Finance minister Enoch Godongwana is probably used to having his plans blown away by events outside South Africa. His first budget in 2022, was followed immediately by the news of Russia bombing Ukraine.
The numbers the National Treasury had planned around went up in a puff of smoke as the global economy went into a tailspin, with disruptions in trade flows and financial markets mayhem.
South African leaders jet off to Davos this weekend as the world is apprehensive about Donald Trump's inauguration tomorrow.
The latest projections from the World Economic Forum (WEF) indicate that the global economy will face significant challenges in 2025, with 56% of chief economists surveyed expecting conditions to weaken.
Nearly half (48%) of chief economists anticipate an increase in global trade volumes in 2025, underscoring the resilience of global commerce. However, a large majority expect intensifying trade tensions between major powers and more widely.
The predictions show that risks to South Africa's macroeconomic balances are out of our control. On February 19, Godongwana will deliver his budget statement for 2025 at a time and in an environment significantly different to his last appearance in parliament in November. This week, he recognised that the latest economic performance data was below the Treasury's most recent projections.
“The third quarter contraction, combined with the slight downward revision of the second quarter GDP, resulted in modest growth of 0.4% over the first three quarters of 2024,” he said at a pre-WEF breakfast held in Johannesburg.
Godongwana is, however, “cautiously optimistic”.
“There are significant upside risks to growth in the final quarter, including faster-than-anticipated easing of inflationary pressures, improved electricity reliability and the stimulus effect of the withdrawals of the two-pot retirement system,” he said. “While the road ahead is challenging, these positive indicators provide a foundation for stronger growth in 2025 and beyond.”
He said South Africa's government of national unity (GNU) had demonstrated its potential to unite the nation and foster progress. “This era of governance has allowed for meaningful discussions on accelerating structural reforms,” he said.
He's probably right. There's less resistance to the required reforms now than was the case three years ago when it was hard to open the floodgates for private sector energy generation.
Progress around a new visa regime is a confidence booster.
Despite the environment becoming more conducive to reform, there are still teething areas, such as the release of water use licences.
Trump is polarising, but Ramaphosa can take a leaf from the intensity of Trump's ambitions
There's still the National Health Insurance Act, which is intensifying tensions between business and the government.
Ramaphosa knows he does not want the NHI but will not make himself unpopular in the ANC by stating where he stands in the debate. He will just smile, or feign disgust at business's resistance when in the company of his political clan in the ANC. And he will promise his friends in business that the NHI will be managed to death. The result is a great deal of uncertainty in the world of investment.
Coping with Trump 2.0 will be tough for a country like South Africa. He wields power in an unpredictable manner, so logical expectations that South Africa will stay in the African Growth and Opportunity Act (Agoa) deal cannot be relied on.
Agoa, introduced by Bill Clinton to boost market access to the US for about 40 African countries, expires this year. It eliminates import levies on more than 7,000 products, ranging from textiles to manufactured items.
In 2022, combined two-way trade between Agoa beneficiaries and the US exceeded $46bn, with US imports exceeding exports by $13.5bn, according to Tralac, a trade research consultancy. Agoa beneficiaries exported $30bn worth of goods to the US in that year, with $10.2bn traded under duty-free Agoa preference.
Trump has promised trade tariffs for neighbouring countries like Mexico and Canada, and his hostility towards China can be banked on to continue.
Africa will be his 100th priority and he wouldn't care if Agoa dies or not, though his diplomatic colleagues would see how that would hurt the US. The US needs Africa's minerals and the continent for strategic geopolitical reasons to thwart China's expansion.
There are areas where reforms could be accelerated. They include Eskom's restructuring, the significant revamp of the electricity distribution infrastructure and the opening up of the transmission market. Trump is polarising, but Ramaphosa can take a leaf from the intensity of Trump's ambitions. We know where he stands. It's a pity we don't know where our president really stands in the single biggest risk to investment attraction: the NHI.
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