By Thabiso Mofulatsi
Reliable, efficient, affordable and sustainable electrical infrastructure is crucial to investment and growth. The frequency and the intensity of loadshedding in recent months has increased the cost of doing business in South Africa to unsustainable levels, likely to result in reduced production and a contraction in the size of our economy.
On 22 February 2023, the South African Finance Minister, Enoch Godongwana, is set to deliver his second budget speech since his appointment on 5 August 2021, a budget speech that needs to align with the president’s SONA speech and address the countries challenging energy crisis that has for many months, endured a debilitating electricity shortage that has caused immense damage to the economy.
South Africa, the once poster child of Africa, has gradually experienced a decline in economic stability. Economic growth has dwindled and averaged 0.6% between 2014 and 2021, with the South African Reserve Bank (SARB) recently expecting a y-o-y growth to reach 0.3% in 2023. The shift in growth expectations is due to continued stage 6 load-shedding, high costs of living, rising interest rates, weakening exchange rate and high youth unemployment.
The South African Finance Minister is expected to share a budget highlighting critical challenges within the South African economy. How do we create economic growth in an energy crisis? President Cyril Ramaphosa announced in the SONA on 8 February that the Eskom crisis was now declared a “national state of disaster,” meaning the country is dedicated to alleviating the issue.
In July 2022, the President mentioned that he had a plan to address the energy crisis. The project aims to address the electricity shortfall of 4,000 to 6,000 MW by implementing five critical interventions. These interventions included fixing Eskom’s coal-fired power stations, enabling private investment in generation capacity, accelerating procurement of new capacity from renewables, gas and battery storage, promoting rooftop solar investment for businesses and households, and fundamentally transforming the electricity sector to achieve long-term energy security.
South Africa waits in anticipation to assess whether the government will put action to their promises as they seek to implement loan schemes to assist small businesses in investing in solar equipment. In addition, we expect to receive news regarding the solar/renewable tax breaks, which were announced during the SONA.
The Minister has his hands tied to stimulate economic growth in a stagnating economy, reduce the impact of Loadshedding and Eskom on South Africa, and improve the country’s economic and financial situation by reducing the 6.0% government budget deficit in 2022/23.
The Minister is set to keep all taxes unchanged and confirm the reduction of the corporate income tax rate from 28.0% to 27.0%, as announced in the previous year’s budget. The Minister will also be expected to provide insight as to how it will reduce its debt servicing costs. The country’s debt service costs amount to approximately 5.0% as a percentage of GDP, the highest it has ever been.
The government will have to show us their commitment to reducing the impact of loadshedding with clear budget plans for energy infrastructure. Energy public sector infrastructure expenditure amounted to R35.4 billion in 2022/23. This represents a 2.6% increase in energy infrastructure spending from the previous budget and amounts to 14.2% of the total public-sector infrastructure expenditure. Social grants are expected to increase. Approximately 60% of the South African budget is spent on what is known as the social wage, providing various forms of support, essential services and assistance to households and individuals to combat poverty and hunger. This trend needs to be reversed should we want to have a sustainable economy and decrease the burden on numerous tax papers.
Mahlako hopes that including a Minister of Electricity will assist in reducing the impact of South Africa’s energy crisis. The Eskom and other SOE problems need to be addressed by providing a reliable and affordable energy supply and lowering the cost of logistics, which means managing the issues at the affected state-owned enterprises (SOEs), Eskom and Transnet.
Mahlako would like to see a comprehensive update on the restructuring of Eskom. Whilst there has been some progress in restructuring the utility, the process is behind schedule and continues to weigh on the South African economy.
Mahlako believes it is essential that the Minister show resilience in producing a budget which aims to solve South Africa’s pressing issues. A budget focusing on creating a base of reliable energy infrastructure and creating notable renewable energy tax incentives for the private sector. South Africa has massive renewables potential, not only in solar and wind but also in green hydrogen.
