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South African Business 2022

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SPECIAL FEATURE AN ECONOMIC OVERVIEW OF SOUTH AFRICA Growing the economy while simultaneously paying off debt presents a huge challenge but infrastructure plans and green financing options offer opportunities. By John Young Two numbers came to the fore in 2021, one quite modest, the other extremely large. Both the 100MW extension granted on the ability of private power generators to go ahead with a project without the need for licensing and the R130-billion pledged in green financing to South Africa by several rich countries at the COP26 conference could have farreaching consequences for the trajectory of South Africa’s economy. South Africa’s economy has to grow and the country’s debt has to be reduced. How to do these things simultaneously is the challenge for the country’s new Minister of Finance, Enoch Godongwana, who was appointed in August 2021, replacing Tito Mboweni, who asked to be relieved of his duties. Like many of his cabinet colleagues and the president, Godongwana cut his political teeth in the trade union movement but in his first budget presentation, the midterm budget in November, he did not present any new items of expenditure. Rather, he presented a budget that reflected the fact that there is currently no money to spend on new programmes. There has to be less spending, fewer borrowings and the public debt has to be controlled. Finding a way to grow the economy in that environment will be tough. As to signals of what the new Finance Minister intends doing in the future, one commentator found significance in how Godongwana spent the unexpected windfall of R120-billion that came the way of Treasury because of the high prices of commodities in 2021. Professor Haroon Bhorat of the University of Cape Town broke down “every R1 of tax revenue the government received from this lottery” as follows: 51 cents on debt; 17 cents to civil servant wages; 32 cents on relief packages. SOUTH AFRICAN BUSINESS 2022 10

SPECIAL FEATURE Bhorat’s conclusion was that government is committed to fiscal consolidation “while being willing to spend within limits on direct transfers”. Which is why the two numbers mentioned above become so critical. When President Ramaphosa announced that private power investors could create up to 100MW of power without having to wait for licensing, he potentially opened up a path to growth, a path that has been constrained for some time by the limitations of the national utility, Eskom. Eskom’s inability to provide enough electricity to power the economy (and its huge debt) rank as the biggest risks to the South African economy. Opportunities for private consortiums such as the Dedisa Peaking Power Plant at the Coega SEZ (pictured) will expand. Eskom’s unbundling will be another spur to growth. The legal separation of transmission is expected to be completed by December 2021 with the other two elements, generation and distribution, to follow. The idea is not to privatise the entities but to find private partners and to allow for competition within the various fields. The R130-billion pledged by the EU, the US, Germany, France and the UK is not straightforward; it comes as a mixture of grants, risk-sharing instruments and concessional finance but it will allow South Africa to fund projects that will help the country to move away from fossil fuels without further stretching Eskom’s precarious finances. The commodities attracting the most attention are those which have the potential to power the green economy, platinum group metals (PGMs) and chrome among them. In August 2021, exports were reportedly 44% higher than the year before. Covid obviously had a lot to do with that figure, but R166.5-billion still represented a good number. Recovery plan The government’s recovery plan is called the Economic Reconstruction and Recovery Plan (ERRP) and it has a focus on expanding and improving infrastructure, a public employment stimulus, local industrial development and the expansion of energy generation. The plan intends to unlock R1-trillion in private investment. Furthermore, a commitment is made to improving the capability of the state and to remove barriers to doing business or investing in the country. Enabled in 2020 by an amendment to legislation that allowed them to work with the evidence presented to the state capture commission, National Prosecuting Authority (NPA) prosecutors quickly finalised cases and arrests started happening. After a decade in which it seemed that immunity was guaranteed for corrupt officials and employees of state-owned enterprises, the tide started to turn. In 2021 expresident Zuma’s refusal to appear before the commission led to him spending time in jail. His trial on substantive corruption charges lies ahead. The outbreak of looting and violence that appeared to be triggered by Zuma’s jailing probably had more to do with the frustration felt by many South Africans at the culture of impunity which has surrounded many politicians and thieving business people than it did with the specifics of the Zuma case. The looting happened at supermarkets after all, not where Zuma was incarcerated. Prosecutions obviously do not provide certainty against future corruption, but at least the prospect of arrest might be a deterrent. One of the biggest obstacles to economic recovery is South Africa’s level of debt, and that is caused largely by the state electricity utility, Eskom, where corruption was rife for years. The government’s directory lists 131 stateowned entities but there are said to be about 700 altogether, at various levels of government. Entities include the Central Energy Fund, the Commission for Conciliation, Mediation and Arbitration, the Commission for Employment Equity and the Companies and Intellectual Property Commission (CIPC) but the three biggest, all of which fall under the Department of Public Enterprises, are Eskom, South African Airways (SAA) and Transnet, with five large divisions covering ports, railways and logistics. Eskom and SAA are significant drains on the country’s finances and getting control of all of the country’s SOEs is another major priority. At municipal level, the decision by Clover to relocate their large cheese factory away from 11 SOUTH AFRICAN BUSINESS 2022

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