SA is focused on implementing structural reforms to improve its competitiveness and industrial policy to boost manufacturing and economic growth, finance minister Enoch Godongwana told African and European business leaders at a trade and investment conference on Thursday.
Measures to strengthen the state’s capacity are also in focus to keep SA on a growth path, he told delegates to the 9th Southern Africa-Europe CEO Dialogue in Johannesburg, which is taking place on November 10-11.
He said SA has created a competitive energy market and is dealing with inefficiencies at its ports and rail networks. The country is also tackling its visa regime to attract skills and investments, and is reforming its water and telecommunications sectors.
“This is what we are doing in response to the challenging economic environment,” Godongwana said.
The dialogue, a platform used to promote and support the long-term growth of strategic trade and economic relations between Europe and Southern Africa, takes place against the backdrop of two global crises: the lingering Covid-19 pandemic and Russia’s war in Ukraine.
Both have caused a significant slowdown in the world’s largest economies.
According to the IMF, the global economy is now forecast to grow 3.2% in 2022, down from 4.4%. The 2023 outlook has also been revised downwards to 2.7%. The IMF forecasts global headline inflation to average 8.8% in 2022, before slowing to 6.5% in 2023 and 4.1% in 2024.
In the short term, global monetary policy is expected to continue to tighten as central banks intensify the fight against inflation. Global trade volumes are also expected to slow significantly — from 10.1% in 2021 to 4.3% in 2022, and 2.5% in 2023.
These disruptions to global trade, supply and value chains have tilted the balance of risks to Africa’s economic growth outlook to the downside.
Africa’s real GDP growth is now projected at 4.1% in 2022, significantly lower than the near 7% recorded in 2021. The IMF said growth is likely to come in at about 4% in 2023.
In SA, real GDP contracted 0.7% quarter on quarter in the second quarter of this year, compared with growth of 1.7% quarter on quarter, downwardly revised from 1.9% in the first quarter.
The National Treasury revised downwards domestic GDP growth from a projected 2.1% to 1.9% in 2022, and from 1.6% to 1.4% in 2023.
“We expect domestic monetary policy to tighten further in the near term,” Godongwana said. “Persistently high inflation, rising interest rates, slowing global growth, increased volatility and uncertainty all point to a challenging outlook in the near to medium term for SA’s economy.”
He told delegates that capital asset spending is the fastest-growing expenditure item in SA’s budget, and that action is being taken to modernise procurement and improve contract management.
The medium-term budget policy statement (MTBPS) shows that SA increased its infrastructure expenditure budget, with a strong focus on the country’s structural economic constraints as they are a key impediment to economic growth.
The statement forecasts 1.6% real growth in capital expenditure over 2023 to 2025, which will require urgent action to accelerate growth-enhancing reforms, especially in boosting electricity supply as Eskom battles to meet the economy’s power supply demands.
Investec chief economist Annabel Bishop said an economy that is close to 5% bigger by the end of 2025 in real terms will require higher levels of electricity supply than is currently being provided.
“Eskom is currently battling just to keep the energy availability factor above 50%, while a rapid rollout of private sector funded electricity infrastructure is needed, but has been impeded to date by slow regulatory reforms that have failed to lift energy production meaningfully,” Bishop said.
Currently, private and public sector fixed investment are both below half of the national development targets of 20% and 10% of GDP, respectively, with the 2010s decade seeing worsening capex growth, and business confidence heavily depressed, she said.
Godongwana said SA is intervening to reverse the decline in fixed investment by ensuring policy certainty and addressing the cost and ease of doing business.
“The capacity of our state-owned enterprises to invest in the economy to unlock growth and job creation is being enhanced,” he said. “Infrastructure budgets across the government are being increased while capacity for project planning, preparation and execution is being improved.”
He said SA’s investment in fighting crime and corruption is being strengthened as part of removing impediments to investment and growth.
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