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Not a crossroad but a wholesale U-turn

How government thinking will influence the economic stimulus package.

In his pre-budget press conference, which he quaintly termed his ‘maiden’ press conference, finance minister Tito Mboweni revealed how much his thinking has changed in the last 12 years – and possibly diverges from traditional ANC thinking.

Read: Mini-budget in a nutshell 

“We need to move from the notion that everything must be done by the state. I have a problem with this term ‘service delivery’. People are sitting at home waiting for me to deliver bread instead of building their own bakeries.

“We need to move towards partnerships. Let’s bring in private sector experience in project execution. There are engineers and others in the country who are willing to work, you just need to call on them.”

There also needs to be a ‘reconfiguration of SOEs’, he said. “There is a lot that is contained in that term. We need to be open to inviting in equity partners, closure of some business activities, restart if needs be.”

From there he went on to make specific reference to restructuring at Eskom and SAA. “Swissair was not functioning well and the Swiss decided to close it down. They invited those who know how to run airlines and start a new airline called Swiss International. We need to be open-minded, the world has changed. It is not static.”

Referring specifically to the medium-term budget policy statement (MTBPS) – which provides clarity on government thinking and budgeting over a three-year period – he said: “In this new way of thinking – which is actually the old way of thinking – the focus has to be utilising the tax revenue that you have.”

And this is where the rubber hits the road.

Government’s consolidated expenditure is growing at 7.8% a year on average. In reality, real non-interest spending (which excludes debt repayments) is growing at 1.9% a year – just ahead of the population growth rate (1.2%). This is a far cry from SA’s glory days between 2005 and 2009 when non-interest spending was growing at between 7.2% and 10.8% a year.

Read: What your tax bill will look like next year

Yes, the budget was in surplus and the world was a different place, but decisions made at the many crossroads SA has faced since then now require a wholesale U-turn when it comes to economic management of SA’s economy and the state institutions. While the global economy is projected to grow at 3.7% next year, SA limps along at 0.7% this year only reaching a projected 2.3% by 2021.

This makes the focus on growing the economy, while at the same time rooting out corruption and inefficiency, reforming SOEs, enhancing infrastructure investment and addressing urgent matters in education and health all the more pressing.

Read: Bailouts for SAA, Sanral’s e-tolls and more 

“The Giyani Water Project is a cesspool of corruption,” the minister said in his MTBPS address to Parliament. “It is clear that a new delivery and financing model is required to provide water services to communities… I have asked the DG of National Treasury to work with the department of Water and Sanitation to ensure that appropriate action is taken against all guilty officials implicated in the Auditor-General’s report.”

In his annual report, the Auditor-General identified another R27 billion of previously undiscovered irregular spending. R27 billion! That is almost equivalent to the revenue shortfall for this year. In the meantime, public debt continues to expand ahead of expectations to 59.6% of GDP in 2023/24, while unemployment and public dissatisfaction remain at stubbornly high levels.

There is no doubt in anyone’s mind that no economic stimulus package can be sustained without focusing on corruption and service delivery. “We must stop talking in contradictory terms,” Mboweni added.

However, the MTBPS did not add much additional detail on the implementation of the economic reforms, which include:

  • The draft policy direction for licensing high-demand spectrum has been issued. This will be allocated by April next year.
  • Work is underway on restructuring options for the electricity sector. (This must include a long-term plan to restructure Eskom and deal with its debt obligations.)
  • The economic regulation of Transport Bill is before Parliament.
  • The Mining Charter has been approved by Cabinet.
  • Visa regulations are being amended to boost tourism.

In addition to the growth-enhancing economic reforms, the MTBPS expands slightly on four other measures to stimulate the economy:

“We are proposing a combination of reprioritisation, changes to grant structures and in-year allocations amounting to more than R50 billion,” Mboweni said.

Of this R15.9 billion goes towards better-spending infrastructure programmes, clothing and textile incentives, and the Expanded Public Works Programme. As an indication of success, the clothing and textile competitiveness program sector has helped sector exports grow from R7.1 billion in 2008 to R25.1 billion in 2017.

Read: Move to improve infrastructure project outcomes 

Another R16.5 billion is allocated to various programmes and entities, including funding for Sars, a minimum wage for community health workers, critical posts in health and management of the justice system.

Agriculture will be an important driver of SA’s economic recovery and the Land Bank will remain central. “Our reprioritisation efforts will support the bank to conclude transactions worth R16.2 billion over the next three to five years that will create jobs in agriculture.”

Government planning around the proposed Infrastructure Fund is advancing in partnership with development finance institutions and private sector partners. Funding is being negotiated from DFIs, multilateral development banks and private banks. In addition, these institutions have committed technical resources to help plan, approve, manage and implement projects.

While infrastructure funding and development is one lever with which to grow the economy, the government cannot do it alone. This is evidenced by the fact that gross fixed-capital formation (public and private sector investment in physical assets) has declined significantly in recent years.

Read: These are the items that will be zero-rated 

Thus it is now a government policy objective to promote an increase in fixed capital investment by the private sector.

Policy certainty along with a U-turn on the role that business can play in the economy will go a long way to changing that.

Read the complete MTBPS

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The country addresses half the problem.

According to the author government’s real non-interest spending growth increased 1.9% – below the population growth rate (of 2.4%). The population growth rate is sometimes recognized by economists, in passing, but nothing is being done about it.

If a country creates more people than jobs, the people will get poorer. It is that simple, yet the ANC government, the economists, journalists and commentators all focus on half the problem – that of economic growth and job creation.

South Africa doesn’t have a particularly high population growth rate in world, or African terms (and some sources have it at 1.2%, not the 2.4% you quote).

I do not think this is our main problem. A shrinking population as in Europe and Japan is just as bad as retirement funding life insurance and medical aid is build on the premise that a larger base of younger people fund older people. The answer to SAs problems are not in populist quick fix suggestions like this or on the opposite side of the spectrum where the suggestion is lets take land from the rich and give it to the poor.

Yep … how long will it take to employ the actual 40-50% unemployed? And with the current labour laws who will employ them? More people = more problems. Below is what real investors think.

Here is the link to the Financial Times / Ramaphosa letter …

KatKnapper 8 hours ago
After investing millions in the energy sector in SA, I have written off the entire investment and the wasted 10 years of my life as I pursued it. The institutional inertia in SA is a behemoth that I sincerely doubt even you can move.

Bwgs 2 days ago
For every ‘investor friendly’ approach you take, your government shoots itself in the foot with another bullet. I work in a job that seeks to promote private investment in sub-Saharan Africa. Investors are avoiding SA like the plague. They are put off by the arcane and ever shifting BEE policies, the anti-white South African rhetoric, the real and perceived levels of corruption, the ever-complicated regulations and bureaucracy, etc. If you are truly seeking to bring investment, you may have to make some unpopular choices in the near term.

A young population should be an advantage for South Africa but due to our dismal education system which churns out millions of unemployable young adults, the advantage is effectively neutralized by the ANC and it now becomes a massive disadvantage. Changing the education system now will only bear fruit many years down the line so they had better get onto it ASAP if they want to turn the ship around long term.

“We need to move from the notion that everything must be done by the state.”

Yes. Thank you. Now please convince/infest the other twits in cabinet with this common sense heresy.

everything must be done by the state, including looting. We have chased competent drs and engineers away. We must make a U turn and vote this government out.

If Cyril were to serve a term as president, and be followed up by Mboweni, that wouldn’t be the worst scenario for SA at all.

What happened to the developmental state that was going to drive all growth?

Problem remains the same as always finance minister makes the noises he thinks markets and business wants to hear but nothing is actually done. Rest of the ANC focussed on easy populist gains by fanning racial

Dismal reading. Mboweni paints a true picture. However, he is a voice in the desert. His words ring hollow because the situation cannot be fixed. He knows it and the rating agents know it. SA cannot pull out of the nose dive into oblivion because so many of our leaders and a multitude of their followers are morally bankrupt.

“You shall not murder; You shall not commit adultery; You shall not steal.”

Good commentary and absolutely a U-turn is needed.

The U-turn will allow a U-Save scenario.

The biggest block to the U-Turn is the ANC corruption and mismanagement.

The glory days were when ANC’s policy and corruption effects had not taken full hold yet.

The nation must move from we will intercept wealth to transform the economic environment to one of we must grow the economy to transform the economic environment.

Different colors used by Tito, but the outlines remain the same (expenditure exceeds income, and f..k all idea of how to fix it. Maybe we can ask for forgiveness at the Banks and promise not to do it again?). Treading water until the next election. Do you trust the ANC to change policy? The private sector is anathema to it’s ethos.

Is it in the interests of the grubby politicians to change course and make government smaller? Can you think of one example where the ANC and it’s partners have acted in the interests of South Africa, rather than their narrow concerns?

It is pretty clear by now that the ANC does not have the capacity to govern.

If you think that this is a watershed moment, then I am afraid you will be disappointed.

South Africa remains uninvestable.

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