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South Africa Economic Outlook 2021

South Africa’s socio-economic recovery from COVID-19 is negatively impacted by distressed municipal finances. With the November 1 municipal elections around the corner, political parties are campaigning for votes with promises of improving local government service delivery outcomes. However, municipalities are unable to fund the services that they are constitutionally mandated to provide, with two out of every three municipalities having serious financial problems. However, there are options to help remedy this situation - and help municipalities support the socio-economic recovery.

To avoid spiralling tariff increases to plug revenue gaps, municipalities must first understand their local economic base, how it has changed, and how it is likely to change in the future. Municipalities must also embrace the disruption caused by changes in service markets, including prosumers of electricity who invest in Small-Scale Embedded Generators (SSEGs). This report includes thematic analysis on improving municipal finances with an economic lens, as well as the positive impact that an SSEGs framework could have on revenue.

View of electricity power line

In this edition

Elections 2021: Improving municipal finances to support the socio-economic recovery

PwC’s South African Economic Outlook 2021 (October) report updates our different forward-looking scenarios for the South African economy in 2021-2022. Our economic forecasts are influenced by assumptions about the adverse impact of COVID-19 lockdown restrictions, electricity load-shedding and July’s social unrest, combined with the positive impact of fiscal and monetary policy support measures.

Key content in this edition includes:

  • After increasing transfers to local government during 2020 in response to the pandemic, National Treasury is clawing back on this money in the 2021/2022 fiscal year. 
  • PwC’s approach to solving municipal finances is rooted in both understanding the local socio-economic context as well as the state of local government income and expenditure. 
  • There are over 40,000 electricity prosumers (who both produce and consume power) nationwide and municipalities need an appropriate framework to balance the impact of SSEGs on their finances.
  • International supply chain pressures have caused a strong rise in commodity prices (in rand terms) since the start of 2021 – raising the threat of imported inflation. 
  • It will take another five months to fully vaccinate 70% of the country’s adult population – so lockdown will be around until at least 2022Q1. 
  • The South African economy is expected to grow by 4.1% this year – with electricity load-shedding reducing the potential growth rate by 2.7 percentage points. 

This document provides forecasts for economic growth, the unemployment rate, consumer price inflation, interest rates and the exchange rate. The report and associated projections are updated on a monthly basis – although revisions could occur more frequently based on major economic data releases or key influential events. This edition is up to date as of 20 October 2021.

 

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South Africa Economic Outlook 2021 (October) - Elections 2021: Improving municipal finances to support the socio economic recovery

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Lullu Krugel

Lullu Krugel

PwC Chief Economist, PwC South Africa

Tel: +27 (0) 11 797 4929

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