The Bureau for Economic Research (BER) believes the South African economy could recover to pre-Covid-19 levels by the middle of next year.
However, National Treasury and PwC are of the view that this will only be achieved in 2023.
Hugo Pienaar, chief economist at the bureau, says economic reforms are starting to take form, albeit slowly. Speaking at the annual Tax Indaba hosted by the South African Institute of Taxation (Sait), he said the country can be more optimistic about the medium-term outlook than a year or even six months ago.
Tax collections at the end of August amounted to just under R590 billion, 9.7% more than the February budget estimate.
The sectors underpinning this growth, according to South African Revenue Service (Sars) Commissioner Edward Kieswetter in his keynote address, include mining and quarrying, manufacturing, agriculture, forestry and fisheries – and, to a lesser extent, electricity, gas and water; and community, social and personal services.
He said there is still “low-hanging fruit” in terms of collecting taxes that are due.
Rebuilding Sars is central to improving the integrity of the tax system, he added.
“This does not mean that there is not scope for policy initiatives. This can never be taken off the table. There is just too much inequity in the world.”
The initiatives include the introduction of taxing the digital economy, global discussions around a minimum corporate tax, and the ongoing issue of wealth taxes.
“These are the reactions, and some may [say] they are knee-jerk reactions to the reality of the levels of abuse of the tax system that still exist.”
SA needs to scan the entire horizon
Pienaar cautioned against looking to the mining sector to bail SA out economically. The sector has been doing so, and contributed to the quicker recovery, but it remains cyclical and prices of key commodities have already been coming down in recent weeks.
“We need other sectors in the economy to come to the party too,” he said.
South Africa needs the productive sectors such as manufacturing, construction and agriculture to do better as these sectors are able to absorb low-skilled workers.
No room to keep making the same mistakes
National Treasury chief director Edgar Sishi, speaking during the same session on the domestic economic rebound post-Covid, said the country doesn’t really have a choice other than to fix embedded structural problems.
He said Treasury does not want to repeat the mistakes made prior to the 2008 financial crisis. The country had also experienced a commodity price boom then, which resulted in a revenue windfall.
“We responded to that by increasing spending in areas that were permanent in nature. In 2020 and 2021 all the spending increases have been on once-off items. We have prevented baseline spending from rising permanently.”
Sishi said Treasury’s biggest contribution has been to “rein in” spending and to force other government departments into prioritising better on key interventions for the economy.
Government is still on track in terms of achieving a primary fiscal surplus in the middle of the decade, but spending risks from state-owned enterprises, particularly Eskom, remain significant.
“These risks are percolating all around us and are threatening to become the wolves at the door,” he said.
‘Dry wood waiting for a spark’
South Africa’s unemployment, poverty and inequality levels remain another issue that keeps chief executives of large companies awake at night, according to Lullu Krugel, chief economist at PwC. Combined, these three factors have been described quite aptly as dry wood waiting for a spark to ignite.
Sishi expressed Treasury’s concern about unemployment.
“However, the politics of this is very difficult. When unemployment goes to these kinds of levels a level of desperation sets in on the political side.”
South Africa boasts the highest unemployment rate in the world – coming in at 34.4% in the second quarter of this year. The agricultural and tourism sectors have traditionally been employment drivers.
The tourism industry has received a body-blow through Covid-19, while in the agricultural sector the question is around what investments are needed for the employment multiplier effect to take hold.
“In particular, how do you reduce the cost of doing business in agriculture, and really the answer is labour costs,” said Sishi, adding that one will then have to deal with the minimum wage and certain exemptions to lower the barriers of entry.
Pipeline of projects
Dealing with infrastructure constraints – particularly the instability of electricity supply and creating well-functioning railway and port facilities – will bring down the cost of doing business on the continent, Krugel said.
Sishi noted that the construction sector also has a strong employment multiplier effect, but that there has to be a “credible pipeline of projects”.
“Government departments struggle to put together a package or a pipeline of projects. That is actually a bigger problem in our view than the problem with money.”
Sishi said Treasury is reviewing the current public-private partnership process with the aim of making it simpler, more streamlined and less bureaucratic.
“It is also necessary to define more clearly [what] the risk framework should look like, particularly for departments who are struggling to manage these partnerships.”
Pienaar added that addressing crime such as grand-scale cable theft is imperative.
“We need new infrastructure, but we also need to guard our existing infrastructure against criminality.”