What keeps Godongwana awake at night
• Finance minister worries about this year’s tax take
Finance minister Enoch Godongwana has expressed worries about this fiscal year’s tax revenue, as record electricity outages combined with operational woes and lower commodity prices threaten to undermine his budgetary commitments.
“The major problem is going to be load-shedding and its impact on growth, and therefore the tax revenues that I collect from companies are going to be less and less.
“That’s your major challenge,” Godongwana told Business Day in an interview on the sidelines of the African Development Bank’s (AfDB) annual meetings in Egypt last week.
His comments come almost two months after the SA Revenue Service (Sars) estimated that power outages have led to at least R60bn in annual revenue losses. This is complemented by operational woes at Transnet — whose freight volumes have plunged in recent years as its freight unit is in disrepair — and falling commodity prices, which the World Bank expects will drop more than 20% this year, the fastest since the onset of the pandemic.
“What’s happening at Transnet, particularly on the coal side and the general freight business to Durban, we are beginning to experience serious challenges and [it] is having a major impact on the mining sector.
“That in itself has got serious implications for revenue collection,” Godongwana said.
The operational underperformance at Transnet, which is recovering from cable theft, infrastructure vandalism and widespread corruption under the state capture project, meant the mining industry lost an estimated R150bn in sales last year.
In this context, Godongwana, who has made a commitment to bring revenue back in line with expenditure, said the Treasury’s forecast for the economy needs to be downgraded. The Treasury had forecast GDP would grow 0.9% in 2023.
“The difference between people when they make a forecast now in SA is how much intensity of load-shedding are they projecting.
“Now the Reserve Bank and the IMF have included a greater load-shedding impact than we had projected,” he said.
“We are also aware that we were overoptimistic in our [GDP] projections in the beginning. We will be presenting in October a revised estimate. Where that estimate will be you will know in October,” the minister said.
The rand’s plunge to a record low on Thursday, despite the Reserve Bank’s hike in interest rates, also drew comment from Godongwana.
“I normally use an example,” he said. In the cabinet, minerals resources & energy minister Gwede Mantashe said a weak currency “is good for mining, for tourism, it’s good for all those things. But it is bad for me because what we are likely to see are higher interest rates. And once you get higher interest rates it raises my cost of borrowing, it raises my stock of debt,” he said.
“So in that sense, I might end up on the revenue side with worse numbers than I had projected. I also can’t take advantage of the weaker currency because of the logistics. But it is still too early to tell.”
Godongwana also commented on allegations by Reuben Brigety, the US ambassador, that the Russian ship Lady R had picked up weapons at Simon’s Town naval base near Cape Town. Brigety’s statement at a news conference earlier this month hammered the rand and led to speculation that SA’s neutrality on Russia’s invasion of Ukraine only exists on paper.
Godongwana said Brigety, who has apologised for his public outburst after being summoned by foreign relations & co-operation minister Naledi Pandor, confused the ANC’s position on Russia and the government’s official pledge to remain neutral.
“What is unfortunate with the ambassador is that he confuses two things: the government process and the political party processes. An ambassador must be guided by government policy and not party policy because it does not necessarily mean in every case [that] party policy will be translated into government policy,” he said.
Godongwna was speaking to Business Day after being named the African Finance Minister of the Year for 2023 at the 17th African Banker Awards. He was recognised by the continent’s finance and banking industry for carrying through prudent macroeconomic policies and reforms under extremely challenging circumstances.
“When I came in, SA was already downgraded into junk status. Our cost of borrowing was high. Our growth was very slow. It was a tricky business to manage the budget in that environment,” he said. “I suspect the recognition is not [for] the skill, rather how we managed a budget in that tricky environment.”