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Budget seen as realistic, generally positive in economic context

Busa CEO Cas Coovadia

Busa CEO Cas Coovadia

22nd February 2024

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Business organisations Business Leadership South Africa (BLSA) and Business Unity South Africa (Busa) said the 2024 Budget presented by Finance Minister Enoch Godongwana on February 21, was “realistic and commendable in an election year”, and “a generally positive step forward given the current economic context”.

Godongwana delivered a strong Budget that commited government to appropriate spending levels given the weak economic outlook. This was positive for business, which needed reassurance that fiscal discipline would be maintained, despite pressure for increased spending from many quarters of government, said BLSA CEO Busi Mavuso.

She said the Minister was realistic that economic growth was going to remain subdued in the short term. The effects of the weak economy over the past year were reflected in a sharp deterioration in tax revenue collection for 2023/24 to R1.73-trillion, R56.1-billion lower than estimated in the 2023 Budget.

The estimated budget deficit for 2023/24 is expected to worsen to 4.9% of gross domestic product (GDP), thereby pushing debt service costs up by R15.7-billion to R356-billion, and taking more than 20% of revenue. Godongwana expects debt to peak at 75.3% of GDP in 2025/26.

“We needed to see that government’s debt levels are under control and that there is a plan to improve them. I am pleased to see that there will be a primary surplus this year, which is a strong indicator to business that government is delivering on managing its debt levels,” Mavuso said.

The Minister's emphasis on fostering economic growth, safeguarding the economy and maintaining fiscal stability aligned with Busa's objectives, commented Busa CEO Cas Coovadia.

“We appreciate the acknowledgment of the need for greater collaboration between the private sector, State-owned enterprises (SoEs), and government departments, particularly in critical areas like infrastructure, logistics and energy,” he said.

What was essential in the Budget in the aftermath of further bailouts for major SoEs, such as Eskom and Transnet, was that the continued assistance needed to be firmly linked to productivity and performance gains to avoid perpetuating a situation of quasi-permanent financial relief for ailing SoEs, said North-West University Business School economist Professor Raymond Parsons.

“In the face of a daunting combination of economic and fiscal imperatives, [Godongwana] gave a realistic assessment of the socioeconomic and fiscal challenges confronting South Africa, including a high sovereign credit risk,” he said.

However, regardless of the immediate fiscal steps necessary to balance the books, much higher inclusive growth was needed to achieve fiscal sustainability and economic development in the longer term, Parsons emphasised.

In his Budget Speech, Godongwana acknowledged that: “The size of the pie is not growing fast enough to meet our developmental needs, and there are risks to the domestic outlook.”

“Growth must be at the top of the hierarchy of policy goals. South Africa is well-placed to be successful here, if a clear, confidence-building economic strategy, coupled with promised growth-friendly structural reforms, emerges after the pending elections in May,” Parsons emphasised.

“Job-rich growth can help to get more citizens out of welfare and into work, and lower costs and risks of welfare dependency will then also improve the fiscal metrics.

“In short, the choice remains between real economic growth with its advantages, or the yoke of low growth with its creeping socioeconomic costs and welfare dependency. This remains a key challenge for South Africa’s public finances,” he noted.

INFRASTRUCTURE
Meanwhile, BLSA said it was pleased with the progress the Minister announced in "fundamentally reforming infrastructure financing and delivery mechanisms", which BLSA had long called for, as reforms were crucial to facilitate public-private partnerships (PPPs) and streamline approval processes, emphasised Mavuso.

The gazetted amendments to the PPP regulatory framework aim to reduce the procedural complexity of undertaking PPPs, create capacity to support and manage PPPs, formulate clear rules for managing unsolicited bids and strengthen the governance of fiscal risk.

“Godongwana also emphasised the importance of creating clearer mechanisms for accountability, cooperation and coordination, as well as new financing instruments including infrastructure bonds and concessional loans. A flow-through tax vehicle for specific infrastructure projects, similar to trusts and other investment vehicles, was being considered,” she said.

The Budget's recognition of the private sector's role in infrastructure development, in particular the contribution of the private sector in energy production, was encouraging, agreed Coovadia.

Opening up the economy and partnering with the private sector is vital for efficiency and effectiveness in these sectors, he said.

“The recognition in the Budget that the logistics sector and energy are critical enablers of economic growth resonates with Busa's priorities. We believe that enhancing the private sector's role in these areas, including private sector participation in ports, rail and energy generation, will contribute to economic recovery and growth,” he emphasised.

Further, everything could not be placed on the shoulders of the National Treasury. Cohesive policy-making and effective delivery required the government machine as a whole to play its part, highlighted Parsons.

“It is becoming increasingly evident that the efficacy of other key decision-makers, including the enhanced role for the private sector, has become indispensable for South Africa’s economic success. Fiscal policy alone cannot provide the solutions.”

DRAWDOWNS, TAXES AND LEVIES
Meanwhile, if South Africa was to draw down from the Gold and Foreign Exchange Contingency Reserve Account, the proceeds must be wisely and responsibly used, emphasised Parsons.

“Unless there are strong guardrails and safeguards to guarantee better control of a vulnerable fiscal situation, a number of negative consequences will inevitably emerge on the external and internal fronts that would be very economically damaging to South Africa,” he warned.

Additionally, Mavuso said an important feature of the Budget was the absence of significant tax hikes, outside of some bracket creep and the regular sin tax hikes.

Significantly, Godongwana did not increase the fuel levy, recognising the risk of increasing pressure on household budgets, she added.

“By holding firm against populist measures, we remain on track to haul ourselves out of our subinvestment-grade or credit ratings, which remain as a severe handbrake on our economic growth, but whose effects are largely hidden,” Mavuso said.

Meanwhile, Busa welcomed the Budget's substantial support for climate change initiatives, including investments in electric vehicles and the Climate Change Relief Fund.

These measures underscored the government's commitment to addressing environmental challenges while promoting sustainable development, Coovadia said.

However, the allocation of R1.4-billion to the National Health Insurance (NHI), although modest, was of concern because it indicated that government was pressing ahead with implementing a piece of legislation that was fundamentally flawed, he said.

Busa said it was essential to address the issues raised by various stakeholders in addition to business to give the NHI a realistic chance of being implemented.

“The Budget's growth forecasts for the immediate future fall far short of what the country needs. Unless South Africa wants to get trapped in a low-growth range, bolder steps are needed to grow the economic pie,” said Parsons.

“What emerges through the fiscal gloom of recent Budgets is the overwhelming need for a strong and sustainable boost in South Africa’s flagging growth rate on the basis of significant current reforms and their active implementation,” he emphasised.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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