since 1994. When indomitable optimists confess to having a sense of things unhinging, the misery of anxiety spreads. It must have something to do with an accumulation of events that convey the sense of impending implosion. It is the sense that events are spiralling out of control and no one among the leadership of the country seems to have a handle on things.

I should mention the one event that has dominated the national scene continuously for many months now. It is, of course, the trying events around the recent trial and acquittal of Jacob Zuma. The aftermath continues to dominate the news and public discourse. What, really, have we learnt or are learning from it all? It is probably too early to tell. Yet the drama seems far from over, promising to keep us all without relief, and in a state of anguish. It seems poised to reveal more faultlines in our national life than answers and solutions.

We need a mechanism that will affirm the different positions of the contestants validating their honesty in a way that will give the public confidence that real solutions are possible. It is this kind of openness, which never comes easily, that leads to breakthrough solutions, of the kind Moshoeshoe's wisdom symbolises.

Who will take this courageous step? What is clear is that a complex democracy like South Africa's cannot survive a single authority. Only multiple authorities within a constitutional framework have a real chance. I want to press this matter further.

Could it be that part of the problem is that we are unable to deal with the notion of "opposition". We are horrified that any of us could become "the opposition". In reality, it is time we began to anticipate the arrival of a moment when there was no longer a single [overwhelmingly] dominant political force as is currently the case. Such is the course of change. The measure of the maturity of the current political environment will be in how it can create conditions that anticipate that moment rather than ones that seek to prevent it. This is the formidable challenge of a popular post-apartheid political movement.

Can it conceptually anticipate a future when it is no longer overwhelmingly in control, in the form in which it currently is and resist, counter-intuitively, the temptation to prevent such an eventuality? Successfully resisting such an option would enable its current vision and its ultimate legacy to our country to manifest itself in different articulations of itself, which then contend for social influence.

In this way, the vision never really dies, it simply evolves into higher, more complex forms of itself. If the resulting versions are what is called "the opposition" that should not be such a bad thing - unless we want to invent another name for it. The image of flying ants going off to start other similar settlements is not so inappropriate.

I do not wish to suggest that the nuptial flights of the alliance partners are about to occur: only that it is a mark of leadership foresight to anticipate them conceptually. Any political movement that has visions of itself as a perpetual entity should look at the compelling evidence of history. Few have survived those defining moments when they should have been more elastic, and that because they were not, did not live to see the next day.

I believe we may have reached a moment not fundamentally different from the sobering, yet uplifting and vision-making, nation-building realities that led to Kempton Park in the early 1990s. The difference between then and now is that the black majority is not facing white compatriots across the negotiating table. Rather, it is facing itself: perhaps really for the first time since 1994. It is not a time for repeating old platitudes. Could we apply to ourselves the same degree of inventiveness and rigorous negotiation we displayed up to the adoption or our Constitution?

Morena Moshoeshoe faced similarly formative challenges. He seems to have been a great listener. No problem was too insignificant that it could not be addressed. He seems to have networked actively across the spectrum of society. He seems to have kept a close eye on the world beyond Lesotho, forming strong friendships and alliances, weighing his options constantly. He seems to have had patience and forbearance. He had tons of data before him before he could propose the unexpected. He tells us across the years that moments of renewal demand no less.

This is an editied version of the inaugural Moshoeshoe Memorial Lecture presented by Univeristy of Cape Town vice-chancellor Professor Ndebele at the University of the Free State on Thursday. Perspectives on Leadership Challenges In South Africa

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