Medium Term Budget Policy Statement 2024: Cape Chamber Of Commerce And Industry: Commentary

One of the toughest jobs now in South Africa must be that of Minister of Finance: watching his demeanour in presenting the 2024 Medium Term Budget policy Statement clearly showed both his committed intention, but at the same time, his anxiety.

In comparison with the 2023 MTBPS, his objectives have changed to a focus of a reconfigured, efficient state, protection of vulnerable households, stabilisation of debt and debt service cost; and tax revenue enhancing growth to drive inclusive growth and job creation, reduction of poverty and high cost of living, and establishing a capable, ethical and developmental state

Fostering inclusive growth and job creation

From an inclusive growth and job creation perspective, if it weren’t for a rather more stable electricity supply, things would have been much worse, but according to the QLFS  the unemployment rate rose to 33.5% in Q2 of 2024, the highest in two years, up from 32.9% in the prior period. The number of unemployed individuals increased to 8.4 million, marking the highest figure since comparable records began in 2008. In the meantime, the labour force rose to 25 million, while employment declined to 16.7 million. 

Youth unemployment (15 to 34 years of age) is much higher at 45,5%. According to the QLFS limited educational attainment, as well as social and economic disadvantages, are the primary factors driving elevated rates of unemployment. For the 1st Quarter of 2024, only 9,8% of the employed youth were graduates. Altogether, this says a lot about the parlous state of South Africa’s educational system, raising the question of whether this is a funding problem or an educational capability one.

Also, according to StatsSA, overall population grew by 1.33% from July 2023 to July 2024. Juxtaposed against this, the Minister reported a rather lower than expected overall real GDP growth rate of 1.1% for 2024, i.e., lower than the population growth rate. However, the GDP growth rate is projected to increase to 1.9% by 2027. The implication of this is that on a per capita basis, over the short term at least, South Africans are poorer.

The stated priority of driving inclusive growth is based on four pillars, namely, maintenance of macroeconomic stability, implementation of structural reforms, growth enhancing infrastructure and state capability.

Maintenance of macroeconomic stability

Overall, given the National Treasury’s responsibility for the maintenance of macroeconomic stability, taken together with the Reserve Bank’s responsibility for the anchoring of inflation expectations, this is the one arena in the overall fiscal framework where the two players have consistently and transparently played the game. Reading between the lines an adjustment might be in the offing of the current targeted inflation band of 3 to 6% and quite possible to a set target rate of either 4.5% or 3% as reportedly promoted by the Reserve Bank Governor, Lesetja Kganyago earlier.

Implementation of structural reforms and growth-enhancing infrastructure

Operation Vulindlela appears to be a key mechanism to drive structural reforms. Some success has been achieved, proving that government and business can work productively together for the common good. Some examples given were a large pipeline of 22500 megawatts renewal energy, reduction in data costs, water licence approvals and eVisa system for 34 countries.

The intention is to build on these successes and learnings, as a second phase, to tackle network sectors, inclusive of a competitive electricity market, freight rail network access to private players to reduce inefficiencies, strengthening of the local water regulatory environment, strengthening local government, harnessing of digital infrastructure and to make cities more efficient via integration of urban environments.

The problem is that Eskom’s Energy Availability Factor (EAF) increased by 7.5% from the same period last year to 62.2%, which is a significant improvement, but only equal to what Eskom produced some 23 years ago. At the same time, private power producers generated some 2.6 GWh, nearly 3 times as much as 14 years ago. The further issue is that current collective electricity output is probably just sufficient for the present level of GDP, which implies that further economic growth might by stifled by this implied limit of electricity production.

Further risks to electricity supply are the age and thus consistent deterioration of Eskom coal power stations, together with grid capacity and design limitations, the latter according to some estimates requiring some Rb320 to fix.

Allied to this is the fact are rapidly rising electricity tariffs together with poor electricity distribution by most municipalities adding further costs to business and limiting economic growth. In addition, municipalities owe Eskom some R82,3 billion which further add to Eskom’s cost structure as well. The municipal debt relief programme initiated by National Treasury in the previous financial year is meant to ameliorate this situation, however, National Treasury needs to urgently start making available to the public evidence of successful progress and implementation.

National role-players need to develop and clarify what the national strategy is to:1. Start bringing down the cost of electricity in South Africa; 2. Expand energy capacity to accommodate new growth- as this has the potential to be a, if not the, major catalyst for reigniting desperately needed economic growth in the country.

Re-igniting and accelerating infrastructure investment in South Africa is correctly highlighted and a number of initiatives to leverage additional private sector investment and enhance municipal construction expenditure are mentioned. These plans need to be refined and deliverable deadline targets clarified and shared so that we can monitor government’s performance at both national and municipal levels. The private sector needs to come to the party and ensure there are platforms for effective collaboration to leverage substantial investment funds in a way that works for both government and the private sector. 

National Treasury is promoting faster delivery of infrastructure that supports economic growth, access to basic services and job creation, by amongst others simplifying PPP regulations and associated requirements, build-operate-transfer structures (such as is foreseen for landside capacity expansions at the Cape Town Container Terminal) and bringing on board private sector expertise and financing.

As they say the proof of the penny lies in the timely, fit-for-purpose and appropriate delivery of these endeavours. 

Building state capacity and fiscal sustainability

These two elements are interlinked, incorporating debt stabilization via primary surpluses over the next decade, directing of expenditure towards capital projects, protection of critical services and the social wage (health, education, social protection, community development and employment programmes), managing the public sector wage bill more adroitly and strengthening local government.

The Minister acknowledged that municipalities are fundamental to building a capable state, but that many have serious governance, planning and financial issues, an untenable situation. Further, that is impossible for national government to intervene in all municipalities at the same time, which by implication is an indictment on provincial governments.

Some national initiatives are the Eskom Municipal Debt Relief programme (which has achieved some traction), Metro Trading Services Reform (the goal is to increase surpluses to be used for infrastructure investment), the White Paper on Local Government by the Department of Cooperative Government (meant to equip municipalities to adequately respond to the needs of its citizens) and the Public Procurement Act.
 

Conclusion

In summary the 2024 MTBPS is a sober reflection of where South Africa as a country finds itself and the long and difficult road to get to the heights what the designers of the Constitution had in mind 30 years ago.

Overall, the National Treasury has been conservative in its approach, adjusting growth expectations down and presenting a doable fiscal and economic stabilisation plan going forward. Implicit in the latter is also the recognition that the National Treasury cannot solve the Country’s problems and challenges on its own.

Jacques Moolman
President of the Cape Chamber of Commerce and Industry