Finance Minister Malusi Gigaba’s maiden Medium-Term Budget Policy Statement (MTBPS) has received mixed reactions, with many organisations calling out its lack of attention to detail.
Gigaba MTBPS was delayed by Economic Freedom Fighters MPs who objected to him delivering the budget on the basis that he was responsible for placing the South African economy at risk.
Meanwhile, Business Unity South Africa (Busa) CEO Tanya Cohen said that while Gigaba’s speech was an honest reflection of the grave State of South Africa’s public finances, it lacked sufficient detail to bring confidence and greater certainty to the economy.
“We welcome the acknowledgement by the Minister that we cannot afford further tax increases as a mechanism to generate revenue, as well as the unequivocal acknowledgement that economic growth is a prerequisite to balance the budget and deliver on our social aspirations,” said Cohen.
However, there was some uncertainty as the Minister indicated that there may nevertheless be some tax increases in the 2018 Budget.
Any revenue increases should be approached with extreme caution to avoid further undermining economic growth, warned Cohen.
She further said that it was of concern to business that the budget deficit had risen to 4.3% of GDP for 2017/18 and that the gross national debt will increase to 61% of GDP by 2022.
“While the broad brushes of intent expressed by the Minister were promising, the clear plans and details were insufficiently articulated. This may not be enough to stave off further ratings downgrades in the near future,” Cohen averred.
Addressing the issue of the controversial nuclear build, Busa cautiously welcomed the announcement that nuclear power would be procured at a pace and scale that the country could afford.
Meanwhile, the Chamber of Mines (CoM) agreed with the general sentiment that the MTBPS was short on the structural reforms necessary to significantly boost confidence and, therefore, investment and growth in the economy.
“The mining sector, through the Chamber, believes that part of the conditions for restoring investor and business confidence in mining are related to the restoration of ethical leadership and good governance to the DMR [Department of Mineral Resources], the creation of predictable, competitive and stable policy and legislation and the smart-tape administration of laws,” the chamber said in a statement.
The CoM said that the country needed a proper vision for its mining sector - one that promoted competitiveness and transformation in the sector - embodied in the development of a practical, workable and realistic Mining Charter that all stakeholders support and a competitive Mineral and Petroleum Resources Development Act.
The Chamber was of the view that, given the bad faith engagement by the DMR, the conditions for achieving a positive outcome were not currently in place.
“The Chamber will continue to focus on court proceedings to drive practical and realistic outcomes that are in the national interest,” it stated.
However, the Chamber leadership emphasised that it was open to engaging Gigaba and National Treasury on a country vision for the mining sector, which could help realise the true investment and transformational potential of mining for the benefit of all South Africans.
South African Chamber of Commerce and Industry (Sacci) CEO Alan Mukoki said he had hoped that the Minister would be more specific in dealing with the challenges facing South Africa.
Mukoki said not much was said on progress on the implementation of the National Development Plan (NDP), a core policy of government.
The NDP has projected that 24-million jobs will be created by 2030 on the back of average economic growth of 5%.
“We are anxious and conscious of the risk and challenges posed by youth unemployment. In terms of the Q2 figures released by Stats SA, youth unemployment was reflected at 38%. Additionally, 32% of youth between the ages of 15-24 were neither in education, training or employment,” Mukoki pointed out.
This was a ticking time-bomb, he said, and it required an urgent allocation of resources, as it may create political and social instability over the next ten years.
He urged government to take concrete steps and use resources backed by specific and sustainable projects and programmes to address the risk.
Mukoki said Sacci welcomed the initiative on the start-up fund being developed by the small business development ministry and encouraged further funds.
The Agricultural Business Chamber (Agribiz) said while agribusiness confidence remained fairly positive after a robust summer crop harvest, policy uncertainty was a risk for the foreseeable future.
Agribiz CEO John Purchase said the MTBPS showed that the economy was not equipped to produce the needed revenue for developmental objectives.
He advised that government use private sector capital and expertise to achieve this goal.
Public-private partnerships could unlock additional resources to supplement government’s expenditure.
Government spending on agriculture, rural development and land reform will increase by 2% from just under R25.9-billion in 2016/17 to R26.5-billion in 2017/18.
Agricultural organisation AgriSA stated that it was concerned that the Regulation of Agricultural Land Holdings Bill was cited as a measure to boost confidence and support growth.
AgriSA and other commercial lenders and industry stakeholders have been warning against the proposed bill as it included restrictions on foreign ownership of farmland, as well as the imposition of land ceilings in farm ownership.
“Land ceilings is a redistributive measure intended to limit the size of landholding to make more land available to subsistence, smallholder or emerging farmers. While such an approach may be well intended, it will not deliver the desired results and it will create far reaching negative consequences. These consequences will in the end hurt those the policy is intended to help. Imposing land ceilings will curb investment, productivity and the future growth of the sector that is responsible for national food security,” said AgriSA.
It recommended a focus on policies that boost investor and consumer confidence and promote economic growth, adding that it was concerned by the lack of clear implementable actions in Gigaba’s speech.
Agriculture received relatively little attention, besides mention of the potential economic link to the manufacturing sector.
AgriSA was also concerned that the contingency reserve was pared down to R16-billion over the next three years and said it was unclear how this would impact on emergency assistance for crises such as drought and the recent outbreak of avian flu.
‘MTBPS A HOLDING PLAN’
North-West University School of Business and Governance economist Professor Raymond Parsons labelled the MTBPS a holding operation until the main Budget in February.
“Despite assurances, there is still a high level of uncertainty around the fiscal projections and several policy outcomes. Although there was only a brief reference to nuclear power, given the poor state of SA's public finances, it is hard to see how SA can afford the nuclear project in present difficult economic circumstances,” said Parsons.
Progress has been made with a new board for South African Airways and a fresh board is promised for Eskom, but there have been no bold new strategies for overhauling the State-owned enterprises, he continued.
Government spending had to be better controlled or the negative debt ratios would rise further in the period ahead, he warned.
The lack of robust growth-oriented policies reinforces the negative outlook.
“It is therefore not clear that the MTBPS in itself will be sufficiently confidence-building. This raises the real risk that SA will be further downgraded by the credit rating agencies, as well as creating the prospect that higher taxes will become necessary in the main Budget in 2018,” Parsons said.
Financial services provider Momentum Investments mirrored Parsons’ concern about further downgrades.
Its initial impression is that National Treasury is less committed to fiscal consolidation than in the recent past and added that the budget was tilted towards government intervention rather than supporting the private sector.
Meanwhile, it noted that while an expansionary budget was slightly positive for equities, failure to adhere to more stringent fiscal targets was negative for the bond market.