Issued by Ezra Mendel on behalf of the FW de Klerk Foundation:
Introduction
The past decade has been extremely complex for South Africa to navigate, being subject to much domestic and global economic pressure. With this in mind, this article will evaluate whether there have been significant changes in South Africa’s economic priorities based on the latest budget speeches.
The Current State of South Africa’s Economy
South Africa’s economy today is a consequence of years of domestic and international economic fluctuations. From South Africa’s consistent poor scoring by credit rating agencies to pandemics that have fractured global markets and economies, the newly elected government is faced with a great task of identifying priorities regarding our economy.
South Africa’s current credit ratings by S&P are “BB-/B” for foreign currency debt and “BB/B” for local currency debt. These ratings are below an investment grade, indicating that South Africa’s debt is considered speculative or is of a “junk” status, reflecting concerns about the country’s economic challenges and financial risks, particularly related to state-owned enterprises.
South Africa’s 2023 GDP declined from 1,9% in 2022 to 0,6% in 2023. Although South Africa’s economy has managed to recover to its pre-pandemic levels, the strength of this recovery has been slowed by weak structural growth, as a result of power shortages and logistic constraints due to poor infrastructure at South Africa’s ports and railway systems. In Q1 2024, GDP dropped by 0,1% quarter-on-quarter, with annual growth cooling to 0,5%. Contractions in private consumption, fixed investment and exports, alongside ongoing challenges in the manufacturing and mining sectors, further weighed on economic performance.
According to Stats SA, the 2023 sectoral performance is as follows:
A major factor that affected the performance of the various sectors was South Africa’s electricity and logistical infrastructure. The Department of Public Enterprises spent 99,3% (R34 billion of R34,4 billion) of the final appropriation. Notably, the final appropriation was mainly composed of allocations to state-owned enterprises, namely Eskom which secured the most funds among public enterprises at R21,9 billion. Despite this, rampant load-shedding hit all sectors, affecting their overall performance.
Additionally, the performance of various economically important sectors such as agriculture shrank by 12,2%, recorded as the biggest annual fall in agriculture production since 1995. This can be attributed to severe power outages, as well as various diseases and floods that triggered the decline. It was also noted that the Department of Agriculture appropriated fewer funds in 2023, with only R17 billion as compared to the R18 billion received in the 2022 year. Spending, however, increased in the 2022/2023 year as compared to the 2021/2022 financial year.
On a positive note, the mining sector saw a 2,4% increase, driven by a stronger production of natural resources. However, mining sales have declined due to weaker global demand. The manufacturing sector experienced a modest growth of 0,2%, with sales rising by 9,7% thanks to an increased demand for petrochemicals and vehicles. The finance, real estate and business services industry was a standout performer in 2023, expanding by 1,8% and contributing 0,4 percentage points to GDP growth. Other sectors, including personal services, transport, storage and communication, manufacturing, construction and government services, also contributed to keeping the economy in a positive territory. Notably, the construction sector saw its first positive growth since 2016, expanding by 0,6%.
By considering the appropriations for other key economic departments, we cannot ignore the struggles within vital departments such as Public Works and Infrastructure, which has struggled to fulfil its goals due to consistent underspending and Trade, Industry and Competition which has seen their budget decrease from R11,8 billion in the 2021/22 financial year to R10,9 billion in the 2022/23 financial year. This was due to slow economic recovery from the pandemic and the July 2021 lootings.
South Africa’s economy also shows signs of resilience. However, this resilience will not be long-lasting, unless it is supported and addressed by the 7th administration.
Changes in Economic Priorities
One of the greatest responsibilities placed on the Government of National Unity (“GNU”), is reviving South Africa’s economy. Leading up to the 2019 elections, this same hope and aspiration was placed on President Cyril Ramaphosa after the nation lost hope in the Zuma administration, which was defiled by state capture and caused an economic reduction. Despite such support, Ramaphosa’s 6th administration did not take the economy to new heights. Thus, this 7th administration is President Ramaphosa’s shot at redemption. The decision to form a coalition with parties that value the Constitution was the first step in the right direction, with the markets reacting positively.
At the opening of the seventh parliament, President Ramaphosa outlined his administration’s priorities, including: Inclusive growth and job creation, reducing poverty, tackling the high cost of living and building a capable, ethical and developmental state. He emphasised that stability in governance in the metros and improved service delivery in municipalities are both critical for economic growth.
President Ramaphosa pledged to intensify investment in infrastructure, aiming to transform South Africa into a construction hub over the next five years. The newly appointed Minister of Public Works and Infrastructure, Dean Macpherson, echoed these views and committed to…
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