Forging a unified purpose for relentless growth

The formation of our government of national unity (GNU) in 2024, has ushered in a period of renewed optimism, marked by policy continuity and improved international investor sentiment. Yet, recent political and economic developments in major markets cannot be ignored. In these times of geopolitical uncertainty, it is crucial for the minister and the government to assess the potential gaps that may arise particularly in sectors heavily reliant on external funding. This may require revising the budget and reallocating resources to prioritise essential services while alternative sources are being sought.

As Deloitte Africa, our compilation of pre-budget insights by our subject matter experts reveals that we must navigate this period with both pragmatism and vision.

Our economic landscape presents a complex picture. While we have celebrated nearly three quarters without loadshedding and seen our 10-year bond yields drop to their lowest levels in almost three years, our GDP growth remains constrained. The projected growth of 1.7% for 2025, while an improvement, still falls short of the pace needed for meaningful socioeconomic transformation. However, within these challenges lie opportunities for strategic intervention, reform, and purposeful growth.

The government’s renewed emphasis on infrastructure investment cannot be overstated. South Africa's gross fixed capital formation stands at only 15% of GDP—half of the National Development Plan target and substantially below most of our emerging market competitors. Attracting private sector investment through improved public-private partnerships and innovative financing mechanisms will be crucial for creating a more resilient economic framework that can withstand future challenges.

Healthcare emerges as a critical focus area, particularly as we approach the implementation of the National Health Insurance. Recent budget allocations indicate a commitment to equitable access to quality healthcare. However, reduced funding in critical areas raises concerns. Our analysis highlights the urgent need for infrastructure investment, from facility maintenance to digital transformation. The success of this ambitious healthcare reform will hinge on our ability to balance infrastructure development with workforce capacity building and public-private collaboration.

In the realm of taxation, we are witnessing significant shifts. The introduction of global minimum tax legislation, while adding complexity for multinational enterprises, aligns South Africa with international best practices. The ongoing discourse around VAT-free food expansion reflects our commitment to addressing food insecurity, though our experts advocate for a more comprehensive, multi-faceted approach to truly support vulnerable households.

Implementing additional sin taxes to boost revenue may be considered. Despite high unemployment and rising costs, we need sustainable financial solutions. However, balancing revenue generation with social protection is crucial. Thoughtfully designed sin taxes can discourage harmful behaviours and fund essential social programmes, potentially addressing fiscal challenges while promoting public health and wellbeing. Meanwhile, the relaxation of exchange control regulations for royalties and fees signals a welcome reduction in the administrative burden for businesses, though maintaining robust compliance frameworks remains essential. Additionally, after years of stagnation, the upcoming budget speech may include an increase in the fuel levy, which has remained unchanged despite rising infrastructure and environmental costs.

The imperative of a climate change response demands more research and stakeholder engagement. Our commitment to a just energy transition, coupled with evolving global environmental standards, requires robust public-private collaboration to drive sustainable solutions. Similarly, our mineral resources sector continues to be a cornerstone of economic development, where strategic partnerships between government and industry can unlock greater value chains and beneficiation opportunities. These parallel priorities require each clear policy frameworks that encourage private sector participation while advancing our national development objectives.

The GNU has identified youth unemployment, which stands at over 40%, as a key priority area. Investing in workforce development, including managerial training and skills development, will be crucial in assisting people to secure employment, create businesses and empower future leaders to address systemic inefficiencies in our economy. The upcoming budget should prioritise initiatives that foster job creation and equip our youth with the skills necessary for the modern economy.

As we anticipate the Finance Minister's address, it's clear that our path forward requires a delicate balance between fiscal prudence and developmental imperatives. The government's commitment to addressing the fiscal deficit while pursuing growth-enhancing infrastructure spending provides a foundation for optimism. However, success will depend on accelerated implementation of reforms and strengthened public-private partnerships.

Our compilation of insights reflects the expertise across our firm, offering perspectives on these critical issues. As we engage with the upcoming budget, we remain committed to contributing meaningfully to the dialogue around South Africa's economic future – one that must be more inclusive, sustainable, and equitable for all our citizens.

We trust that the insights in this booklet will provide valuable context and analysis for our stakeholders as we work towards building a stronger South African economy together.