Godongwana takes aim at the Constitution for holding back growth

South Africa’s Constitution and regulatory environment stifle growth, according to Finance Minister Enoch Gondongwana. 

Speaking at an RMB-hosted breakfast in Cape Town, a day after presenting the Medium-Term Budget Policy Statement (MTBPS),  Godongwana said many issues stifling growth are regulatory, not fiscal – or relating to government revenue, spending and debt.

When host, RMB economist Isaah Mhlanga mentioned Rwanda had recently signed a 10-year agreement to host the official Formula 1 Africa Grand Prix before South Africa won a bid, Godongwana retorted.

“I’m sure Rwanda doesn’t have the same constitution.”

Gondongwana said in addition to corruption and a lack of competency, “our Constitution and regulatory framework” created challenges to the government’s growth mandate.

He said energy firms are able to explore for offshore gas in Namibia and start developing resources, but the same exploration and development does not take place in South Africa – as it gets fought by environmentalists in court until the energy and gas firms give up.

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“So our Constitution and our regulatory environment, sometimes, does not create an environment for investment.”

The Constitution devolves power across three distinct yet interdependent spheres of government: national, provincial, and local. Rather than allowing a top-down chain of command, which would give National Treasury more power, the Constitution ensures that each sphere of government retains its own original powers.

Additionally, regulatory reform takes time, and Treasury sometimes pursues regulatory changes such as suggesting in the MTBPS that the Municipal Finance Management Act be amended to allow them say over which CFOs are appointed in municipalities.

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Boosting mining sector necessary 

In Wednesday’s MTBPS, South Africa reported a tax overrun of R17.1 billion largely thanks to tax receipts from the mining sector on the back of high commodities prices, as well as an extra R6.8 billion in mining royalties.

Godongwana said the Treasury was having a conversation with the Minerals Council SA that represents the mining industry.

“We need to solve the regulatory issue in mining. We should be able to increase mining exploration.”

He said in 2025, Australia and Canada conducted exploration worth billions, when South Africa completed substantially less mining exploration. 

“We have got a vested interest in improving mining revenue. We are a mineral resource country.”

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Will the proposed fiscal anchor work?

In the MTBPS, Treasury announced it would table legislation for a principle-based fiscal anchor, a financial rule that governs government spending and debt to prevent debt overruns.

It chose not to propose a numerical target, such as limiting debt-to-GDP to 80%, but a principled commitment to fiscal discipline.

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Asked whether such an anchor would work in practice, when it could be contested by lawmakers, Godongwana said: “The way we avoid that argument is by constructing not a numerical target, but a principled rule.”

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He said parliament must agree that a fiscal standard must be maintained.

Once lawmakers agree to a principle, and it becomes legislation, any new government administration must develop a fiscal plan and that fiscal plan must meet that standard, he said.

“Will that succeed? It’s going to depend. I’m saying populism is growing in this country.” He said maintaining fiscal discipline will depend on the balance of forces politically.

He said he could think of two parties – suggesting the MK and EFF – that would not support a fiscal anchor. 

“I suspect that in the current [political] environment, we may persuade each other successfully”

He said he suspects the current parliament “will probably get fiscal anchor [legislation] across the line”.

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