South Africa: Finance Minister Godongwana bullish on inflation despite global fears

By Julian Pecquet
Posted on Friday, 14 October 2022 11:03

South Africa's finance minister Enoch Godongwana on 12 October 2022 (photo: @Diop_IFC)

Finance Minister Enoch Godongwana is confident in South Africa’s ability to get prices under control despite dire warnings from the IMF and lingering geopolitical divisions.

Speaking to reporters upon leaving a gathering of G20 finance officials on the margins of the World Bank and IMF annual meetings in Washington, Godongwana said the highest projected inflation rate is only slightly above the target rate of 3% to 6%. IMF Chief Economist Pierre-Olivier Gourinchas said this week that global inflation is expected to peak at 9.5% this year.

“It doesn’t give me sleepless nights,” Godongwana said.

Although rising energy costs tied to Russia’s invasion of Ukraine have contributed to rolling blackouts in South Africa, Godongwana said the country is less susceptible to food shocks than many on the continent. Annual consumer price inflation in the country hit a 13-year high of 7.8% in July.

“We think we’re capable of dealing with the energy prices and food prices,” Godongwana told The Africa Report. “Mind you, South Africa is a net exporter of food. Our problem is not [the] unavailability of food, it’s the price of food, so we’re food insecure in that sense.”

Rate hikes

“There are two aspects to the energy crisis,” Godongwana says. “The fuel price, which is induced, and the electricity constraints, which South Africa has been facing for years, which basically is our own goal. The fuel crisis is prompted by the geopolitical situation, which has serious implications for emerging economies in the form of higher prices and therefore, central banks are responding by hiking rates, so it’s a tough time.”

In order to tame inflation, the South African Reserve Bank has raised its repurchase rate by 275 basis points since last November. Godongwana said the bank is only expected to conduct one or two more rate hikes. “It’s becoming too tight,” he said.

Global price shocks was one of the topics under discussion as the G20 finance ministers met over the past two days.

Debt relief

Another is debt relief, an area where the G20 has taken a leadership role with the development of the Common Framework for Debt Treatments that is meant to help the poorest countries – many of them in Africa – restructure their debt and deal with their insolvency issues. Only three countries – Chad, Ethiopia and Zambia – have made requests for debt relief under the program, with only the latter making much progress under the framework.

“A number of countries have not accessed it,” Godongwana said. “And our view is that […] it may well be that the design of the conditions are not making it attractive.”

We may have disagreement[s] on the geopolitics, but in terms of the economic outlook, and what interventions need to be made, we’re on the same page.

IMF Managing Director Kristalina Georgieva this week said she hoped that debt restructuring efforts for Zambia and Chad could be completed by the end of the year. Meanwhile, Zambian Finance Minister Situmbeko Musokotwane told Bloomberg that other indebted African countries should engage with the framework despite criticism that it is moving too slowly amid difficulties getting Chinese creditors on board.

“We do hope that this is going to be implemented, especially with many of the countries now in a situation that is requiring this kind of framework to be used,” said Finance Minister Sri Mulyani of Indonesia, which is presiding over the G20 this year.

Geopolitical tensions

Cooperation within the group 19 countries, plus the EU, has been made more difficult by the actions of Russia, which remains one of the members of the G20.

Just this week, three other members – South Africa, China and India – abstained on a UN General Assembly resolution denouncing the invasion of Ukraine, which Russia voted against. India will take over the presidency of the G20 on 1 December.

Godongwana said South Africa continues to believe that a negotiated settlement is key to getting the world economy back on track. Many Western powers, by contrast, continue to press for Russia to depart all Ukrainian territory.

“We have always argued that what is going to be key is to find a solution and resolve the conflict,” Godongwana said. “If we don’t, we’re facing a bleak economy next year.”

He insisted, however, that the conflict has not hampered the G20’s ability to make progress on trying to shore up the global financial system.

“We may have disagreement[s] on the geopolitics,” he said, “but in terms of the economic outlook, and what interventions need to be made, we’re on the same page.”

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options