London - Economic growth is re-emerging as the holy grail of public policy with the biggest ideological fillip coming just a few weeks ago from fallen British prime minister Liz Truss, whose leadership campaign motto was unashamedly “growth, growth, growth!”
Finance Minister Enoch Godongwana in his Medium-Term Budget Policy Statement this past week did not disappoint.
“Our approach to growth is based on a clear and stable macroeconomic framework, complemented by the implementation of structural reforms to improve competitiveness, industrial policy to boost manufacturing and measures to strengthen state capacity,” he said.
Unlike Truss and Kwarteng, Godongwana is a fiscal pragmatist and not a brazen ideologue.
He had a stark message for South Africans. Real GDP growth is forecast to be lower at 1.9%, compared with a 2.1% estimate in February.
Over the next three years, the economy is expected to grow at an average of 1.6% – from the rebound of 4.9% last year to the forward projections of 1.9% this year, 1.4% next year, 1.7% in 2024 and 1.8% in 2025.
In other words, the growth outlook over the medium-term is bleak.
Godongwana conceded in his address: “This level of growth is too low to support our developmental goals. Accordingly, we must take action to put our economy on a higher growth trajectory.” This narrative is hardly new.
He knows that for the government to even start delivering, let alone affording the economic fundamentals and services required to propel citizens out of their economic and cost-of-living crisis, the economy would have to grow a minimum 5%-6% per annum, which under current estimates and structural reforms would require an economic miracle.
Judging by the “several long-standing structural impediments” which Godongwana identified, the state of our economy will be defined and dogged well into the medium-term by our metrics of shame, unreliable electricity supply and constant load shedding, costly and inefficient ports and rail network, high crime and corruption, a weak state capacity and high levels of market concentration and barriers to entry that suppress the emergence and growth of small businesses.
As if the malaise ended there. “Our structural challenges have been exacerbated by new ones, including the global economic slowdown, high energy and food prices and the destruction caused by natural disasters such as the recent floods,” the finance minister observed.
To be fair to him, some of the impacts on the economy are due to extraneous factors. But it is factors that Team Ramaphosa does have control over that have been consistently wanting especially in the urgency required to mitigate if not eradicate them.
Take for instance Eskom. For at least a decade, Godongwana laments: “We have spent billions of rand supporting Eskom, with limited improvements in the reliability of the electricity supply or the financial health of the company.”
He could raise funds from even a partial privatisation of SOEs. Instead, he announced: “To ensure Eskom’s long-term financial viability, the government will take over a significant portion of the utility’s R400 billion debt.”
There are similar debt bailouts for Sanral, Transnet and Denel. All these policy foibles put an extra burden on the government debt which is projected to rise over R4.7 trillion this financial year.
To be fair, gross government debt, expected to stabilise at 71.4% of GDP in 2022/23, is relatively low globally.
His hope would be for higher tax receipts, and commodity revenues due to higher global prices, which would give him greater fiscal space.
The elephant in the room for Team Ramaphosa is to avoid being greylisted by the Financial Action Task Force for lack of compliance with its anti-money laundering rules, which could impact foreign direct investment inflows.
Parker is an economist and writer based in London
Cape Times