Budget acknowledges economy's plight, but more urgency required, say business organisations

Following the delivery of the Medium Term Budget Policy Statement (MTBPS) by Finance Minister Tito Mboweni on October 29, business organisations have commended its acknowledgement of the dire economic situation facing the country, but have noted that more urgency is required in terms of reforms and interventions, and that gaps still remain.

The South African Chamber of Commerce and Industry (Sacci) notes that the MTBPS highlighted the well-known economic challenges facing the country, which have been prevalent for a while and were exacerbated by the pandemic.

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The Minerals Council South Africa emphasises that the country is facing the real risk of a full-blown sovereign debt crisis within two years, “unless the handbrake on government expenditure is applied in a significant fashion”.

Sacci adds that, in light of the widespread unemployment and stubbornly low levels of economic growth and real investment, it had expected a greater sense of urgency and clear details on deliverables.

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Moreover, it says it will monitor if the statement will bolster and lift business confidence.

Sacci also calls on government to urgently put together specific action plans with timelines to bolster the State’s capacity to successfully implement the Economic Recovery and Reconstruction Plan that was delivered by President on October 15, and supported by the Minister’s budget.

The organisation says it also looks forward to engaging the State on the firm role to be played by the private sector in the envisaged public-private partnership.

The Minerals Council, meanwhile, urges government to start focusing on the critical institutional and structural reforms necessary to significantly increase the country’s global competitiveness rating, which has slid over the past decade.

It posits that the only way the country can avoid a sovereign debt crisis is through a significant fiscal consolidation process and, by significantly improving the country’s competitiveness, to enable much higher levels of investment and inclusive growth, which will require politically contentious reforms.

The council also notes its support of the Minster’s view that the ease of doing business must be significantly improved.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has welcomed the budget, with chief economist Dr Michael Ade saying it sends a positive signal to the broader business community.

He notes that it took place amid weakening economic growth, with the South African Reserve Bank forecasting an 8.2% contraction in the country’s gross domestic product for this year, with “light at the end of the tunnel” only expected in 2021.

“Moreover, oscillating business confidence, doggedly high and unsustainable levels of unemployment and inequality, an uncertain global economic environment with inward-looking trade and economic policies, and the possibility of further sovereign ratings downgrades – with their associated consequences in the near term – are compounding the already difficult economic environment,” he notes.

“The possibility that the government may commit to targeted expenditure, despite the need for more stringent fiscal consolidation, monitoring and evaluation of spending priorities, is commendable,” he adds.

Ade says he is encouraged that spending was projected at R6.21-trillion over the prevailing medium-term expenditure framework period, against the backdrop of the storm, increasing production costs, a volatile exchange rate, low government revenue collection and a persistent economic recession.

He notes that it is encouraging that the government remains committed to fiscal sustainability, despite the weak economic outlook and the deteriorating fiscal position.

However, he reiterates that the existing partnership between the government and the private sector needs to be strengthened to implement the various planned infrastructure projects effectively, as outlined in the Presidential Sustainable Infrastructure Development Symposium South Africa.

Meanwhile, Agri SA says that, owing to the economic environment, it welcomes some of the interventions tabled in the Budget; however, it regrets that an opportunity to harvest low-hanging fruit was missed.

It says it expects the National Treasury to be more robust in its support of the agricultural sector, following Ramaphosa’s recent address wherein he highlighted it as a key sector to kickstart the economy.

Agri SA says the reprioritising of fund allocations, that is, a R5-million deduction from the Ilima/Letsema projects grant and the R980 000 reduction from the land care programme grant does not bode well for the objective of further investment into the sector to drive up employment.

However, the organisation does welcome government’s commitment to cut its wage bill. It also welcomes the R7-billion further allocation for the Land Bank, but notes that more could have been done.

Business Unity South Africa (Busa) has commended the Finance Minister for an “honest assessment of the socioeconomic crisis the country is in”.

It says this should spur government to action, which will urgently create an environment for the private sector to lead inclusive economic growth. 

Intellidex, meanwhile, says it is pessimistic on whether implementation of the cuts in the compensation budget, based on zero nominal wage increases and only small allowances increases, will in fact be implemented.

It notes that there were positive moves on financial sector reforms, including to exchange controls; but noted disappointed in a lack of detail on Public Finance Management Act and Municipal Finance Management Act reforms needed to unlock investment.

BNP Paribas says South Africa’s mid-term budget was a “mixed bag”, but on balance, is of the view that it should be viewed as market neutral.

“Non-interest spending was revised higher, though this seems more realistic and is counterbalanced by a focus on infrastructure away from consumption (wages).”

A common bone of contention expressed by various organisations was the decision to divert more State funds to the ailing South African Airways (SAA). 

“An additional diversion of State funds towards SAA is probably the most negative element of the MTBPS – more details are now required in securing a private majority shareholder to avoid further credibility losses.

“Long-term debt sustainability remains the biggest issue, with the MTBPS’s implementation, once again, reliant on the ability of policymakers to boost growth,” BNP says.

“We believe the MTBPS is not a major game changer for South African assets. We have recently took profit on our long rand trade idea, but continue to believe stronger external accounts will support the rand.

“Regarding rates, the MTBPS confirmed our view that the issuance pace will not increase further and technical pressure on rates will stabilise going forward,” the company adds.

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