Minister Enoch Godongwana. Picture: Timothy Bernard / Independent Newspapers.
The nation waits on tenterhooks for Minister of Finance Enoch Godongwana to deliver the Medium-Term Budget Policy Statement (MTBPS) on October 30th, with economists and financial sector experts expecting him to announce the acceleration of reforms to stimulate economic growth, and to bring in cost-cutting measures to achieve fiscal consolidation.
Consensus is that Government is in a good position to use money wisely to fund priorities such as solutions to the electricity supply and roads, rail, ports and water supply.
While citizens understand the need for economic growth and stability, the reality is that most are buckling under the weight of the unsustainable cost of living.
This is where they are looking for relief.
‘‘While any improvement in the fiscal deficit and introduction of reforms are welcome, the burning question is, will there be good news for the 30.3 million South Africans - approximately 55% of the population - living in poverty, or the millions of consumers for whom credit cards have become a desperate means of survival?” Neil Roets, CEO of Debt Rescue asked.
While there are no clear-cut answers for consumers yet, South Africa’s improved revenue collection, though lower than expected, and the potential for a smaller budget deficit and changes to inflation are positive indicators that Godongwana’s MTBPS will, at the very least, indirectly address some of the financial challenges that the populace is facing.
However, infrastructure issues and global risks could still negatively impact economic growth.
Investec Chief Economist Annabel Bishop pointed out that the past year has seen an improvement in revenue collections, which creates room for the country’s budget deficit to shrink significantly.
“It looks like the deficit is going to be at about R152 billion, instead of the R237 billion which we experienced last year for this period, so, overall, for the fiscal year as a whole, the deficits could come in below R350 billion. The improved revenue means the government won’t need to borrow as much as before,” Bishop stated.
She believes that government will benefit from the taxation coming through from the two-pot retirement system, judging by the vast number of applications coming from retirement withdrawals, and that this should give the government coffers a decent boost.
Roets, who is an outspoken consumer advocate, points out that, while this may benefit government and the economy in the short-term, there are real concerns regarding the long-term impact of such withdrawals on the savings of workers at retirement age, not least of which tax implications.
Earlier this month, the Reserve Bank warned that it could be forced to suspend or reduce its repo rate-cutting cycle if the two-pot retirement withdrawal numbers are higher than expected.
This will increase the disposable income of consumers, leading to increased spending, which will push up inflation, forcing the Reserve Bank’s Monetary Policy Committee to suspend or reduce its repo rate cutting cycle.
“Given that South Africans are counting on a second cut in the repo rate in November, this would dash any hopes of relief on this front,” Roets added.
“If there is one indicator that the financial landscape for consumers has reached a critical juncture, it is the alarming and concerning spike in credit card dependency, which has reached new highs in South Africa – in fact, the percentage of household income being allocated to debt repayments has shot up by an exorbitant 37% in just two years,” Roets said.
“Undoubtedly the relentless cost of living increases are behind this spike.”
Threats to food security
World Food Day was commemorated on 16th October across the world and served as a reminder of the challenge of feeding a growing global population – and that hunger is a reality for millions.
“More than half of the nation are currently battling to put enough food on the table, in the face of a cost-of-living crisis, the likes of which we have never seen before. This needs to be elevated to the top of the country’s agenda,” Roets said.
He questioned why food prices have not come down in light of the substantial drop in the price of both petrol and diesel over the past five months.
The Competition Commission’s Essential Food Pricing Monitoring (EFPM) report released in October 2024, revealed that despite the recent easing of overall inflation and food inflation, South African households are still grappling with high costs for basic goods, including eggs, bread, cooking oil, and tinned fish.
The Commission said that retail prices are taking longer to fall after shooting up, in what’s known as the rocket and feather effect, that is, prices are quick to go up but slow to come down.
This suggests that retailers are exploiting the spread between input costs and retail prices to rake in profit.
“We need government to look at the factors that hike the prices of necessities, and come up with a plan to mitigate these or we will see a rise and rise in poverty and hunger until soon most of the nation is living below the breadline,” Roets added.
Against this backdrop, rising food inflation is one of the biggest threats to food security in South Africa.
According to Statistics South Africa, the food & non-alcoholic beverages (NAB) price index increased by 0,6% in September 2024 compared with August.
This is the highest monthly rise since January this year, when the rate was also 0,6%.
The straw that breaks the camel’s back
The Automobile Association and economists expect the petrol price to increase slightly for the first time in six months in November.
Layton Beard, spokesperson for the AA, says this is the result of higher international product prices and a steady softening of the Rand against the US Dollar.
He added that there has been a sharp rise in international product prices from the beginning of October due to the tensions which are ramping up in the Middle East.
Beard explains that lower stable fuel prices play a crucial role in the decrease of inflation and in lowering the prices of goods and services.
“The reality is that another petrol price increase will be the straw that breaks the camel’s back for consumers who are either drowning in debt, living off credit or facing financial ruin. Not only is it fast becoming too expensive for motorists to fill up at the tanks, the price of public transport will go up again, and goods being transported by road will also cost more. Once again, the consumer is the biggest loser,” Roets said.
Greylisting is a threat
The International Monetary Fund IMF highlighted earlier this month that “South Africa’s economy faces significant macroeconomic challenges, including declining GDP per capita, rising debt, high unemployment, poverty and inequality - and that global economic risks to South Africa’s economic outlook include a slowdown in trading partner growth, intensification of geopolitical tensions, and tighter global financial conditions.”
It is essential that South Africa is taken off the grey listing as a matter of urgency.
The grey listing impacts South Africa's international standing, and can result in its inclusion on the EU high-risk third countries list and other jurisdictions’ high-risk registers.
“The implication of the grey listing is that it significantly hampers economic growth and global competitiveness, and with that, the economic stability of citizens already buckling under the weight of the unsustainable cost of living. This is something we can ill afford right now,” said Roets.
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