How the seeds of South Africa’s growth will be planted, according to finance minister Godongwana

By Xolisa Phillip, in Johannesburg
Posted on Friday, 28 January 2022 19:06

International check-in counters stand empty as several airlines stopped flying out of South Africa, amidst the spread of the new SARS-CoV-2 variant Omicron, at O.R. Tambo International Airport in Johannesburg, South Africa, 28 November 2021. REUTERS/ Sumaya Hisham

The South African government, led by finance minister Enoch Godongwana, is looking for evidence-based and data-driven solutions to economic problems, including high unemployment, low growth and endemic poverty.

Greater integration of Africa’s markets represents a boon not only for South Africa’s economic development but also for that of the continent as a whole, says finance minister Enoch Godongwana.

“Trade is central to the economic growth of all of us,” according to Godongwana, who has been South Africa’s finance minister since August 2021.

He also chairs the governing African National Congress’s (ANC) economic transformation sub-committee. In addition, Godongwana is a member of the ANC’s national executive committee, the party’s highest decision-making structure between elective conferences.

“The integration of markets in Africa is central to enhancing the economic development not only of South Africa but [also that] of the continent as a whole,” said Godongwana. “There’s potential for South Africa to become an engine for intra-regional trade and industrial development by linking other Southern African countries to our … [global] value chain[s].”

Doing that would enable the other countries in Southern Africa, in turn, to generate growth in their own economies. “It’s [intra-regional trade] not a one-way process,” Godongwana notes.

“[Research] identified products in which Southern African countries are competitive, [which would lead] … to the successful creation of a regional value chain. This is crucial in light of the opportunities presented by the African Continental Free Trade Area (AfCFTA),” he said.

The AfCFTA Secretariat has identified regional value chains as a key mechanism that will help strengthen regional integration and achieve the goal of doubling intra-Africa trade.

However, “[The] question is going to be the capacity we are going to develop in South Africa to be able to participate in this important trade development,” says the South African finance minister, who is scheduled to deliver his first national budget speech on 23 February.

Finding value in trade

Godongwana was in conversation on Thursday about the policy interventions required to transform South Africa’s economy, which faces high unemployment, endemic poverty and deep inequality. The country’s gross domestic product growth has also underperformed for the past decade, further entrenching South Africa’s structural problems.

The minister of finance’s discussion was underpinned by research done under the Southern Africa – Towards Inclusive Economic Development (SA-TIED) programme, an initiative of local and international institutions and South Africa’s government.

The research – conducted on issues including trade, taxation and climate change  culminated in an SA-TIED Special Report. The research is intended to help in crafting evidence-based and data-driven policy-making.

“Trade policy is a key component of South Africa’s industrial policy package and can support economic growth when well targeted,” according to the report.

That would entail “support for broader adoption of internationally competitive technology [which] can assist trading firms. … Promotion of FDI [foreign direct investment] to the input-supplying sector, particularly through production upgrading and investment in research and skills, can yield some of the greatest gains. The biggest returns, however, are found to come from those firms that both supply products for global value chains and invest in innovation,” reads a segment of the report.

Orderly tax design

On tax, Godongwana said the available data allows policy-makers to evaluate policy design and the long-run effects of social programmes and tax incentives.

“It also provides insights into how to make changes to these programmes, informed by improved quality and the breadth of evidence. Policy choices informed by quality research can make a major difference in moving forward policy implementation,” he said.

Godongwana added: “We are continually striving to ensure that the overall tax policy system is built on essential design principles such as efficiency, fairness and simplicity. We have learnt … that taxes can distort decisions made by people and business. This is something that we are acutely aware of, and are learning from these insights to improve policy-making.”

Decarbonising the economy

As South Africa grapples with its myriad challenges, the country also remains the world’s twelfth-largest emitter. It has set targets to reduce its emissions and mitigate the effects of climate change, which have been evident in extreme weather patterns.

“The South African government has committed to reduce greenhouse gas emissions to between 398 and 614 metric tonnes of carbon dioxide equivalent (MtCO2e) by 2030 and between 212 and 428 MtCO2e by 2050,” according to the report.

Godongwana explained further: “SA-TIED helps us unpack the impact of climate change […] to build a more resilient economy and weigh the costs and benefits of decarbonising. This critical research provides the evidence needed to determine the pace and scale of this Just Transition project for the country.”

“To limit warming to 1.5°C, emissions need to fall to below 348 MtCO2e by 2030. South Africa is well positioned to meet this benchmark and become a global leader in renewable energy if it can succeed in a large-scale transition of the energy sector, which accounts for nearly 80% of the country’s total emissions,” noted the report.

The limits of macroeconomic policy

The finance minister conceded that historically low levels of growth in the domestic economy, reflecting several structural challenges, are inadequate to address the country’s developmental challenges. “Macroeconomic policy alone cannot address these poor, long-term growth trends,” admitted Godongwana.

“However, efficient fiscal and monetary policy plays a critical role in addressing the high levels of income inequality. In light of this, gaining insights into the impact of macroeconomic policy choices on economic outcomes, is essential. The research helps us to do this,” he concluded.

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