The question on economists’ minds about South Africa’s new finance minister

From an economic policy and financial market perspective, president Cyril Ramaphosa’s acceptance of finance minister Tito Mboweni’s long-standing request to be relieved of his duties and the appointment of his replacement was the most important part of his Thursday evening (5 August) cabinet reshuffle, say economists at the Bureau for Economic Research (BER).

South Africa’s new finance minister Enoch Godongwana has been serving as the head of the ANC’s economic transformation committee for the past decade and is a former Eastern Cape finance MEC.

“While Godongwana’s history involves accusations of impropriety, linked to his resignation as the deputy minister of Economic Development in 2012, he is well known by international investors and should provide reassurance on the government’s stance on reform,” the BER said.

“Godongwane is more entrenched in ANC politics than Mboweni, so a key question is whether he will, to the same extent as Mboweni, push back against the demands from the alliance partners for a looser fiscal policy over time.”

“Godongwana’s recent opinion piece where he argues for a balance between improved GDP growth, job creation and social assistance is a positive in this regard,” the BER said.

Dropped the ball 

In an interview with the SABC at the end of July, Godongwana admitted that South Africa’s economy has been in a bad shape since 2015, with the situation made worse by the Covid-19 pandemic.

While the outlook for 2021 is largely positive, he said the ANC itself has admitted to ‘dropping the ball’ over the last 10 years.

He told the SABC that two specific issues have been directly detrimental to the economy and are of the government’s ‘own making’.

“The first one is the electricity shortages. It is unacceptable that we have had shortages since 2008 and we continue trying to fix Eskom and electricity supply. The second issue has been the weakening of state institutions through various means – including corruption.

“So those issues we must admit have not helped the economy and therefore exacerbated unemployment and poverty issues. Those are the issues that have got to be tackled head-on moving forward,” he said.

Godongwana said that GDP growth does not on its own translate to large employment creation, so extraordinary measures are necessary.

He said that a large number of unemployed South Africans are youth between the ages of 15 and 24. This age group should be in the education system and there should be a focus on preparing these South Africans for the workforce.

Another large group of unemployed South Africans are graduates or those who have some tertiary education – so the focus should be on transitioning these people to a work environment.

In addition to this, Godongwana said that the rest of the country’s unemployed population should also be assisted, including through income support.

However, he said that young people in South Africa cannot be condemned to ‘perpetual dependence on grants’ and that government needs to make sure that the youth are properly trained and that there is a transition from education to work.

Read: New finance minister faces battle to revive South African economy

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The question on economists’ minds about South Africa’s new finance minister