By Lehlohonolo Lehana.
Finance Minister Enoch Godongwana has called on the Government Employee’s Pension Fund (GEPF) to consider “co-investing” in government infrastructure projects to improve growth prospects.
Godongwana was delivering a keynote address at the Government Employees Pension Fund (GEPF) Annual Thought Leadership Conference 2022 at the Cape Town International Conference Centre on Thursday.
He said that South Africa needs to finance both brown and greenfield infrastructure projects, requiring in the region of R1 trillion over the next five years. Put differently, South Africa needs to lift the level of fixed investment in the economy to at least 30% of GDP from the current level of around 19% of GDP, he said.
However, the government is struggling to raise the necessary funds.
Looking at the global economic outlook, Godongwana said that the war between Russia and Ukraine has increased geopolitical risks.
“This is happening at a time when the world economy was beginning to recover from the COVID-19 pandemic. The war is set to deepen geopolitical fragmentation and is likely to impede global trade and cooperation,” he said.
The Minister said the war is set to deepen geopolitical fragmentation and is likely to impede global trade and cooperation, in addition to the tragic loss of life and the destruction of livelihoods.
He explained that the Russia-Ukraine conflict is manifesting through a threefold crisis: access to food, energy and finance.
Speaking on the domestic economic outlook and the impact of the geopolitical landscape on South Africa’s economy, he said the conflict is a powerful example of how economies are integrated.
“The consequence of this escalation, including the sanctions imposed on Russia, gravely impacted our assumptions on the domestic outlook.
“The conflict has created a new set of multi-dimensional risks to our economic outlook and to fiscal and monetary policy, “the Minister said, adding that it has also exacerbated the supply chain bottlenecks that emerged during the COVID-19 pandemic.
Furthermore, the Minister said increasing inflationary pressures and rising interest rates have hurt disposable income and disrupted efforts to lower poverty, negatively impacting consumer spending, economic growth, employment creation, and food security.
“We have already seen the impact of these developments on the latest GDP numbers.
“Following a more positive real GDP outcome in the first quarter of 2022, second quarter growth shrunk by 0.7%. Notably, household spending also slowed.”
Since February, the rand has been among the worst performing currencies against the dollar, sliding from around 14 rands to 18 rands to the US dollar.
“This has had a major impact on the cost of our debt, as well as that of our imports. Just last week, our external account turned negative for the first time in a long while.
“While commodity prices have begun to fall, the price of coal, one of our largest exports, continues to rise,” Godongwana said.
The Minister told the conference that the past two years have shown that change is happening at an increasing rate.
“We have also learnt that this rapid change comes with a number of risks, but it also comes with opportunities; opportunities to improve how we do things, as well as opportunities to prepare ourselves better for the changes that lie ahead,” he said.