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Social unrest warning from Momentum

Momentum warned that spending cuts would weigh on South Africa’s fragile social fabric and increase the risk of social unrest.

Finance Minister Enoch Godongwana will present his 2023 medium-term budget policy statement (MTBPS) today, which is expected to contain significant spending cuts.

The National Treasury reported a deficit of R14.6 billion in September 2023, a significant increase from R3.3 billion in September 2022.

It resulted in the main budget deficit for the first six months of the government’s financial year growing to R253 billion – a year-on-year increase of 54%.

Many economists warned that South Africa is heading for a financial disaster as expenditure is growing faster than revenue.

The growing deficit forces the state to borrow more money, which saw South Africa’s debt-to-GDP reach record levels in 2023.

South Africa’s rising debt means it pays far more interest to service this debt. The country is now heading for a fiscal cliff.

President Cyril Ramaphosa said for every rand the government collects in revenue, 18 cents go towards servicing national debt.

“This means that we are now paying more in interest on our national debt than we are budgeting for the police force,” Ramaphosa said.

It is impossible to plug the deficit through higher taxes as South African consumers and businesses are already heavily taxed.

SARS Commissioner Edward Kieswetter has warned that tax increases will hurt revenue collection due to a corresponding rise in non-compliance.

The only real option available to Godongwana is to make insignificant spending cuts and increase the government’s borrowing to finance the deficit.

Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, warned of severe consequences linked to spending cuts.

He said real government spending in per capita terms in South Africa has stagnated over the past decade.

“Proposed austerity measures are likely to weigh more heavily on the country’s fragile social fabric,” he said.

“This risks an elevation in service delivery protests in the medium to longer term, in our opinion.”

Herman van Papendorp
Herman van Papendorp

Van Papendorp’s warning followed concerns from many other prominent South African executives and economists.

PwC senior economist Xhanti Payi South Africa is at high risk of social unrest due to its high unemployment, rising inequality, and increased lawlessness.

Payi said South African companies will face increased uncertainty and volatility until the country addresses its major social problems.

South Africa is uniquely exposed to economic volatility and social unrest due to the country’s high level of unemployment, rising cost of living, and decreasing adherence to the law.

Payi expects the country to experience an increase in the number of strikes, financial volatility, and general instability.

“This is something we just have to accept. Businesses have to do what they can to build resilience,” Payi said.

In July, the United Nations Development Programme (UNDP) warned that South Africa’s high youth unemployment rate is a “ticking time bomb” that could result in social unrest.

Dr Sam Koma

Governance expert Dr Sam Koma echoed these concerns, warning of rising service delivery protests ahead of national elections next year.

He said many of these protests turn violent due to police incapacity and a lack of skills in South Africa’s security cluster.

Protest action picks up because communities know politicians will be forced to do something about their demands as they need votes for the upcoming elections.

Koma said most South Africans face a cost-of-living crisis, forcing them to forfeit some of their basic needs while unemployment, poverty, and inequality remain elevated.

This is coupled with communities saying they have raised service delivery demands with local municipalities and politicians. However, with no action, protest is their only option.

“Increasingly, they sense that they are not being listened to. This is when they would normally decide to embark on a protest to register this displeasure with local government and politicians,” Koma said.

Municipal IQ said the number of service-delivery protests in South Africa will likely reach a new annual record in 2023.

The country is suffering its worst-ever electricity blackouts, and patience is fraying over the deterioration of municipal services, leading to 122 protests in the first six months of the year.

At that rate, this year will overtake the 237 incidents of 2018, dwarfing the lull during the pandemic years.

Efficient Group chief economist Dawie Roodt also worries things could go very wrong with a toxic mix of unemployment, absolute poverty, rising food prices, and a looming election.

Roodt said he is concerned about a recurrence of the public violence and riots in KwaZulu-Natal and Gauteng two years ago.

“The economy is not growing. We have high levels of unemployment and poverty, and I am concerned about public violence seen two years ago,” he said.

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