South Africa’s plan to go from zero to hero

South Africa aims to achieve economic recovery and job creation while addressing high debt levels, which hinder critical investments needed for sustained growth.

To achieve this, Finance Minister Enoch Godongwana recently outlined the four pillars the government will focus on to help South Africa position itself for economic recovery.

In the 2024 Medium Term Budget Policy Statement (MTBPS), Godongwana explained his plan to aid South Africa’s economic recovery.

“Domestically, we forecast a real GDP growth of 1.1% in 2024. This is lower than the estimate of 1.3% in February,” Godongwana said. “Over the medium term, growth is forecast to average 1.8%.”

“This underscores the need for higher inclusive growth to meet the aspiration of a better life for all.”

This is where Godongwana’s four pillars will come into play. “First and foremost, we’ve got to make sure we achieve macroeconomic stability,” he explained on Newzroom Afrika.

“Secondly, we’ve got to make sure that we fast track the structural reforms which are critical to achieving that growth.”

The last two pillars are focused on supporting growth-enhancing infrastructure and building state capability.

“We are positioning the government by doing all of those things to ensure that we can achieve the desired level of growth as a nation,” he said.

The minister explained that these four pillars are part of a number of instruments that are being made available to South Africa.

“We’re not focusing on one sector. We’ve got a multi-prong strategy of making sure that we can generate growth in all our sectors.”

This includes South Africa’s tourism industry, which has still not recovered to pre-Covid levels.

To address this, the Department of Home Affairs recently selected a group of tourism companies to fast-track visa applications for customers from India and China.

The introduction of e-visas is meant to facilitate tourists’ travel to South Africa and alleviate system blockages.

These reforms are also meant to help tackle South Africa’s high unemployment rate. “The loss of jobs is a function of an economy which isn’t growing,” Godongwana said.

“For the past 10 years, we’ve had an environment where growth has been stagnant. Now, we’re beginning to see an improvement in growth and beginning to see improvement on the labour front.”

By focusing on infrastructure development, the government hopes to stimulate growth, which will hopefully realise their main goal of job creation.

South Africa’s debt problem

One major hurdle towards South Africa’s growth is its high debt, which Godongwana stressed has “risen too fast and is too high” in the MTBPS.

“We are anticipating that government debt will reach more than R6.05 trillion, or 75.5% of GDP, in 2025/26.”

Comparatively, in 2008/09, gross loan debt amounted to R627 billion, or 26% of GDP, and net loan debt was R526 billion, or 21.8% of GDP.

“We know that our debt is unsustainable because debt-service costs have become the largest component of our spending and it is rising faster than economic growth.”

“Debt-service costs will reach R388.9 billion in the current financial year. Put differently, this means for every one Rand of revenue that the government raises this year, 22 cents of this is paid in debt-service costs.”

Due to this high debt service cost, other investment areas that are critical for growth, like infrastructure, are being neglected.

For that reason, Godongwana noted that the country’s debt must be managed carefully to ensure that more investment can be allocated to those areas.

“We should be able to realise some more revenues and more resources to fund infrastructure. That’s the delicate balance we’re trying to achieve at the moment.”

The minister’s austerity measures, along with stable tax collections, have helped to address the country’s debt problem, which he hopes to stabilise at 75.5% by the end of this financial year.

The plan is to continue this debt-reduction trend over the next few years and allocate more funds towards other developmental objectives as they become available.