• A large public sector wage hike, disappointing tax revenue and rocketing borrowing costs have hit government finances.

• This will necessitate large budget cuts and shrinking the state, Treasury said in its latest Medium-Term Budget Policy Statement.

• South Africans can also expect a R15 billion tax increase in February next year.

Treasury has been forced to make painful revisions to the latest Medium-Term Budget Policy Statement, which updates government’s spending plans over the next three years, after its expectations in the February Budget turned out to be over-optimistic.

Government now expects to earn almost R57 billion less in taxes than it previously forecast. Much lower commodity prices (due in part to a Chinese demand) hit mining profits, while load shedding, Transnet’s woes and weak local growth also weighed on other tax income. 

Treasury also didn’t fully budget for a 7.5% public sector wage hike, which has added billions to government spending this year. Some 55 000 civil servants now earn more than R1 million a year.

Concerns about South Africa’s economic and fiscal outlook  along with its greylisting, its controversial relationship with Russia and much higher interest rates across the world  have pushed higher the cost of government borrowing. Investors are now demanding much higher interest rates from SA: government’s weighted cost of borrowing has increased from 8.3% in February to 9.5% in October.

This has increased debt service costs by R52 billion above the budgeted amount. Out of every R5 collected in tax, R1 is now being paid to lenders. Government is now spending more on paying debt that on basic education or on health. Debt-services costs are expected to grow by almost 9% per year.

Government debt is now expected to peak at almost 78% of GDP  from a previous forecast of 73% by 2025/26  and grew at a much faster pace than in most emerging markets.

In response, the medium-term budget set out a number of interventions: 

Tax hike ahead

Treasury is budgeting for a R15 billion tax increase in the February Budget. It has not yet been confirmed what shape it will take - whether it will be a VAT or income tax hike (or a combination), for example. 

Spending cuts

Treasury has already cut budgets for housing and other services in this year, and has warned that government budget spending may be reduced by more than R120 billion over the next two years.  

Spending increases on social development (+2.6%), health (+3.1%), and learning and culture (+3.5%) will be below inflation in this period.  

In the civil service, some positions will be frozen and head counts in `non-critical areas` will be reduced, Treasury officials told News24. 

Big plans to shrink the state

In line with President Cyril Ramaphosa’s pledge in the State of the Nation address earlier this year, government departments and agencies will be reduced and merged, Treasury said, while `outdated and unproductive programmes` will be cut. 

More details will be announced at the February Budget.

New rules and a new Treasury agency for private investment

Treasury announced that it will change regulations and municipal legislation to make it easier for private companies and international finance institutions to invest in South African infrastructure projects, also on a local level. Private investment in electricity transmission infrastructure and upgrades to railway lines, among other projects, will be fast-tracked, said Finance Minister Enoch Godongwana.

The details will be announced in February, but officials say the changes will make it simpler for large international funders, like the so-called BRICS Bank, to allocate money for specific, ring-fenced projects. New mechanisms through which private-sector investors and multilateral institutions can co-invest with government for selected infrastructure projects will be created.

A new support agency will also be established in Treasury to manage a pipeline of projects. 

R350 grant lives on

The Covid-19 social relief of distress grant will be extended for another year until March 2025 at a cost of R34 billion, `while government considers social security policy reforms and a funding model`, Treasury said. It also announced that social grants will see inflation-linked increases in 2024/25 and 2025/26.

Stricter Eskom debt relief 

In February, Treasury announced that it will grant Eskom debt relief of R254 billion over the next two years, subject to certain conditions. But it has now decided to take a stricter liner on the arrangement, converting the loan from interest free to interest bearing `to better reflect the cost of this arrangement`.

New legislation, tabled on Wednesday, also stipulates that the minister of finance may reduce the amount of debt relief available to Eskom if it doesn’t meet conditions. 

Godongwana highlighted that one of these conditions, that Eskom still has to meet, is the sale of its finance company, which funded employee home loans.

Hard line on Transnet

In the next week, Transnet must repay R7 billion in loans to creditors. It doesn’t have the money, but Treasury is not going to provide any guarantees. Instead, it wants Transnet to come to an agreement with its creditors on its own.

While Transnet itself has indicated that it wants some R100 billion in debt relief and funding from Treasury, Godongwana told journalists that:

We are not closing the door (on Transnet), but even if we open it, it is not that wide open. 

No allocation for the NHI

There is no mention of new funding allocated for the National Health Insurance Programme but money will be shifted away from the existing NHI grant to cover oncology services. 

`If the national health insurance policy is implemented, then spending on public health could increase from about 4% of GDP in 2022/23 to 6% of GDP by 2040/41. This increase may require additional spending or revenue measures to ensure sustainability,` Treasury said in the Medium-Term Budget Policy Statement.

Fiscal anchors and debt ceiling

More than a decade ago Treasury introduced a ceiling on how much government can spend in a year. But this ceiling was not binding  and deficits and debt continued to grow. Treasury says additional rules will be introduced to provide an anchor for fiscal sustainability. Details will be provided in the 2024 Budget.

Progress with greylisting 

Godongwana said that the Financial Action Task Force (FATF) noted last week that South Africa has addressed 15 of the 20 technical deficiencies in its legal framework. `However, there is also a significant amount of work that must still be done, particularly with regard to the investigation and prosecution of complex money laundering cases and terror financing, the identification of informal mechanisms for remitting money around the world, and the recovery of the proceeds from crime and corruption.`

Government expects to address all the deficiencies identified by FATF by early 2025

Inflation-stoking collapse in naira reaches new extremes

Inflation in Nigeria last month soared to 26.7 per cent, the highest level in two decades 

Nigeria’s currency has tumbled to record lows against the US dollar, putting further pressure on new president Bola Tinubu as he tries to reform Africa’s largest economy.

Tinubu took the reins in May, pledging to break with the policies of his predecessors and attract foreign investment to Nigeria. Allowing the naira to float more freely against the dollar was part of that agenda.

But the currency has been sliding ever since that break from the dollar in June. This week it slumped as low as N880 to the dollar on the official market, according to data from LSEG. This has bumped up the cost of crucial imports and helped to stoke inflation, while investors have yet to be persuaded by the reforms.

One big factor in the naira’s heavy decline is a scarcity of dollars, observers say. The Central Bank of Nigeria’s 2015 ban on certain companies accessing dollars pushed importers to the unofficial market and contributed to a “surplus demand for foreign exchange”, the CBN admitted this month.

The shift has led to dramatically weaker prices quoted on unofficial markets. On abokiFX, an online trading platform, the rate touched N1,290 to the dollar.

“Nigeria is a country in dire need of foreign exchange,” says Wilson Erumebor, a senior economist at the Nigerian Economic Summit Group think-tank.

“The policymakers need a clear-cut policy direction to attract forex into the economy. What’s happening with the currency lately shows how little confidence there is in the naira.”

Under Tinubu’s predecessor, Muhammadu Buhari, importers were barred from accessing dollars from the official market, in an effort to boost local production. Now, under new governor Olayemi Cardoso, a former Citi banker, the central bank is adopting a “willing-buyer and willing-seller” model where prices are determined by market forces.

But eliminating the peg in June led to the biggest single-day fall in the currency’s history. Partly as a result, inflation last month soared to 26.7 per cent, the highest level in two decades.

Charlie Robertson, head of macro strategy at FIM Partners, an asset management firm, said the currency fall made the government’s balancing act more difficult.

To ensure that foreigners and locals who hold dollars are incentivised to stay in Nigeria, they need attractive interest rates, he said. The CBN’s key lending rate is 18.75 per cent, lagging far behind inflation.

Line chart of Naira per US dollar showing Nigeria`s currency slides in the wake of radical economic reforms

But raising rates would push up interest costs, he warns. “Allowing naira depreciation without interest rates high enough to make the naira attractive, means the naira is likely to overshoot and become far too cheap and that hurts confidence.”

“Nigerians, let alone foreigners, don’t want to lose money owning naira when they make more in dollars buying Nigerian bank bonds,” he added.

Analysts and economists have warned the local foreign exchange market needs more dollars to calm the naira’s slide.

“There is too much demand but not enough supply,” one parallel market trader said. In the past the central bank may have intervened in the market but has not done so this time, the person, said, forcing everyone to scramble for dollars.

Capital importation into Nigeria fell by 33 per cent to $1.03bn in the second quarter of this year, compared with the same period last year, according to data from Financial Derivatives Company, a Lagos-based consultancy. “The inflow of dollars remains limited due to policy uncertainty and lingering security issues,” it said in a research note.

The average daily value traded in the Nigerian Autonomous Foreign Exchange Market  a central bank facility for investors and exporters to trade currency between themselves  dropped 22 per cent to $101.37mn this month in the second quarter of the year, data from FDC found.

Sources of foreign exchange remain elusive. The country’s largest source of dollars is selling oil but Nigeria is producing less than its daily Opec quota of 1.8mn barrels a day. The country has external reserves of $33.28bn, which has fallen month-on-month despite rising oil prices.

An oil-for-dollars scheme for NNPC, the state oil company, to receive $3bn from the African Export-Import Bank (Afrexim), was announced in August but the money has yet to materialise.

Finance minister Wale Edun said earlier this week the government had a “line of sight” on $10bn of inflows into Nigeria in the coming weeks without providing further details.

Many businesses say they have money stuck in Nigeria, with airlines being hardest hit. Nigeria tops the list of countries with trapped airline funds, according to a June report by the International Air Transport Association, with the west African nation accounting for $812.2mn of the $2.27bn trapped globally.

Erumebor said the weakening naira also showed that Nigeria’s low productivity and focus on oil remains a problem. “A falling naira should make exports competitive,” he said. “Nigeria should be leveraging exports to the rest of the world but it doesn’t make enough of anything to export.

-The International Crisis Group says more than a million people will fail to vote in the DRC because of conflict in the east.

-The Independent National Electoral Commission`s credibility is in question.

-The African Union and international actors were urged to work closely to help the DRC hold credible elections.

More than a million people have been disenfranchised in the Democratic Republic of the Congo (DRC) some two months before the general elections, the International Crisis Group (ICG) claims.

This was due to fighting mostly in the eastern part of the country, in North Kivu and surrounding areas, where rebel groups are concentrated, the rights group said.

`Fighting in the east and other areas has left more than a million citizens without voter cards,` said the ICG in its latest report titled `Elections in DR Congo: Limiting the Risk of Violence`.

President Felix Tshisekedi will be seeking a second and last constitutional term in the December poll. He will probably face challenges from 23 other candidates whose names are before the Independent National Electoral Commission, also known by its French name, Commission Electorale Nationale Indépendante (CENI).

In the coming weeks, the CENI is expected to vet the candidates and come up with a final list.

The ICG said there were concerns that the results would be contested because of an uneven electoral playing field.

`The opposition, faced with increased government repression and a National Independent Electoral Commission that they see as biased in favour of the ruling party, is tempted to reject each step,` the report says.

Onesphore Sematumba, ICG analyst for the DRC and Burundi, said international partners, as well as the African Union (AU), should work with political stakeholders in the DRC to avoid bloodshed in the event of disputed results.

He said: 

International actors, starting with African powers influential in Kinshasa, as well as Western actors, should encourage the government and opposition to find compromises on contentious issues and stand ready to offer mediation if the results are contested.

Learning from the election of 2018 that ushered Tshisekedi into office, the ICG said there was already a high rate of `localised violence`, intimidation of some candidates, and chances of manipulation on the part of CENI.

If the electoral body was not adequately funded, there would be room for corruption.

Richard Moncrieff, the ICG`s acting director of the Great Lakes Project, said the CENI has a central role to play in bringing together political parties to discuss the country`s preparedness for the polls. 

`It is imperative that the Independent National Electoral Commission maintain a high level of transparency to facilitate discussions between the political parties on the possibility of a postponement, if necessary,` he said.

Some of the suggestions tabled by ICG to help the DRC move towards more transparent, credible, and violence-free elections are:

In order to allay concerns about impartiality, the government should bolster trust in the security forces by guaranteeing a regional balance in the present recruitment exercise.

After the state of siege in the provinces of North Kivu and Ituri was partially lifted, authorities in these regions need to be especially watchful to guarantee that political liberties are respected during the election season.

All parties must be able to run for office if the government is to maintain control of its security services.

Restrictions on political gatherings should be minimised, and party leaders should urge their followers to refrain from using violence in demonstrations.

In December 2005, after a constitutional referendum, multi-party elections returned to the DRC after 46 years.

The elections held in July 2006 saw Joseph Kabila elected after running the country since the death of his father Laurent Kabila in 2001.

Kabila was re-elected in 2011, and his term ended in 2016, but was extended by two years due to the ongoing conflict in the eastern parts of the country.

In 2018, Kabila was not on the ballot as Tshisekedi earned his first presidential term, although there were concerns of potential electoral fraud.

The News24 Africa Desk is supported by the Hanns Seidel Foundation. The stories produced through the Africa Desk and the opinions and statements that may be contained herein do not reflect those of the Hanns Seidel Foundation.

-Tourism Minister Patricia de Lille wants visa requirements for Chinese and Indian nationals to be eased or waived.

-The government has identified the development of the tourism industry as key to reducing SA`s unemployment rate.

-De Lille is also working to on plans to ensure visitors remain safe following a series of high-profile attacks.

South Africa’s tourism minister is pushing for visa requirements to be eased or waived for Chinese and Indian nationals to boost visitor numbers from the world’s most populous nations. 

`Visas are a problem,` Patricia de Lille, who was appointed to her post in March, said in an interview in Bloomberg’s Cape Town office on Thursday. `I see my role as dealing with regulations, the visa issues, regulations around tour operating licenses and then, air access, getting more flights to come to South Africa.`

The government has identified the development of the tourism industry as key to reducing a 33% unemployment rate, but has long faced criticism that it makes it too difficult to enter the country.  The visa system is overseen by Home Affairs Minister Aaron Motsoaledi, who acknowledges its deficiencies, but complains that he lacks the staff and budget to fix it. An online visa system that’s available in about 34 countries doesn’t work properly and while some qualification requirements have been dropped, including the submission of bank statements, security screening continues to result in delays. De Lille was tasked with attracting at least 10 million visitors in the year through March, the same as before the global pandemic struck, and is targeting 15 million by 2030. That’s down from a previous goal of 21 million, a revision necessitated by changing global travel patterns.De Lille said she intends to meet with Motsoaledi ahead of a visit to Beijing next month to discuss whether visas can be waived for Chinese and Indian visitors for limited-duration stays, a concession already extended to those from Brazil, Russia, the US and UK. 

The US, UK and Germany account for the largest number of non-African visitors to South Africa, but arrivals from China and India are surging and can rise further if visa rules are eased, the minister said.

`It’s work in progress, but you have to consider the mandate` of other government departments and ministries in dealing with the visa issue, she said. 

Safety Measures

De Lille’s department is also working to ensure visitors remain safe following a series of attacks that have scarred the country’s international reputation. It has allocated R174 million to train 2 300 safety monitors, who will be deployed from December to help secure 59 key locations, including national parks and airports.  

The tourism industry has meanwhile invested in a mobile-phone application that will enable visitors to summon help from private security companies and the police at the push of a button if they are attacked. Companies are also helping patrol roads leading to the Kruger National Park, the country’s biggest wildlife reserve, because the police don’t have the capacity.  

`Let me assure you that 99% of tourists that come to South Africa go back home safely,` De Lille said. `You can never really stop these crooks, they are always one step ahead of you, so it’s best to warn people` which areas to avoid and ensure they are well informed about potential dangers, she said.  

De Lille heads the Good party, and is the only opposition leader in the cabinet. While she said she serves at President Cyril Ramaphosa’s pleasure, she’s willing to be reappointed after next year’s election if asked. 

She declined to say whether her party would consider entering into an alliance with the ruling African National Congress should its support drop below 50%, as some polls suggest, saying a decision will likely only be taken after the vote.

• Home Affairs departments were non-operational for more 36 000 hours in the first half of 2023.

• South Africans are not informed when the system is down, which means people travel long distances to get to branches only to be turned away empty handed.

• The State Information Technology Agency has invested R400 million to modernise and upgrade the networks.

Offline systems are bringing the Department of Home Affairs to its knees as offices across the country lost more than 36 000 hours of work in the first half of 2023, primarily due to system downtime.

Home Affairs Minister Aaron Motsoaledi revealed this in his response to two sets of parliamentary questions from the DA`s home affairs spokesperson, Adrian Roos.

He said his department`s offices were not operational for a collective 36 772 hours from January to May this year.

Home Affairs offices are responsible for the provision of vital documents, such as passports, IDs, and birth certificates, which people need in their daily lives.

In fact, in a 2021 National Council of Provinces budget debate in 2021, Motsoaledi said: `Home Affairs is the anchor of economic activity, social activity, and the legal system of the country.`

Motsoaledi previously blamed the downtime on the State Information Technology Agency (SITA), which provides the department with many of its IT systems.

At the 2021 budget debate, he even described the department`s IT systems as the `original sin of home affairs`.

But the downtime data he has now provided, paints a different picture, according to Roos.

In the first three months of the year, the Department of Home Affairs` SITA system had 95% uptime, but there were more than 13 000 hours of system downtime.

In the three months that followed, the SITA system had average uptime of 86%, but 8 600 hours were lost to system downtime.

This means that the Department of Home Affairs` IT systems had more downtime in the months that SITA`s performance was better, Roos argued.

`Other things are going on here. This story that it`s a SITA thing [is] the minister`s narrative and he wants this to be driven, but this shows it`s not right.`

SITA spokesperson Tlali Tlali explained that there were multiple points of failure through the home affairs value chain.

System downtime, he said, can be caused by copper cable vandalism, software that takes up huge memory space, and the upgrading of infrastructure.

He said that SITA invested R400 million to modernise and upgrade the networks.

But this does not remove the responsibility of the Department of Home Affairs to upgrade its package with SITA, Tlali added.

News24 asked the Department of Home Affairs for comment, but did not receive a response by the time of publication.

Completely untenable

DA MP Benedicta van Minnen said the waiting times were `completely untenable`.

`Accessing government services should not come with such huge barriers,` she said.

She added that she was aware of people who sleep outside the Somerset West branch to hold their place for the next day.

`State services should not be forcing residents to be doing that to access services.`

Roos added that the department should implement systems that allow people to check whether the system is down at a branch.

He said some people may need to travel long distances, only to be turned away at a branch when they find out the system is down.

What people had to say

News24 visited a home affairs branch and spoke to people in the parking area.

South Africa’s asylum backlog worsens the suffering of applicants

Yvette Johnson was visiting the branch for the third time in the past few weeks to apply for an ID and passport.

The last time she was at the branch she was told that their system was down, but that she could wait in the queue in case it goes back online again. 

She is self-employed and said she wasted her day on both occasions.  After a morning in the queue, she was able to apply for her ID, but has to return for her passport.

She described the situation as a `gamble`.

`You have to come back again and again and you don`t know what you are going to get,` she said.

On Johnsons` advice, News24 had a look at the bathroom of the branch. There was a water leak from the urinal, which flooded the floor. 

A man, who would only be identified as Mark, was visiting the branch for the second time with his family. 

He said online resources did indicate what documents would be required at the branch, and added that some of the pages on the Home Affairs website were out of date. 

It was north of 30 degrees Celsius on the day, and two families who were registering their children told News24 that they had spent hours in the queue.