Mid-term budget: Godongwana maintains line on austerity:
Finance Minister Enoch Godongwana has doubled down on the government’s fiscal consolidation efforts by reducing spending from 28.6% of GDP in the 2023-24 financial year to 27.6% in 2024-25.
This largely reflects measures implemented in recent years and slower growth projected in non-interest expenditure relative to GDP, the treasury said in its medium-term budget policy statement tabled in parliament on Wednesday.
Debt service costs are projected to rise at a nominal annual average rate of 6.9% over the next three years. Meanwhile, 5.2% of the budget will go towards servicing debt.
The treasury said the budget deficit was projected to narrow from 4.7% of GDP in 2024-25 to 3.4% in 2027-28. It said it aimed to stabilise government debt by maintaining sufficiently large primary surpluses over the rest of the decade and that a debt-stabilising primary surplus would anchor fiscal policy over the next three years.
In his medium-term budget speech to parliament, Godongwana said the treasury would ensure higher levels of capital investment by stabilising and reducing borrowing costs and directing a growing share of public spending towards capital projects.
It would control growth in the public-service wage bill by implementing measures to contain overall costs.
The treasury said it would continue its fiscal strategy while more permanent measures were being considered, including a long-term debt sustainability framework that would be used to strengthen transparency and responsibility in managing public finances.
This would also ensure that all spending and borrowing decisions were guided by a need to maintain sustainable finances over the long term.
Proposals are under consideration for legislative changes to ensure that debt sustainability is embedded in the government’s planning and budgeting processes.
The treasury was mum on the extension of the social relief of distress grant, introduced during the Covid-19 pandemic, but highlighted the amount it had provisioned for social protection.
Between 2015 and 2020, spending on social protection averaged 4.6% of GDP, compared with 1.6% in South Africa’s developing country peers, the treasury said. Over the next three years, 30.6% of the population will receive some form of social grant, excluding the Covid-19-related relief grant.
“This temporary grant has been extended several times. A sustainable fiscal approach requires that any permanent addition to spending must be funded through permanent revenue sources or reprioritisation from within the existing fiscal envelope,” the treasury said.
During a question-and-answer session with the media, the treasury said the cabinet would have to decide whether to extend the social relief of distress grant, adding that this would be discussed in February 2025.
“It was provisioned on an ad hoc basis since that time [during the pandemic] and now the cabinet has to look at labour market considerations,” treasury chief director of health and social development Mark Blecher said.
The treasury said the government was considering ways to reform the grant system and consolidate public employment initiatives.
Market forces assume control in the energy sector:
Energy markets the world over are being disrupted by two concurrent and interconnected transitions — a technological “tsunami” associated with the Fourth Industrial Revolution and an ecological crisis related to global warming and climate change.
This is in the context of the Paris Agreement of 2015, which aimed to limit the global temperature increase to 1.5°C above pre-industrial levels and achieve net-zero carbon emissions by 2050, targets which current trends suggest will be missed.
Electorates are showing themselves unwilling to confront the sacrifices that achieving such targets will require. South Africa is poorly placed to meet them because of its heavy reliance on coal and oil, coupled with its highly energy-intensive economy.
These twin transitions are driving a gradual shift in the global economy from the western and northern regions to the eastern and southern regions, which offer more favourable renewable energy resources. This shift is exemplified by the establishment of the Brics grouping.
Enthusiasm for these local and global transformations should be tempered by an understanding of the immense difficulties associated with transitioning to a new global energy system. Fossil fuels remain the dominant source of primary energy supply in the world as global oil and gas supplies continue to expand. Fossil fuels also dominate in South Africa.
Technology tsunami and political change
The technology tsunami in the energy sector is most evident in renewable electricity generation and storage technologies. These innovations have disrupted the traditional economies of scale associated with coal and nuclear-based power generation as well as the concentration of ownership within the power-generation sector.
State-owned power utility Eskom says that more than 6 000 megawatts of renewable power generation capacity has been installed, 3 800MW of that in just 24 months. At times it has supplied 22% of grid demand.
Decentralisation, decarbonisation, democratisation and digitalisation have become the new watchwords for the electricity sector. Emerging technologies are enabling consumers to transition to self-sufficiency, effectively turning them into “prosumers” who can sell excess power to others and disrupt long-established business models. These transformations are beginning to produce significant economic consequences and are contributing to shifts in the political landscape.
Amid the contestation between sources of primary energy and energy markets, South Africa has to contend with the emergence of a pervasive informal political-economic system, shaped by the intersection of patronage and factionalism, where patronage networks form political factions to gain influence within the state. In the energy sector, this has manifested as the state capture of entities such as Eskom and municipalities, alongside other state institutions.
In recent years, theft of network infrastructure in both the petroleum and electricity sectors and racketeering by coal and construction mafias have jeopardised network industries threatening security of supply. Law enforcement agencies struggle to contain this growing problem.
Energy Policy: Shifting towards market liberalisation
Stable and predictable energy policy and regulation is every investor’s dream. In South Africa, good policy adopted early in the democratic era has been watered down and is often characterised by failed implementation. This has been underpinned by political party cadre deployment and preferential procurement for certain groups.
The inevitable financial problems faced by the state and its companies have compelled the government to reluctantly shift towards market liberalisation and private investment, albeit along a zig-zag path. Will the business and international community have sufficient confidence that there is policy certainty sufficiently robust and long-lasting to justify large investments in South Africa’s energy infrastructure?
Such a policy trajectory has equity implications. Private investors expect a return on their investments, which implies higher costs for customers who pay. Progress in the direction of market reform is likely to result in higher prices. Meanwhile, there has been limited policy development concerning a safety net for the poor.
Despite a noticeable policy shift towards market reform, many electricity customers see it as too little, too late and, weary of waiting for a government-led solution to load-shedding, and are taking matters into their own hands.
In the space of a few years most of the oil majors have disinvested from their refining assets in South Africa. These include BP, Chevron, Petronas, Shell and TotalEnergies. Some have been replaced by global traders such as Glencore and Vitol. Three refineries have closed. This paints a worrying picture for the petroleum and gas sector. But, in the electricity sector, the opposite appears to be happening in renewable power generation where market liberalisation is becoming more apparent.
The influence of vested interests, combined with the growth of social media and fake news, has made it increasingly difficult to distinguish between facts and misinformation. This is unfortunate, particularly because facts and evidence-based decision-making, such as integrated energy planning, are needed to steer policy along a sensible path.
Three key imperatives are expected to shape South Africa’s future energy trajectory. First, coal is expected to remain in use for several decades. Second, reduced barriers to entry and the lower cost of renewables are enabling electricity customers to vote with their feet. Third, international pressure, notably access to export markets, is being felt to an increasing extent.
Transport
Historically, South Africa has followed an import-substitution industrialisation policy, notably in the petroleum products and vehicle manufacturing sectors. But the recent closure of three of the six refineries in the country resulted in about 60% of refined fuel demand being met by imports, rendering petroleum and fuels the most significant imports in terms of value. This situation presents a compelling prima facie case for South Africa to transition to electric vehicles, which could be propelled by local coal, wind and solar resources.
Natural gas
The decline in the natural gas fields in Pande and Temane in Mozambique has led to a “gas cliff” in 2027 for industrial and commercial customers. This huge threat to manufacturing and the economy has focused attention on where the next tranche of natural gas will come from.
Gas for power generation is required to act as the baseload customer for imported liquefied natural gas which, together with the combined demand of industrial customers, should meet the economies of scale requirements necessary to warrant investment in the infrastructure.
But gas for power generation is a contentious issue in South Africa. The long-delayed gas master plan, and resulting policy uncertainty, are not assisting. Various parties are looking for solutions but time is running out.
Potential synergies between India and South Africa
India and South Africa share many problems and opportunities in the energy sector, creating potential for synergies between the two nations. Both rely heavily on coal for energy production and face significant pressures to transition toward cleaner energy sources while balancing economic growth and social equity.
India has experienced significant growth in its renewable energy sector, particularly in solar and wind power, positioning the country as a global leader in clean energy transition.
Collaboration between India and South Africa could offer both countries valuable lessons as they seek to expand their renewable energy capacity. In addition, India’s focus on decentralised energy solutions, such as rooftop solar, parallels South Africa’s growing “prosumer” movement and offers further opportunities for collaboration.
Moreover, both nations are grappling with energy access and affordability problems. Sharing best practices around policy frameworks that balance private investment with social equity could benefit both countries.
Joint efforts in studying green hydrogen, enhancing energy-storage solutions and improving grid infrastructure could also accelerate the energy transition in both economies. Through such cooperation, India and South Africa can strengthen their roles in shaping a sustainable energy future for the Global South.
Proponents of a just energy transition are confronting the country’s powerful and vociferous coal lobby and the silent but influential oil and gas lobbies. Amid high levels of unemployment, industrial decline and fractured politics it is reasonable to expect political turmoil and policy zig-zags to continue.
Nevertheless, there are prospects for a better future. Market reforms are starting to get under way and investor confidence appears to be improving.
Key to governing this tempestuous collection of pressures will be an astute state capable of riding the waves while simultaneously providing policy direction.
Professor Rod Crompton is an adjunct professor and Dr Bruce Young is a senior lecturer at the African Energy Leadership Centre at Wits Business School.The Matla-Urja Energy Conference will take place at Wits Business School from 27 to 29 November. For more information, go to https://www.wbs.ac.za/news/wits-business-school-announces-first-south-africa-india-energy-conference
Land reform minister denies ordering Ingonyama Trust Board members to resign:
Land Reform and Rural Development Minister Mzwanele Nyhontso has instructed members of the Ingonyama Trust Board to resign or face dissolution over tensions with King MisuZulu kaZwelithini.
But the board’s spokesperson and the spokesperson for the minister denied that such an ultimatum had been issued even while acknowledging that a meeting between the board and the ministry had taken place.
The Zulu king has repeatedly called for the dissolution of the board over its refusal to implement some of his instructions, including the appointment of service providers to conduct an audit of the nearly three million hectares of Ingonyama Trust land it administers on his behalf.
The monarch is the ITB chairperson, a role he took on after firing Thanduyise Mzimela, who he had installed last year after removing long-serving chair Jerome Ngwenya, who had been appointed by his late father.
Last week Nyhontso, under whose ministry the board falls, held a “meet and greet” with its members in Pretoria. There, according to two sources with intimate knowledge of the matter, he gave the board members an ultimatum to resign within seven days, failing which he would dissolve it.
One of the sources said the meeting was attended by the department’s legal team and the deputy minister of cooperative governance and traditional affairs, Zolile Burns-Ncamashe.
“The deputy minister was very vocal at the meeting. He and the minister advised that they were under pressure to dissolve the board and that its members should act accordingly and resign,” they said.
“The minister gave the board seven days to finally take a decision before they will meet again on 5 November. The board members requested that the minister put the instruction and the basis for it in writing as was a political decision.”
A second source told the Mail & Guardian that the minister had “instructed every board member to resign within seven days due to breakdown of trust between the king and the board”.
“If they don’t resign, the board will be dissolved,” the source added.
The current board was appointed last year by then agriculture, land reform and rural development minister Thoko Didiza as part of a programme to regularise the operations and financial controls of the ITB and the trust.
The trust was set up on the eve of the 1994 elections to control what was the old KwaZulu homeland on the then king’s behalf and the board two years later. They are funded by the land reform ministry and the board chairperson accounts to parliament, a situation which has been complicated by the king taking on the role himself.
ITB chief executive Vela Mngwengwe was seconded by Didiza to assist with the turnaround of the entity but has also come into conflict with the monarch, who has opposed the extension of his contract in his role as chairperson.
The tensions have been exacerbated by the appointment to co-operative governance and traditional affairs MEC Thulasizwe Buthelezi as traditional prime minister to the king, who has publicly called for the ITB to be dissolved.
The source said the minister had also told the board the extension of Mngwengwe’s contract had been done without his concurrence and against the advice of the department’s director general.
Board members had in turn complained about the role of Buthelezi in “commenting” on Ingonyama Trust issues and had indicated that “there was still room for mediation with the king so long as the prime minister was not present”.
Nyhontso’s spokesperson Linda Page denied that the minister had instructed the board members to resign or face its dissolution.
“The minister did not issue such instruction to the ITB,” Page said. “He did, however, hold a meeting with it, where engagements centred around issues that needed to be addressed such as existing relationship challenges between the board and its chairperson.”
Board spokesperson Simphiwe Mxakaza confirmed that the meeting took place but said there had been no instruction to resign or threat of dissolution.
“The board had initiated and held a meet and greet meeting with the minister on 24 October 2024. This was the first time the board met the minister, hence the meeting was more about introductory information about Ingonyama Trust,” Mxakaza said.
“The minister did not instruct the board to resign or threaten it with dissolution.”
The tensions with the king have now affected the ITB’s ability to account to parliament as he has now twice failed to appear in his role as chairperson of the board for its annual financial statement to be presented.
Didiza had advised the monarch against taking on the job because it would expose him to having to answer questions in parliament.
The annual financial statements were submitted to the Auditor General of South Africa at the end of May and those of the trust at the beginning of August. The audit was finalised on 13 October and the annual financial statements were then submitted to Nyhontsho on 22 October for tabling in parliament.
But the scheduled presentation by the board chairperson did not take place.
Mxakaza said the board does not have “sufficient details to formulate a response” with regard to the non-appearance of the chairperson before parliament.
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