Had Finance minister Enoch Godongwana delivered the 2025 Budget Speech on Wednesday, he would have revealed that the South African economy is projected to display a much improved growth rate over the next three financial years.
This information is contained in the 2025 Budget Review document.
Growth momentum picking up
“South Africa’s economy is forecast to grow at an average of 1.8% over the next three years as momentum starts to pick up after more than a decade of stagnant growth,” said Godongwana.
The projected 1.8% economic growth rate was up from an estimated 0.8% in 2024.
Godongwana, who will deliver the postponed budget speech on March 12, said in the budget review that the medium-term outlook was backed by higher investment and household consumption, aided by a stable inflation outlook, moderate employment gains and improving household balance sheets.
“Continued easing of structural constraints will support the economy by fostering additional investment—including in infrastructure.”
To bolster growth and employment, Godongwana stated that the the government’s economic strategy prioritised maintaining macroeconomic stability and reducing volatility to reduce the cost of living and encourage investment.
Structural reforms to increase public service efficiency
He added that the the government would implement structural reforms to increase efficiency and promote a competitive economy while addressing constraints to job creation and employment, among other things.
“South Africa’s potential growth is estimated to have remained below 2% since 2013, falling to an average of less than 1% over the past four years.
“Raising potential growth is necessary to ensure a sustainable increase in growth—in other words, to expand the economy without stoking inflation or accumulating excessive debt. Productivity—the efficiency with which the economy uses its resources—is one of the main drivers of long-term trend growth,” read.
“Despite an unexpected GDP contraction in the third quarter of 2024, regular electricity supply, slowing inflation and declining interest rates, supported by government’s fiscal strategy, are improving confidence and enhancing the investment environment,” he said.
He, however, warned that over the next three years, additional spending pressures will have to be funded either through additional revenue increases or expenditure reductions or reprioritisations, which may include cutting non-performing programmes.
‘State must consider closing unprofitable SOEs’
Godongwana in the budget review also raised concern about the lacklustre performance of the country’s state-owned entities, saying in the future the government should consider closing them down as one of its options.
Godongwana said this while delivering the 2025 Budget Speech in Cape Town on Wednesday afternoon.
In the context of persistent weakness, the government has to make difficult choices on the future of these companies. Options include closures, mergers, and withdrawal of financial support.
Poorly performing SOEs
He said most state‐owned companies listed under Schedule 2 of the Public Finance Management Act (1999) have not met the legal requirements to maintain sustainable profitability, manage risks effectively and generate returns while ensuring prudent use of public resources.
He added that the major public entities were continuing to pose a large risk to the fiscal
position.
“… Most contingent liabilities emanate from these institutions. The 2025 budget maintains government’s stance of not providing bailouts to state-owned companies. Government is focused on improving governance and the effectiveness and transparency of the guarantee framework.
“In addition, government will support critical capital investments through different mechanisms, including credit guarantees, on-lending and grant funding, where appropriate.
Turnaround initiatives are underway
“Various initiatives, including turnaround plans agreed with government, are under way, but progress has been mixed. Notably, Eskom and Transnet are implementing recovery plans agreed to during 2023/24,” he said.
The total assets of the SOEs grew by 2.6% to R1.35 trillion in 2023/24, while the total liabilities grew by 6.4%, mainly due to R76 billion in debt relief – recognised as a liability – disbursed to Eskom.
“This amount was converted to equity in 2024/25 after being assessed for compliance with the debt‐relief arrangement,” said Godongwana.
He said the state‐owned companies reported a negative return on equity of 15.6%, highlighting an ongoing inability to turn a profit. Godongwana noted that the poor performance of the SOEs was not due lack of market demand.
“Sales were subdued owing to operational constraints and inefficiency, while costs remained high.
Inferior quality of management
“Poor quality management and the adoption of mandates that are not financially feasible should also be addressed. Failure to make proactive decisions will result in continued fiscal pressure or financial collapse, leading to service disruptions and large job losses,” he said.
“…State‐owned companies continue to use the majority of their cash to meet debt obligations. Cash flows remain insufficient to cover operational costs, financial obligations and capital requirements. Consequently, these companies are unable to effectively fulfil their mandates. With government support, capital expenditure increased by 28% from 2022/2023 to 2023/2024. However, major backlogs persist,” he said.
He pointed out that SOEs continued to use the majority of their cash to meet debt obligations.
“Cash flows remain insufficient to cover operational costs, financial obligations and capital requirements. Consequently, these companies are unable to effectively fulfil their mandates. With government support, capital expenditure increased by 28% from 2022/23 to 2023/24. However, major backlogs persist.
Sin taxes
Godongwana also announced plans to increase tax for alcoholic beverages and cigars by 6.83%.
Other tobacco products were set to increase by 4.83%.
“Legislative provisions to deal with unusual clearances of cigarettes around budget announcements have been in place since 2021 and may be extended,” said Godongwana.
He had proposed that a 340ml can of malt beer be increased by 16c, spirits by R6.04 per 750ml bottle, and sparkling wine at 91.5c per 750ml bottle.
The plan was to increase cigarettes by R1.05 per packet of 20, cigars by R8.60 per 23g, while nicotine and non-nicotine solution for electric delivery system by 14c per ml.
“Government published a discussion paper, the Taxation of Alcoholic Beverages, for public comment on 13 November 2024. It proposes adjustments to the alcohol excise taxation policy framework, including the introduction of a three-tier progressive excise duty rate structure for wine and beer.
“Government will hold public consultations on the new excise framework during 2025. Considering that the details of the new alcohol excise taxation framework will be finalised only after the 2025 budget,” said.
