Godongwana’s lofty infrastructure plans threatened by skills shortages

Anchor Capital economist Dr Lerato Ntuli said the Medium-Term Budget Policy Statement (MTBPS), tabled in Parliament on Wednesday, presented a broadly market-friendly fiscal outlook despite weaker economic conditions than those anticipated in the February Budget.

National Treasury cut its 2026 growth forecast to 1.2% from 1.6%, while growth is expected to recover only modestly to 1.6% in 2027. Inflation is forecast to average 4.4% this year before easing to 3.8% next year.

“The near-term picture is one of resilience, but the risks are building into 2027,” Ntuli said.

Ntuli said Treasury had managed to keep fiscal consolidation on track despite the oil shock. The main budget deficit is expected to narrow from 4.3% of GDP in 2025/26 to 3.7% in 2026/27, before declining to 2.5% by 2029/30.

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Treasury expects a R54.1 billion revenue overrun in 2026/27, though more than half stems from one-off receipts rather than stronger underlying tax collections. Improved tax revenue contributes R17.1 billion, driven mainly by corporate income tax, dividends tax and VAT, while higher mining royalties linked to elevated commodity prices add R6.8 billion.

A further R30.3 billion comes largely from non-recurring sources, including National Revenue Fund receipts and surpluses surrendered by public entities. Government debt also appears to have peaked. Gross loan debt is estimated at 78.4% of GDP in 2025/26, below the 78.9% projected in February, and is expected to decline to 76.6% by 2029/30.

The primary surplus is forecast to rise from 1.7% of GDP this year to 2.9% by 2029/30, although debt-service costs remain significant, consuming more than a fifth of government revenue.

“For bond markets, the MTBPS provides a supportive fiscal backdrop: the deficit is narrowing, debt has peaked, and the primary surplus is strengthening,” Ntuli said.

She cautioned, however, that the composition of the revenue overrun, the exclusion of the Social Relief of Distress grant from the expenditure baseline and rising borrowing requirements remained concerns. Gross borrowing requirements are projected to reach R586.2 billion by 2029/30.

While Treasury seeks to strengthen the public finances, infrastructure investment is expected to support economic activity.

Jacques Maritz, national sales and service manager at Quyn International Outsourcing, warned that major projects could face delays and cost overruns if specialised skills are not secured and local employment expectations are poorly managed.

He cited developments such as the planned Cape Town rail expansion and Winelands Airport near Stellenbosch, which require complex combinations of engineering, construction, logistics and operational expertise.

“The success of any mega-build relies on a compliant, adaptable, and well-managed workforce just as much as it does on technical design,” Maritz said.

One of the biggest risks, he argued, is assuming specialist workers will be readily available when construction starts.

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A construction manager experienced in one sector, for instance, cannot necessarily shift into specialist rail engineering without the required expertise. “Sourcing these niche specialists takes time, and assuming they are readily available is a major project risk,” he said.

Maritz said workforce preparation should begin well before the most labour-intensive phases of construction, as staffing needs evolve throughout a project’s lifecycle. He also highlighted local employment expectations as a potential flashpoint.

“If local residents feel they are being ignored or bypassed for jobs, they can protest and bring an entire construction site to a standstill,” he said. Developers should establish local labour databases before construction begins, working with municipalities and community representatives to identify available skills and recruit local workers where possible.

Infrastructure challenges come as households face another bout of fuel-driven inflation. The government has announced temporary fuel levy relief, reducing the levy by R3 a litre for diesel and R1.50 for petrol from November 4 to December 1 at a cost of about R10 billion. Ntuli said the measure would ease immediate inflationary pressures but would not alter the longer-term outlook.

“As the relief tapers in the new year, fuel inflation is likely to re-accelerate, shifting the effective peak into early 2027 rather than eliminating it,” she said. Headline inflation rose to 4.5% year-on-year in September from 4.4% in August, while transport inflation accelerated to 10.8%. Core inflation eased to 4%, services inflation slowed to 4.9%, and food inflation remained low at 1%.

Ntuli warned that food inflation could rise over the next 12 to 18 months as El Niño, higher fertiliser and diesel costs, and global edible oil prices filter through to consumers. Combined with the withdrawal of fuel relief, this poses an upside risk to Treasury’s 3.8% inflation forecast for 2027. Softer core and services inflation support the case for the South African Reserve Bank to keep the repo rate at 7.25% at its November meeting, although Ntuli expects a hawkish tone given elevated oil prices and rand vulnerability.

Household consumption growth is forecast to slow to 1.7% in 2027 from 2.3% this year, adding another constraint to growth. “On growth, household spending should hold up through the final quarter. Into 2027, slower consumption, the withdrawal of fuel relief and weather-related pressure on agriculture point to downside risks to Treasury’s 1.6% growth forecast,” Ntuli said.

For the government, the challenge is shifting from stabilising the public finances to translating fiscal discipline and infrastructure plans into stronger economic activity.

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“Overall, the MTBPS reinforces the credibility of SA’s fiscal consolidation path at a time of heightened external uncertainty,” Ntuli said.

“The challenge will be to preserve this progress while managing the inflationary and growth consequences of the oil shock.”

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