Budget 2023: Insights from Dondo Mogajane, ex-National Treasury DG

While markets may have been underwhelmed by the recent state of the nation address (Sona), finance minister Enoch Godongwana’s upcoming national budget speech could hold the key to boosting business and investor confidence in the economy.

This is according to Dondo Mogajane, CEO of the Moti Group and former director-general (DG) of the National Treasury. He noted that despite receiving criticism, President Cyril Ramaphosa’s Sona offered welcome recognition of the issues facing the country.

“Ramaphosa’s diagnostics for the country’s problems were certainly correct, and he did enough to whet interest in government’s plans as it deals with the country’s challenges,” he said.

“Markets and business leaders may have expected a bit more detail from the speech, but the reality is that in terms of his authority, the president cannot make financial commitments or put numbers to government’s objectives. This is the purview of the minister of finance.

“That said, markets are usually boosted by seeing numbers and seeing government put some financial skin in the game, so when the minister puts flesh and bone to the broad ideas outlined in Sona, we could see a turnaround in market perceptions.”

As the leader of a diversified company with interests spanning property development, car financing, security services, aviation, mining, transport and logistics, Mogajane said the ripple effects of the power situation are immediately visible across all businesses and industries.

That Ramaphosa spent such a substantial amount of time speaking about the energy crisis was, he said, a very promising sign for the urgent rollout of promised interventions over the next few months.

“The crisis in the energy sector is causing the local economy to stagnate, which is why it was positive to see Ramaphosa speak at length about the necessary and long-outstanding reforms required.

“The Sona demonstrated government has its fingers on the pulse in terms of where the problem areas are and what needs to be done.

“Attention will turn to resource allocation, as businesses are impatient to see the implementation of government’s plans. Consider the examples of the Umzimvubu water project and the Ntabelanga Dam. These have been discussed for decades, but little has happened.

“When the finance minister puts numbers to the plans, markets will be more comfortable the plans have been confirmed and that we will see movement in the necessary areas of energy and water security, which could support confidence.”

The five key interventions outlined within the Sona will be critical to securing energy supply, but lingering questions remain as business leaders await the budget speech and further announcements regarding the proposed minister of electricity, he said.

“Ramaphosa recognised that South Africa has plenty of coal to help fuel the country’s energy needs. We cannot simply throw this into the ocean as we grapple with ongoing supply shortages. All coal-fired stations must be restored to peak performance to improve existing power supply.

“Likewise, it was positive to see acknowledgment that there must be more private investment in generation, and that there will be more focus on stimulating rooftop solar investments given the abundance of sunlight in South Africa.

“More is urgently needed to transform the sector and achieve long-term sustainability,  beginning with removing Eskom’s monopoly. I don’t believe Eskom should remain a monopoly in the future. We need to unbundle the company, as government has begun doing, and let other players in to accelerate generation capacity. People and businesses must be allowed to sell power to the grid, as well as to municipalities and among themselves.”

A second crucial point will be the steps taken to address Eskom’s R400bn debt burden.

“Eskom’s debt is an albatross around the neck of National Treasury, and all eyes will be on the budget speech for details regarding the proposed solution to manage this debt. The question remains whether government may be taking all or a portion of this debt onto its own books, or whether Treasury will simply offer to service the interest on the debt. There are many options they could take.

“However, this debt cannot be addressed in isolation. Eskom’s cost structure and the way it does business also requires reforms. In my view markets have already priced in Eskom’s debt into South Africa’s own debt trajectory, but businesses and investors also need to see a clear demonstration that its issues are being dealt with, and clear articulation regarding next steps.”

Finally, close attention will be on the appointment of the minister of electricity, and specifically their experience and capabilities for implementing government’s energy plans.

“If this new minister can provide the answers needed to address our energy challenges and ensure the five interventions mentioned in the Sona take place, this could prove a significant win for the country and the economy.

“Ultimately, businesses and investors need to see government’s plans come to fruition. We cannot simply talk about them indefinitely. But the fact that Ramaphosa has mentioned some of the country’s most urgent issues does provide some reassurance that they are on government’s radar, and we will hopefully receive more concrete details and action plans on Wednesday.”

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