Latest news with #OperationVulindlelaPhase2
IOL News
13-06-2025
- Business
- IOL News
Cabinet vows to tackle manufacturing and logistics woes amid dwindling economic growth
Minister in the Presidency Khumbudzo Ntshavheni addressing the post-Cabinet media held at Imbizo Media Centre in Cape Town. Image: GCIS Minister in the Presidency Khumbudzo Ntshavheni addressing the post-Cabinet media held at Imbizo Media Centre in Cape Town. Image: GCIS The gross domestic product (GDP) figures released by Statistics South Africa also indicated that the economy grew by 0.1% in the first quarter of 2025 following a downwardly revised increase of 0.4% in the fourth quarter of 2024. During a post-Cabinet media briefing on Thursday, Minister in the Presidency Khumbudzo Ntshavheni, said the government was now working to fine-tune the country's industrial policy. 'Cabinet remains concerned about the decline in the manufacturing industry, more so when the government has prioritised boosting local manufacturing and thus awaits the finalisation of the revised Industrial Policy,' Ntshavheni said. 'The government understands the impact of the challenges within freight and logistics that continues to impact the growth of the mining industry, and we are maintaining a razor-sharp focus on the work of Operation Vulindlela Phase 2 and the Government Business Partnership in urgently resolving the logistics challenges of the country.' Industrial policy during the Sixth Administration was characterised by innovation within the confines of an increasingly complex context, characterised by global instability and system-level shocks and trends. South Africa's industrial policy framework, primarily articulated in the National Industrial Policy Framework (NIPF) and its subsequent iterations, aims to drive industrialization and create a more robust and diversified economy. The NIPF focuses on strengthening the manufacturing sector and supporting the development of non-traditional tradable goods and services. Key components include investment facilitation, trade promotion, technology development, and support for small businesses, as well as competition and labor market policies. However, the economy is facing domestic and global headwinds, particularly from the looming US import tariffs that would cripple the South African manufacturing industry. On April 2, US President Donald Trump introduced a 10% base tariff on nearly all imports into the US, with additional reciprocal tariffs for specific countries. However, these reciprocal tariffs were suspended for 90 days to allow room for negotiations. Trade, industry and competition minister Parks Tau has acknowledged the current uncertainty around what decision the US will make on July 9, adding that South Africa was exposed to both direct and indirect trade and growth risks. Everest Wealth CEO, Thys van Zy, on Thursday said the government must end the wait-and-see approach on the economy. Van Zyl said the looming July 9 deadline for the possible implementation of 30% reciprocal tariffs on South African exports to the US — and the uncertainty surrounding it — should serve as yet another wake-up call for the government on the importance of bold decision-making. He said should the 30% tariffs be implemented, they are likely to significantly impact export-dependent industries – especially automotive manufacturing, agricultural products like citrus and wine, and the steel and mining sectors. 'These sectors contribute significantly to South Africa's GDP and job creation, and higher tariffs will not only undermine exports but also threaten local investment and production,' Van Zyl said. 'The government must use this negotiation window to secure a new, mutually beneficial trade agreement that protects and expands South Africa's economic interests. The focus should be on maintaining preferential access to the US market and avoiding higher tariffs that could harm our exports.' BUSINESS REPORT
The Citizen
19-05-2025
- Business
- The Citizen
Budget 3.0: Godongwana under pressure to make up for downgraded growth
With little room to manoeuvre, the minister of finance will have to cut government spending to balance the books in Budget 3.0. The global and local economic environment where Minister of Finance Enoch Godongwana delivers his budget speech on Wednesday afternoon will be very different from February when he tried to get the budget passed for the first time. He will now have to make up for the downgraded growth as well as the gap left by scrapping the VAT increase. Tertia Jacobs, treasury economist at Investec, says the two VAT increases of 0.5% each would have raised R75 billion in revenue over the medium-term expenditure framework (MTEF), a three-year spending plan used by government to guide its budget process. 'Scrapping the VAT increase makes it necessary to reduce government spending to maintain a neutral impact on the budget deficit. The focus now will be on where spending will be lowered and the ability of the government of national unity (GNU) to craft a way forward that both demonstrates its priorities and allows for consensus.' ALSO READ: Budget 3.0: Time to fix our economy – BLSA What has changed between Budget 2.0 and Budget 3.0? Jacobs says this has changed from Budget 2.0 to Budget 3.0: Global growth and South Africa's macroeconomic forecasts have been revised lower. A VAT increase is not available to finance an increase in new spending. The GNU is committed to stabilising the debt-to-GDP ratio. Operation Vulindlela Phase 2's agenda has been announced and Budget 3.0 will allocate more funding. There is additional cash from a higher closing balance and possibly the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) valuation, depending on a formulaic allocation which has to be agreed to. 'The May 2025 budget will be trying to balance new expenditure measures and lower tax revenue. The commitment to fiscal consolidation is likely to remain, with the debt-to-GDP ratio sitting uncomfortably at 76% of gross domestic product (GDP).' She says tax measures, such as the bracket creep that Budget 2.0 resorted to to finance new expenditure, are currently required to fill a potential shortfall in the baseline October 2024 medium-term budget policy statement (MTBPS) forecast, which exposes the main budget deficit to the political decision on how much and what types of new spending South Africa can afford. ALSO READ: Budget 3.0: will it be third time lucky for Godongwana? Clock is ticking to approve budget 'The clock is ticking and in addition, three bills in the fiscal framework must be passed. The Appropriations Bill must be finalised within four months of the start of the new financial year in April 2025. There is currently a spending cap of 45% based on the 2024/2025 budget. 'Funds withdrawn from the Revenue Fund may be used only for services for which funds were appropriated in the previous annual budget or the adjustments budget. Thereafter, it may not exceed 10% of the total amount appropriated in the previous budget,' she warns. Jacobs points out that the outcome for the 2024/2025 revenue and expenditure numbers are better now and these will be included in Budget 3.0, showing a higher closing cash balance of R15 billion. 'Gross revenue receipts were R9 billion better than the February 2024 forecast and R15 billion ahead of the October 2024 MTBPS forecast. The contributory factors were a meaningful improvement in corporate income tax collections of R16 billion more than expected and a larger withdrawal from the two-pot retirement fund system of R45 billion, which raised R13 billion in tax, although personal income tax missed the target by R9 billion. 'Sars's effort to improve efficiencies and compliance also played a role in closing the forecast gap and this effort is expected to become more prominent over the MTEF period. On the expenditure side, the target was missed by R6 billion. The implication is a higher closing cash balance of R15 billion.' ALSO READ: Economic activity slows in April as economy struggles Budget deficit slightly smaller Therefore, she says, the main budget deficit consequently beat estimates (of 4.7% of GDP) at 4.5% of GDP, as it declined from an estimated R356.1 billion to R336.7 billion. However, there are new macroeconomic forecasts in a changing global landscape, Jacobs says. 'South Africa's structural reform programme's manifestation in higher fixed investment is materialising only very incrementally. In April 2025, the IMF revised its global growth forecasts to 2.8% for 2025 and 3.0% for 2026, down from 3.3% predicted for both years. 'The Trump administration's policy agenda of raising trade barriers already caused upheaval in global financial markets, with a toned-down tariff version to be followed as bilateral trade and investment deals are negotiated. 'While a trade war between the US and China appears to have been avoided – a risk scenario that the markets moved to price in in early April – US trade tariffs will be higher and this will have an impact on global trade and economic growth in many countries in Europe and China, South Africa's major trading partners.' For example, she says, the weighted average tariff on US imports from China may have been reduced from more than 100% to 43% for the next 90 days, way above the 9% tariff increase in 2018/19. In South Africa, ICIB and Bloomberg consensus forecasts for economic growth have been lowered to 1.4%, from 1.9% and 1.7% in late 2024. ALSO READ: Minister of finance says no to wealth tax Budget 3.0 will also show National Treasury's updated GDP forecast for 2024 of 0.6% from its projection of 0.8%, with 1.9% in 2025 to be more aligned with market consensus. Inflation has consistently surprised on the downside in the past six months, leading to a revision in the market and the Sarb's inflation forecast. National Treasury's 2025 forecast of 4.4% (0.8 percentage points higher than the consensus of 3.7%) will also be lowered. For 2026, the market consensus is at 4.5%, with National Treasury at 4.6%. The combination of lower growth and inflation implies slower nominal GDP growth. National Treasury's 7.0% and 6.4% are too high compared to ICIB's projection of 5.1% and 6.0%, Jacobs says. 'The revision to the macroeconomic forecast lowers the gross tax revenue forecasts. Our analysis shows that when the October 2024 MTBPS revenue forecast for FY25/26 is used as the baseline forecast, tax revenues could be R35 billion less, when assuming a gross revenue-to-GDP ratio of 24.7% of GDP. 'We think there are two ways of returning the forecast to the October 2024 baseline. These consist of bracket creep of R18.0 billion, announced in Budget 2.0, with carry-over effects of R19.1 billion and R20.3 billion in the outer years over the MTEF and increased reliance on Sars.' ALSO READ: SA's economic growth outlook growing increasingly dim Spending challenge? 'The removal of a 0.5% increase in VAT this year and another next year, which would have raised R80 billion to finance new spending on frontline services, means a R75 billion spend shortfall which will have to be reprioritised or reduced. 'The carry-over total from bracket creep raises R58 billion over the MTEF period. The focus point is how spending on frontline services and infrastructure can be balanced, in addition to an above-inflation increase of 5.5% in public sector wages of R23.4 billion, other spending of R37.7 billion and infrastructure spending of R46.7 billion.'
