South Africa’s Minister of Finance, Enoch Godongwana, presented the government’s 2023 Budget to Parliament on 22 February. Glen Robbins and Luke Muller went through the budget material and have highlighted some of the features that could be of interest to the wider manufacturing ecosystem in the country.
The 2023 Budget shows that of the allocated R1,897 billion in expenditure, over R700 billion will go towards the public service wage bill and R346 billion will be allocated to old age grants, social security funds, child support grants and other grants. A further R50 billion is spent on the National Student Financial Aid Scheme. The little that is then left over has been thinly spread over other government functions and infrastructure upkeep. In addition, the government’s debt service costs will jump to R340.5 billion, driven by rising global interest rates and the partial take-over of Eskom debt.
In this context, it is no surprise that the budget speech was, if anything, a placeholder, a device to support Government’s attempts to shore up the state, its services and the weak economy. This Budget was clearly not an attempt to frame a visionary structural shift. Under the circumstances the pragmatists that tend to find a home in manufacturing would suggest that a mundane budget was probably better than one that sought to shake the foundations. For those harking back to the expansive claims in budgets of Trevor Manuel, there was not much vision in this budget and certainly no poetry.
On the positive side, apart from the budget’s predictability, there was considerable attention paid to matters that exercise the minds of people working in and running businesses.
Energy Matters
Probably the stand-out feature – and one against which much of Government’s actions will be measured in the coming years – was the attention paid to electricity matters. The scheme enabling accelerated deductions for renewable energy investment by businesses was widely expected. It can potentially support better resilience in firms and lower carbon emissions in supply chains. The Minister stated that, “Under the expanded incentive, businesses will be able to claim a 125% deduction in the first year for all renewable-energy projects with no thresholds on generation capacity.” Furthermore, National Treasury will work with the banks to direct lending to support much needed renewable energy investments for small and medium enterprises.
Still on energy matters, the Minister’s assertion that National Treasury will more actively support Eskom’s recovery, with both the carrot of shifting debt off Eskom’s books and with the stick of increased controls and surveillance, will hopefully help stabilise the parastatal’s operational performance. While the Eskom debt arrangements are not fixed investment, they do potentially support other measures to encourage a diversity of energy supply investments in the country, including for the increasingly inadequate national grid. This could better support access to energy for businesses and could also help stimulate demand for those businesses in the supply chain of energy projects, from construction materials through to the assembly of solar panels. The growing role for private investment in this space is already taking hold and could further bolster demand for inputs as well as diversity energy supply options.
Infrastructure
The 2023 budget also highlighted efforts around some growth in levels of infrastructure spending, as modest as they might be. Beyond energy, ports, rail, roads, and water provision were heighted as areas of priority. The Minister also signaled, as his predecessors often have, that attention would be paid to enhancing the performance of municipalities. One can hope that those running municipalities will take heed. On this theme, environmental disaster matters did receive some support. Businesses will hope that at least some of this will translate into actual projects to rehabilitate infrastructure in and around industrial areas.
Personal Tax
Whilst personal tax matters are not always raised in the context of the manufacturing sector, many of the more than two million people employed in manufacturing and supporting sectors, such as logistics, will appreciate the modest relief in tax burdens with the shifting up of tax brackets. Some too will appreciate the prospect of the somewhat meagre tax rebate for citizens seeking to install some roof-top solar at their homes. For business in the manufacturing sector, it might well be a relief, that in a context of the considerable fiscal pressures on the state, corporate tax rates have not been adjusted upwards.
Economic Policy
With a low-ambition budget such as this, especially one that steers clear of many areas of controversy (think reserve bank mandates etc.), there is perhaps a relief that the Minister did not engage in a Don Quixote-type crusade. In previous years, ministers of finance have often sought to give direction on matters of economic policy. This was not one of those budget speeches. However, of some concern, efforts to stimulate the industrial base of the economy, whether through encouraging foreign direct investment or supporting local firm investment, did not really feature. Perhaps the general thrust of President Ramaphosa’s State of the Nation Address was deemed sufficient a signal in this regard.
In the coming weeks it is important to take a close look at the policy statements of the Minister of Trade, Industry and Competition and those of other ministers with scope to influence the manufacturing terrain. More will have to be done with less resources, and this will inevitably require deeper partnerships with private actors. The coming years will be a real test of this. Business organisations will need to mobilise their resources to both hold government to account, and to be more active in supporting areas where delivery has been failing. Investments and their related job creation going forward will have to be private sector driven.
State Delivery
This budget speech should perhaps be appreciated for the intent to focus government on trying to get the proverbial nuts-and-bolts in place for better state delivery. That said, it was not a budget to help the country see much beyond the horizon of the constrained medium-term expenditure framework. It was also a budget that cut real spending in some key social areas. These measures impact also on business in that they can translate into challenges for employees and their families, whether it be accessing health care or affordable transport. Getting South Africa’s development prospects back on track is still very much a work-in-progress.
This note was prepared by Glen Robbins and Luke Muller with input from Mbongeni Ndlovu and Liesel Kassier. The views in this note do not necessarily reflect those of the Toyota Wessels Institute of Manufacturing Studies (TWIMS). During the year TWIMS will convene a diversity of engagements, both on matters covered in the budget, and on those left out.