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EUGENE BUTHELEZI | Godongwana’s budget addresses many of SA's economic challenges

Dysfunctional state-owned power utility Eskom remains a significant challenge

Enoch Godongwana looks on after delivering his budget speech in Cape Town on February 21. He demonstrated an awareness of the pressing realities confronting SA society, says the writer.
Enoch Godongwana looks on after delivering his budget speech in Cape Town on February 21. He demonstrated an awareness of the pressing realities confronting SA society, says the writer.

Finance minister Enoch Godongwana delivered the 2024 national budget speech last week. It centred on promoting economic growth, addressing inequality and ensuring sustainable development in SA.

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.

The growth outlook for SA between 2024 and 2026 is expected to average 1.6%, 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 SA 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, telecommunications and water to stimulate growth.

On the other hand, the elephant in the room –Eskom – remains a significant challenge. 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 it 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.

Integrating renewable energy and restructuring Eskom’s operations may, however, 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. Given the economic challenges, Godongwana said immediate reform will be through the 30% utilisation of the Gold and Foreign Exchange Contingency ReserveAccount (GFECRA), which has grown to more than R500bn.

Therefore, the government plans to use R150bn from GFECRA, expecting a decline of about R30.2 bn in government debt servicing costs over the 2024 medium term expenditure framework.

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. Tax revenue for 2023/24 is R56.1 bn lower than estimated in 2023.

The minister highlighted the implementation of a global minimum corporate tax, which is projected to generate R8bn in corporate tax revenue by 2026/27. Godongwana demonstrated an awareness of the pressing realities confronting SA society by announcing adjustments to social grants in line with inflation.

The effectiveness of government spending by increasing wages in the education sector is welcome, however, to maximize 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.

There is also a need for alignment of employment programs with the needs of the labour market. Did the budget speech address current challenges? Yes, however, fiscal authorities need to prioritise structural reforms, innovation and inclusive economic development strategies to address economic and social challenges effectively.

Buthelezi is a lecturer in the department of economics and finance at the University of the Free State

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