Finance minister Enoch Godongwana has decried the lower tax revenue stemming from the long-standing structural constraints that continue to limit economic performance.
Delivering his medium-term budget policy statement (MTBPS) on Wednesday Godongwana said economic activity remains severely limited by continued shortages of electricity, deteriorating freight rail performance and slow port operations.
“In recent years, freight rail capacity and throughput have declined, constraining growth and exports, while large-scale and prolonged power cuts have plagued mines, factories, farms and households,” he said.
The National Treasury now forecasts real GDP growth of 0.8% in 2023, compared with the 0.9% projected in the 2023 Budget Review. Growth is projected to average 1.4% from 2024 to 2026.
Godongwana said Transnet Freight Rail has consistently transported fewer volumes than targeted or contracted since 2018.
The collapse stems from operational failures, increased theft and vandalism, reduced locomotive availability and the poor condition of infrastructure resulting from underinvestment, he said.
“The cost of rail inefficiencies last year is estimated at R411bn. This performance has also reduced tax revenue,” Godongwana said.
“Government is addressing these constraints through reforms. Reforms are under way to improve energy security and rail transport efficiency. Private investment in renewable power is gathering pace and the separation of Eskom into three entities is under way,” he said.
Energy reforms
The medium-term budget focused on energy reforms, as well as the rail and ports reforms that it highlights as critical to economic growth.
Godongwana said a significant improvement in electricity generation is expected over the medium term, with energy reforms mainly focused on making it easier for private companies and households to generate their own electricity through renewable technologies.
“Power plants previously affected by unplanned maintenance or breakdowns are starting to return to operation. Equally important is the continuing unbundling of Eskom and revised regulations that will de-monopolise the power grid,” he said.
According to the MTBPS, additional capacity of more than 11,000MW from renewable sources is expected over the next three years and that should sharply curtail power cuts.
The pipeline of private energy investments continues to grow. Over the past two years, private-sector energy investments with a combined generating capacity of more than 5,600MW have been registered with the National Energy Regulator of SA.
The policy statement says several other energy reforms have progressed since the February budget. Three projects under the Risk Mitigation Independent Power Producer Procurement Programme, with a total capacity of more than 150MW, will be ready for connection to the grid in November 2023.
The report also states that by 2025, nine projects with a total capacity of more than 1,000MW will be connected to the grid under the Renewable Energy Independent Power Producer Procurement Programme, with a further 1,000MW expected in the next phase.
Interim rules
Deputy finance minister David Masondo said Eskom had published interim rules in June to ensure fair and transparent allocation of limited grid capacity.
Masondo also pointed to Transnet’s deteriorating rail performance as a threat to SA’s economy, adding that the country’s ports are inefficient and uncompetitive.
He noted that the government established the National Logistics Crisis Committee earlier this year, which “aims to improve the operational performance of freight rail and ports, restructure Transnet to ensure it is financially sustainable and implement reforms to create an efficient, competitive and modern freight logistics system”.
The work will be integrated with interventions under way within Transnet, including rehabilitating the rail network to improve service delivery, deploying digital solutions to improve efficiency and responsiveness, improving security and reviewing cost allocations to improve returns, Masondo said.
Transnet Freight Rail has taken the first step in separating its operations and infrastructure management functions, he said.
“When complete, separation is expected to facilitate competition. The Transport Economic Regulator will be established in early 2024, which will ensure fair access and transparent pricing on the rail network,” he added.
Masondo said Operation Vulindlela supports co-ordinating mechanisms such as the National Logistics Crisis Committee to accelerate economic reforms by streamlining bureaucracy, reducing red tape and implementing policy changes to promote investment and growth.
A comprehensive report will soon be published by Operation Vulindlela covering its work over the past three years, he added.
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