In his first Medium Term Fiscal Policy Statement (MTBPS) on November 11, Finance Minister Enoch Godongwana highlighted three main impediments to economic growth and gave some guidance on how to improve the situation.
Unsurprisingly, given the latest round of load shedding, power generation topped his list, followed by logistics infrastructure and the issue of affordable data.
The minister gave no indication of how the government intends to tackle Eskom’s 400 billion rand debt burden and said there were no new provisions for struggling state-owned companies.
Instead, he made it clear he would take a “tough love” approach to public companies.
“All of our efforts over the past 13 years have been to fix Eskom instead of addressing security of supply by adding additional capacity to the network. 2 of the Electricity Regulation Act 2006 raised the licensing threshold from 1 to 100 megawatts.
“It has also enabled private power producers to sell directly to customers, which will reduce the risk of power outages. The amended regulations will also allow municipalities to generate electricity themselves or purchase electricity directly from independent power producers.
He added that South Africa had also started to reduce its dependence on Eskom by diversifying its primary energy sources, including through the Independent Renewable Power Producer Supply Scheme.
“The 25 projects that are part of the last round of Bid Window 5 will generate over 2,500MW of electricity at a weighted average price of 47.3c/kWhr. This is the lowest rate achieved in the history of the program and among the lowest rates in the world.
He said creating a competitive energy market would help contain electricity generation costs and support long-term GDP growth.
To improve the efficiency of South Africa’s logistics infrastructure to support export growth, the government recently announced the corporatization of the National Ports Authority of Transnet into an independent subsidiary of Transnet, and a board of interim administration has been appointed.
“This will create incentives for efficiency and competitiveness among port service providers – reducing delays, improving services and introducing cost discipline,” Godongwana said.
Transnet Freight Rail will allow third party access to the freight rail network by the end of 2022. This access will increase the volume and capacity of the system, which should lead to the creation of much needed jobs.
The third issue to be addressed is the rapid resolution of issues blocking the release of high-demand spectrum and the availability of affordable data for businesses and households.
Impact on property
Highlighting all the key issues and emphasizing the action required in the months and year ahead, Minister Godongwana’s first MTBPS is expected to boost market confidence, said Pam Group Managing Director Dr Andrew Golding Golding Property.
“As well as reassuring markets that the government remains committed to fiscal restraint, the minister underscored the critical need to advance the long-promised structural and economic reforms needed to unlock the growth of the economy – including including the provision of additional electrical capacity in the grid and Eskom fixing.
“Furthermore, support for small and medium enterprises and structural reforms to unlock increased private sector investment will spur economic growth and the creation of much needed jobs. In this regard, we also look forward to seeing the long-awaited priority and additional infrastructure projects begin to materialize.
“We also welcome the increased funding to be provided to the South African Police Service, as well as the reduction in public enterprise (EP) bailouts and public expenditure reform, including the stabilization of public debt. .
“We hope this MTBPS will restore confidence in the markets – despite the current challenges facing consumers, such as load shedding and continued fuel price hikes – with a positive ripple effect on the housing market.
“The residential property market in South Africa continues to demonstrate its resilience. Commercial activity rebounded from the harsh shutdowns, with the number of units sold returning to levels similar to those of the previous five years.
“We remain optimistic as aspiring buyers and existing homeowners across all demographics and market sectors demonstrate a sustained appetite for real estate acquisitions,” Dr. Golding concludes.
Tony Clarke, chief executive of the Rawson Property Group, says balancing inflation and economic growth is tricky business.
“The strategy outlined in the mid-term budget review may not be the worst thing in the current circumstances. Reducing debt and stabilizing volatility are important to prepare for future growth and should hopefully allay investor concerns about South Africa’s ability to take its economic outlook seriously.
“We hope that every small improvement in the economy will contribute to positive investor sentiment, and we are confident that this will encourage participation in sectors such as real estate, which play a vital role in supporting and growing the economy. economy of the country.”
Clarke expects interest rates to remain low, with only minor increases through 2023.
“For the South African property market, this means that the exceptional buying conditions experienced over the past year are likely to remain the same for some time. However, owners should still budget prudently, paying down debt as as quickly as possible.And, taking on new debt still needs to be managed with caution.
“It’s also a great time to increase savings, especially if you’re planning to buy a home. Savings will minimize the effect of any potential inflation-activated interest rate increases and increases in basic household expenses such as fuel and utilities.
“Setting aside cash will also help new buyers cover their necessary fees and deposits, despite financial hardship,” Clarke says.
To read Finance Minister Enoch Godongwana’s full fiscal policy statement, click here.