As finance minister Enoch Godongwana prepares to table his budget, the crusader against red tape appointed by the president last year has lamented the onerous process required for renewing work permits for skilled foreign workers as an impediment to economic growth.
Former Exxaro CEO Sipho Nkosi, whom President Cyril Ramaphosa personally appointed to reduce government bureaucracy, said they were working with the department of home affairs and Operation Vulindlela — a presidential initiative to remove obstacles to economic growth — to streamline the process.
Nkosi said that during his many conversations with business organisations and other stakeholders, he was told by the Korean embassy that renewing work permits for their nationals was cumbersome.
“It tends to be a laborious process and takes a lot longer. A person will have to go back to Korea because the permit is not renewed — how do you [make it easier to] do it here?”
I don’t think [red tape] will ever go away but we will minimise it so it will be easier for South Africans to get excited about building a business
— Sipho Nkosi
Nkosi, who is chair of Sasol and does the red-tape work voluntarily, said his team had met the Minerals Council, business bodies Busa and BLSA, and other stakeholders to help reduce bureaucratic blockages. That included devising a more user-friendly mining rights system.
Nkosi said his main focus was untangling as much paperwork as possible to make it easier for people to start businesses.
“I don’t think [red tape] will ever go away but we will minimise it so it will be easier for South Africans to get excited about building a business. It will also be easier for a non-South African to do business here because those are the things that build a country.”
Meanwhile, economists are predicting that Godongwana will announce another tax bonanza of between R100bn and R128bn, thanks largely to global demand for South African commodities.
He will also have to provide a clear path to solving Eskom’s debt problems while keeping the overall deficit in check as businesses and the economy reel from continued load-shedding and rising prices.
Godongwana announced in his medium-term budget policy statement in October last year that the government would step in to help Eskom reduce its debt. The expectation is that the government could move up to half of the R422bn debt off the power utility’s balance sheet.
Tatonga Rusike, Sub-Saharan Africa economist at Bank of America, said they anticipated revenue over-collection of about R100bn. That would help narrow the main budget deficit to 4.5% of GDP compared with the National Treasury’s revised estimate of 4.9% in October 2022.
Tax revenues are projected at R1.7-trillion, while expenditure is expected to hit the R2-trillion mark. Rusike said the over-collection had already been factored into medium-term forecasts.
“We approach the 2023 budget presentation with a gloomy economic outlook, strong revenue collection already baked into medium-term forecasts, and the risk of increased expenditure,” he said.
Godongwana will be challenged to present interventions to help hard-pressed households and businesses while outlining the government’s plans to keep the lights on at Eskom, either through further bailouts, a debt-reduction plan, or both.
Rusike predicted the government could absorb 60% of Eskom’s debt, or R240bn, which would slow the pace of fiscal consolidation and increase debt to 76% of GDP.
“The expected fiscal deterioration is due to a combination of slower economic growth in 2023, limited upside to revenue forecasts, and Eskom debt being added to the fiscal path,” he said.
When announcing its interest rate decision last month, the Reserve Bank’s monetary policy committee revised economic growth projections for 2023 down to 0.3% from 1% due to continued load-shedding, which is on pace to make 2023 eclipse 2022 as the worst year yet.
Business organisations have asked the government to consider comprehensive interventions to ease the pain of rising costs of fuel and electricity. These include calls from poultry businesses for the removal of VAT on their products.
Old Mutual Group head of tax Nazrien Kader expects tax revenue for the year to be about R45bn higher than the R83bn predicted in the medium-term budget as personal income tax collections increased by 8.7%, while that for corporate tax was up 7.1% and VAT was 8.3% more in December 2022 compared with the previous year.
“The minister could possibly announce the implementation of the global minimum tax of 15% in South Africa. This could potentially result in multinational companies in South Africa that operate in no-tax or low-tax jurisdictions paying more tax in South Africa,” said Kader.
Kader said Godongwana was likely to resist calls to increase the budget deficit and would maintain the fiscal policy he advocated in his 2022 medium-term budget policy statement in October.
The growing debt burden and rising debt service costs would crowd out other spending priorities, such as responding to infrastructure backlogs, bailouts of state-owned entities, and the continuing Social Relief of Distress Grant aimed at helping the poor, Kader added.
Miyelani Mkhabela, the founding director and CEO of Antswisa Management Group, expects Godongwana to allocate funds to assist the automotive industry and original-equipment manufacturers to upgrade their plants to produce electric vehicles.
“The budget speech must focus on plans for manufacturing and production that will include multiple industries as diverse as the future automotive industry, chemicals, electronics, health care and textiles,” he said.
The minister also needed to outline a clear plan to support agriculture and agro-processing for food security and manage price stability for food-related products, Mkhabela added.
PwC expects Godongwana will stick to his 2022 medium-term budget plans to narrow the fiscal deficit and pursue a surplus on the primary budget, even though prevailing economic conditions are likely to undermine revenue.
“There are various areas where the minister will face expenditure pressures. Our hope is that he opts for budget reallocations, especially from areas where spending has not been productive,” it said in a budget preview.
“The large risks to expenditure include SOEs, Eskom and Transnet in particular, as well the public sector wage bill,” the report adds.
PwC also expects Godongwana to provide clarity on a timeline for moving much of Eskom’s debt to the sovereign debt book as well as its “impact on public debt levels”.
Deloitte Africa reckons Godongwana faces an unenviable balancing act to provide relief to businesses and households while funding priorities such as Eskom.
Deloitte associate director of business tax Nwabisa Ruka said during a panel discussion this month that growing the economy and thereby boosting tax collections was unlikely given load-shedding and rising costs and persistently high inflation.
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