During this year’s annual International Monetary Fund (IMF) and World Bank Group (WBG) meetings in Washington, D.C., LittleAfrica News had an exclusive interview with South Africa’s Minister of Finance, Enoch Godongwana. Godongwana was present at the recently concluded IMF and World Bank Annual Meetings that saw the official gathering of financial minds and role players from all corners of the globe. The South African minister sat down with LittleAfrica News Founder Mona Davids to answer questions regarding South African and African financial matters as well as reflect on the global outlook the IMF has from a South African perspective.
The minister, while sharing his perspective on the IMF’s outlook regarding South Africa, agreed that South Africa’s economy had stagnated over the past ten years because of a number of factors. IMF African Department Director Abebe Aermo Selassie, in his press briefing, stated, “Our assessment of the outlook now is a little bit behind the curve on account of the problems with electricity production that South Africa has encountered of late. Stepping back, what we see is a country that has been impacted by global economic conditions and pressures on the financial market, and this has been compounded by the modern time challenges that South Africa is facing. This is all a little bit unfortunate because, with the high-end commodity prices we are seeing globally, this would have been a moment where South Africa was in a better position that could have exploited the benefits quite a bit from this.”
Godongwana did say there was a positive side with commodity prices increasing creating a buffer zone with overrun revenues they hadn’t planned for, closing the year at the end of February with R198 billion. Fiscally, it was a neutral effect.
One of South Africa’s largest economic stagnation factors is the nation’s load shedding. Eskom is South Africa’s state-owned electricity supplier that has had to implement power cuts, known locally in the country as load shedding. The problem of electricity has been with the country since 2008 and the minister conceded that it has been one of the reasons why South Africa’s economy has stagnated over the last ten years. He said, “It’s an accurate characterization of the problem, and that explains the stagnant growth of the ten years. The absence of electricity is 14 years old; it started in 2008. We’ve made blunders because we should have sorted this thing out some time ago. So it continues to stop growth.”
He added, “A couple of weeks ago, we had the worst stage 6, which means you have to have roll out load shedding three times in one area. So Ricardo Hausmann says the observation is that over the past 10 years, our underperformance has resulted because of electricity.”
Power cuts severely affect the economy by disrupting the operations of various business entities in South Africa. Operating during load shedding is also an extra expense that requires buying and operating generators. The minister factored in how load shedding affects Transnet’s (the state-owned rail company) operations, leading to its failure to transport goods and products at the required level.
The COVID-19 pandemic and the Russia-Ukraine conflict are two major events that Godongwana highlights as contributing to further economic stagnation. The effects of the conflict are factors that the minister had not prepared for as the war kicked off the day after he had announced South Africa’s budget on February 23rd.
Godongwana touched on how the African free trade zone has yet to benefit South Africa economically at the level it should. He highlighted that this is due to a number of reasons that include slow ratification by member countries, slow finalizing the rules of origin, and the trade facilitation infrastructure is not up to speed.
The finance minister spoke about the issue of the Russia-Ukraine conflict, with Davids asking why it appeared as though Ukrainian issues were given more of a platform than those currently affecting Ethiopia. Minister Godongwana said the Ukraine matter is an emotional one for Europeans and hits closer to home for them than the Ethiopian conflict. He went on to further say that while there is a problem in Ethiopia, it was a problem that needed Africans at the forefront to draw up a viable solution. “We have always said we need Africans for African solutions,” he said. He further called on the countries in the same region as Ethiopia to put their heads together and find a solution to the problem.
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