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Positive signs of earlier economic recovery post-Covid

Challenges abound but SA can be more optimistic about the medium-term outlook than a year or six months ago: BER.
Unemployment, poverty and inequality have been described as ‘dry wood waiting for a spark to ignite’. Image: Shutterstock

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.

Revenue

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.

Read: Sars, have you taxed that Aston Martin?

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.

Read:

“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.”

Read: SA’s building industry is in dire straits

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.”

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COMMENTS   16

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IT’S ONE BIG GUESS!!!!!!!!!!!!!!!!!! You have almost 2 million people Covid unemployed (they tout 700,000 jobs created.) You have a Junk country with an electorate going to jail for stealing, fraud, malfeasance, corruption, AND bribery. You have a BROKE RULING PARTY. You have “gubment” wanting to FINALLY know where the election money is coming from which will dampen the “PAY TO PLAY” (originally brought on by Hillary Clinton)You have onerous “gubment” regulations stifling business creation and growth AND THEN THERE’S ALL THE FAILED POLICIES LIKE B.E.E.. Sorry I am not South African. Walks like a Duck—You know the rest.

Calm down and have a nice cup of rooibos tea with honey! It’s only Tuesday ….

Lol, sadly we have no middle class left to buy our way out of this. The vast majority in the country are, underpaid, under educated and now we have a situation were the money flows into a couple companies and fewer families. Your average skilled millenial cant get a bond without a crazy deposite.

Things are seriously broken and the more as if we pretend they not, the worse it’s getting. The Ruperts and Dicovery making another billion in profit actually isn’t great for us collectively.

Everyman for themselves why should they pay people more? No one is complying no one wants to Bou die nasie. So why must they comply?

“Things are seriously broken and the more as if we pretend they not, the worse it’s getting” agree the negative is by far worse than the little positive.

I keep adding that there is quite a healthy middle class BUT I sense a lot of them work for “government”; SOEs and municipalities. So they get paid out of tax money but generate very little. Like picking yourself up by the bootlaces.

SA — World leaders in unemployment, generating unemployables, corruption and looting !!
Viva ANC !!!!

Please dont use SARS, Integrity and Kieswetter in the same sentence. TSK!!!

Zuma has spent more on legal fees than he EVER earned in his lifetime. Yet “mr. Integrity” at SARS does nothing about it.

He is the face of capture at SARS. That’s all.

Integrity???? I F ask you????!!!

I mean that is what the zuma foundation is for. You don’t believe he is actually paying out of his pocket. Can’t tax what the pocket don’t have. Slide of hand.

I think you right. Tax Payers Moneys that was stolen is being pooled back into the organisation to do the DIRTY work.

Kieswetter has been pretty darn useless, same with NPA, Sharmila Batohi (…was all big talk but very little action)…

seems like their hands are tied under the table….

Cyril might be behind this.

Reading some news reports… Cyril is said to have approved jacob zuma’s release… placed arthur frazer in the right position for this to happen…..

Hands are tied.

Yes.

Madam at the NPA is still building capacity.

Hahahaaa. Wonder if they think their BS is actually believable??

The Bureau for Economic Research (BER)

And who signs these swinging d***’* pay cheques????

So somebody in govt, Edgar Sishi of Treasury finally admits that something has to be done about labour costs in agriculture. Not only in Agri, but in all sectors. This all while govt keeps on giving into demands of trade unions, and still allowed wage increases for govt and SOE employees.
Instead wage decreases and retrenchments in govt service are needed. Part of the savings should be used for the highly needed infra structure projects. Without corruption or tenderpreneurs.
Of the so often mentioned triple challenge of poverty, unemployment and inequality, the real key issue is unemployment. Formal, fulltime employment is the greatest force against poverty and inequality. And for that to happen labour regulations, climate and wages simply HAVE to change.

The real backbone of the country mining and quarrying, manufacturing, agriculture, forestry and fisheries. Don’t be ashamed of it. South Africa will never be global partner in technology as long as Microsoft and Amazon control the wages. South Africa is just another cheap slave labour country to them. Why dont we just tax Bluelabel telecoms like they did MTN?

Call back the past to the 1990’s when mining companies contributed to most of the economy.

An economy that relies on resources is an economy that will eventually fail. Which is why the UAE developed Dubai and Saudi Arabia is diversifying out of oil. And why Russia will also eventually collapse.

End of comments.

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