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Why markets snubbed Ramaphosa’s stimulus plan

There is deep scepticism about whether government has the capacity to spark any meaningful economic activity.

When a country introduces a fiscal stimulus package into a struggling economy, currencies and markets normally strengthen in anticipation of faster economic growth, job creation, and market-friendly policies.

However, the marginal decline of the rand and muted market reaction on Friday after President Cyril Ramaphosa revealed a stimulus package aimed at putting SA’s damaged economy back on course suggests there is scepticism about the state’s intervention.

The rand weakened from R14.29 to R14.30 after Ramaphosa unveiled the stimulus package and economic recovery plan on Friday. Source: Moneyweb

Faced with ballooning government debt, low tax revenue collection, an economy in a recession and rampant corruption, Ramaphosa reacted with a stimulus package and economic recovery plan designed to reignite growth, stimulate economic recovery and secure confidence in sectors affected by regulatory uncertainty and inconsistency.

At the centre of the stimulus package is a R400 billion infrastructure fund aimed at attracting investment from the private sector. Government also plans to reprioritise about R50 billion within its existing budget to spend on measures that will, it is hoped, spur economic growth and create jobs. No new public money will be injected into the economy.

Ramaphosa’s plan mimics interventions by Indian Prime Minister Narendra Modi, who, in 2015, set India on a course of raising billions from long-term international investors – such as sovereign wealth funds and pension funds – to fund infrastructure projects ranging from highways and freight corridors to airports.

But unlike India, the wheels of SA’s economy are not turning and there’s simply no money to fund new, productive investments to stimulate growth.

The Reserve Bank expects SA’s economy to grow by a paltry 0.7% in 2018, while India expects to pencil in 7.4% growth. SA’s budget deficit in relation to its gross domestic product (GDP) – a key metric indicating that government expenditure exceeds revenue – is expected to be 3.6% in 2018/19 (although latest estimates are 4%), while India expects to trim its deficit to 3.3%. And although India’s debt-to-GDP ratio is projected to be 69% in 2018 – much higher than SA’s 53% – it has economic growth to cushion the debt burden.

Market reaction

Why then haven’t markets responded to Rampahosa’s stimulus package with the type of gusto displayed when India and Japan, under Prime Minister Shinzō Abe since 2013, crowded in private sector infrastructure investments running into billions to boost their economies?

There is deep scepticism about whether Ramaphosa’s cabinet has the capacity to mount any meaningful stimulus. “The true test will be how much of the stimulus package Ramaphosa will be able to implement, how quickly it can be implemented and whether we can get economic growth from it,” says Citibank economist Gina Schoeman.

Daniel Silke, director of the Political Futures Consultancy, agrees with Schoeman, saying that any implementation of a stimulus package hinges on whether the government is able to run itself. “What is the state of the bureaucracy? Are there officials within the state that are patronage-focused rather than performance-focused? How do you clean out that philosophy of patronage to make the state more effective? There are still big question marks that remain before talking about a stimulus.”

And with just a few months before the 2019 general election, and the ANC deeply divided on policy direction, there’s little chance that Ramaphosa might kick the stimulus into gear. Says Silke: “Until such time as Ramaphosa feels confident in his own shoes as the president of the country, we are going to get [a] muddled patchwork-mandate kind of story. If Ramaphosa can secure a reasonable election victory for the ANC next year, then he will be more secure. An election victory might strengthen his hand within the party.”

Actual stimulus plan

As part of the stimulus plan, government will shift R50 billion from other budgets to support emerging farmers and boost economic activity in townships and rural areas. Other initiatives are more about clearing regulatory burdens – including releasing spectrum to telecommunications operators, revising the mining charter, and easing visa regulations to make it easier for skilled people and tourists to enter SA.

There’s also the R400 billion infrastructure fund – money already allocated in the existing budget for public infrastructure between 2018/19 and 2020/21. Like India’s Modi, Ramaphosa is seeking to crowd in investments from commercial banks, development financiers (such as the Development Bank, Industrial Development Corporation and African Development Bank) and pension funds to contribute to the infrastructure fund.

Although the stimulus package lacks detail on where government will find R50 billion from an already constrained fiscus, Citibank’s Schoeman rates the plan eight out of 10. She says the re-allocation of the existing budget as opposed to introducing more debt to fund the stimulus package is a “positive move”.

Finance minister Nhlanhla Nene says National Treasury has undergone an “excruciating process of reviewing underperforming programmes” to free up R50 billion. More details will be unveiled in the medium-term budget policy statement on October 24.

Tanya Cohen, CEO of Business Unity South Africa, says business doesn’t expect the stimulus package to be a panacea for SA’s economic shortfalls. “However, the stimulus package demonstrates the government’s appetite to do things differently to rectify the economy’s structural defects,” she says.

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People are just tired of ANC lies.

Agree 100%

The investment world and most politicians have lost faith in SA – a direct result of the ANC failing to arrest corruption.

They will smile with CR and give him tea and biscuits, but when he leaves, they will count the teaspoons and go about their business.

Until a Madiba-type come forward to mesmerize the world, SA will suffer the negative views.

I think most South Africans don’t care anymore.

We have been “shaken and stirred” so many times that we all need a 10 year holiday to forget about the Zuma and Malema experience.

It will take ten times more time to rectify Mr. Zuma’s super bad governance.

South Africans do not trust the government anymore, even though we have a good administration under President Ramaphosa.
This is a bout as good as it will ever get.

Moral of the story, be very nice to investors, tax payers and hard working law abiding citizens, because when they leave, they leave for good!

@ TheSpeculator: “we have a good administration under .. Ramaphosa” – that I am not convinced of at all. All the same criminals swimming about and nobody charged & in jail with stolen corruption benefits recovered. Even the private sector Trillion still scot-free. Unless I have missed reading about one of the State Capture protagonists ending up facing trial and going to jail?

South Africans have become thick skinned after 10 years of Zuma and Malema.

We do not care anymore, let the Politicians work for the Tax money.

Time for a Holiday, spend the money, work less.

There is a difference between snubbing an initiative and adapting a wait and see attitude.

We’re still waiting for all those other “initiatives” to bear fruit.

A reasonably intelligent person would be skeptical of the ANC’s ability to execute any plan, unless it was directed at self-enrichment. A realist would say that it more of the same empty promises.

I’ve always wondered why “markets” are so easily persuaded by hollow electioneering and rhetoric of change. I prefer to judge people (and leaders) not on what they say, but what the do. Cyril knows which buttons to push to arouse the interest of the Davos crowd. But everyday Joe Averages are probably more inclined to say: fool me once, shame on you, fool me twice, shame on me.

In America, before an election one year , the government gave us all trash bin covers. This ANC electorate is a trash bin cover. It’s all about the promises THEY NEVER KEEP!!

This stimulus is aimed at supporting Luthuli House. It is not intended for the market. The stimulus is intended to channel funds to inefficient BEE projects. This is how socialists “stimulate” the economy. The take from the institutions that serve the consumer well, to give cash to institutions that fail the consumer. They punish the producer and support the parasite.

If they really wanted to stimulate the economy they would simply scrap the minimum wage, confirm the sanctity of property rights, draft a free-market mining charter, employ the best-qualified individuals at SOE’s and municipalities, privatize all SOE’s, scrap BEE codes, privatize mineral rights held by the state, pay suppliers within 30 days and raise tariffs on imported products that are subsidizes in the country of origin.

These changes will cost nothing, no funds have to be found, it is for free. All it takes is a little common sense, commitment and integrity. The ANC will rather find R400 billion somewhere, because they know they don’t have common sense, commitment and integrity.

Sensei your second paragraph says it all. Use the biggest sharpest knife available and as you said it will not cost a cent but will save a bundle.

But then that will mean all their “good” work over the last 24 years has been for nothing. No more giant ATM’s (SOE’s) to feast off, shame.

100% correct! This is the sensible business solution.

The money is most likely coming from the China loans (bailouts)

cANCcer too stupid to realise that you cannot borrow your way to prosperity.

When everything this government touches turns to s…. it’s not surprising South Africans with half a brain are not impressed.

IMHO the EFF would be much worse and the DA are unlikely to do any better. Live here if you prefer but get all your money out while you still can.

But there will be a “cost” for the sensible policies you suggest Sensei – it will cost them lots and lots and lots of votes, without which the majority of party members will end up destitute. Practically the majority are not actually qualified to perform a value added function in life which will render such personal high benefits.

You are perfectly correct Paining. That is why only the most naive expect the ANC to turn the economy around. To hav a positive influence on the economy and on the lives of people, including their own supporters, they have to adopt free-market policies. The ANC has to adopt IFP, FF+, DA or UDM economic policy if they want to succeed in growing the economy. That won’t happen. They will keep on making all the empty promises, keep on impressing ignorant people with hollow words, try to delay the process of decay, enrich themselves as much as they can, and run for Dubai (like Zuma) when the cost of a loaf of bread reaches R10 million.

Govt is both architect and driver of the economic, social and political mess we are in today so its only logical that there will be skepticism when they present themselves as the saviors.

The ANC excel at promises they dont keep. The 400-billion for infrastructure strikes me as a lot less than tbe 800-billion they promised to spend on infrastructure several years ago. Promised, and failed to implement
And we have yet to hear all the strings attached to the stimulus, because for certain there will be more BEE and other non-productive measures attached.

Nobody will believe them because they simply refuse to rectify the most important reason for past failures – failures which will simply continue. CADRE DEPLOYMENT. Scrap cadre deployment and you bring an immediate end to political violence because the ANC will immediately stop being the biggest employment agency for criminals. Scrap cadre deployment and corruption will immediately be reduced because the Hawks, SAPS and the NPA will be freed up to diligently prosecute the corrupt without political interference. Scrap cadre deployment and people in all spheres of the state will be employed based on skill and not based on political connections.

If this R50bln was there before why did they not use it before to stimulate the economy?? The only answer can be that the anc(another new corruption) does not know what to do with government funds. How is it possible that they now suddenly know what to do? There is simply no capacity within the anc to do this. They simply don’t know! They have had 24 years of this and the only thing they have managed to do is to destroy ( witness every government department), the only thing the anc is good at is corruption not capacity or cooperation or collaboration!! It is unfortunate but true. This will be a damp squid!!

Skepticism for the stimulus plan of Ramaphosa is justified on several fronts. Most importantly the private sector and foreign investors are not going to invest where government is in the hands of a kleptocratic and rotten to the cabal such as the ANC and its moronic stepchild, the EFF. Secondly, the some 6 million taxpayers are overtaxed to such an extent that those entrepreneurs or people with much needed skills whom have not yet left (and not economic prisoners such as pensioners) are now seriously looking to emigrate.

These are the very people needed to create jobs.

Just a question : How many jobs has Ramaphosa or any politician or trade union created (exclude employment of incompetents in public sector and SOE’s) in the past 25 years? We all know how many jobs have been lost and what the unemployment figures look like, which is closer to 35% than official rate and would have been higher if it was not for Zuma’s bloating the public sector and SOE’s.

Until such time that the government (not the ANC) demonstrate that they put South Africa and all (not only “our”) people first and purge the government of all the corrupt and criminals cadres, and show the populace that the corrupt thieves are prosecuted swiftly, meaningful investment is just not going to happen.

Recovering the R100 – 200 billion which was looted, stolen and defrauded from the perpetrators of state capture and tender processes will go a long way to funding any stimulus initiatives. However, this is unlikely to happen due to politics being more important than bringing (alleged) criminals to justice and restore law and order. Perpetrators are sitting in positions of power or have fled, or in the process (Zuma? ) of fleeing with their ill-gotten gains.

Methinks that if all the people implicated (follow the money) are duely brought to justice and convicted the first capital project that can be funded by the state is employing the convicts to build their own jails – obviously under the supervision of private sector engineers and construction companies.

Of course they can sell their souls and the country to the Chinese for a few pieces of silver, but to really turn the country around Ramaphosa should show the resolve and call an early election in November to get the country out of all the unproductive political posturing and get everyone mobilised to turn South Africa in the country it can be – prosperous, law abiding and peaceful.

Failing which our beloved country will follow countries like Venezuela into anarchy and bankruptcy. And the poor will be the real losers.

When the market sees that stimulus cannot happen with the same ANC corruptors in place and the same non-inclusive and uncertain policies in place (land, mining rights, BEE etc) then the money does not flow.

I wonder how much of this R50 billion stimulus is going to stimulate cadres bank accounts and ANC pockets?

With an ANC Government that has a terrible track record (within all levels of government and SOE’s for wastage and corruption of the hard-earned tax base) of effective and efficient expenditure and still having moribund ideological policy initiatives, the ANC cannot stimulate our economy – never.

If the ANC just was honest that they have an unsustainable problem with the non-paying portion of residents with rates, taxes and utilities then it could have sufficient money to try to stimulate the economy. For example, only 10% of Soweto residents pay any form of rates, taxes and services, and that is not including the people that are stealing the services.

This is not sustainable.

LOL – much easier explanation – None of the companies listed on the JSE (The Market) will see any of this money – Therefore no reaction!!!

Citizens and investors both, have lost confidence in all the rhetoric spewed forth drowning out sensible debate. Actions speak louder than words and government inaction in rooting out those responsible for corruption fairly screams for attention. Taking the last ten years performance history into account, mere words are not going to entice fixed investment into the country by any serious investors. Predatory investors with an agenda of loading the country up with unaffordable debt which will never be repaid conventionally, is another story entirely. Repayment in such a scenario is ultimately satisfied by a claim against natural resources and infrastructure, similar to that perpetrated on Greece through the transfer of income earning public assets to the creditor. What a way to capture a country!

No clear cut method for raising R 50 billion? Try pitching that business plan to a bank and see where that gets you. More papering over the cracks, more ambiguity, more of the status quo with a more accelerated decline on the very near horizon. If RSA is able to survive without an economic and moral collapse before end of year 2020 then I would be genuinely amazed.Too little, too late I am afraid. Jump (sinking) Ship while you still can.

“Everybody” is wondering how much will be lost in corruption.

No new public money will be injected into the economy……why is The Government Employees Pension Fund mentioned???

Do you want it all explained then see YOUTUBE TAinted HEroes by Ernst Roets and the Kalergi Plan.

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