The Manufacturing Circle on Wednesday said the spending review that Finance Minister Pravin Gordhan proposed in his 2013 Budget speech was necessary to address steep, bunched-up administered price increases and facilitate a turnaround of the financial position of local authorities.

The industry body pointed out that it supported sentiments that a tax review could not take place in isolation from a broader review of macroeconomic economic policy.

“The Manufacturing Circle supports the counter-cyclical stance adopted by [the National] Treasury and believe this has served the economy well since the global economic turmoil erupted in 2008. However, lower growth, leading to lower revenue, reducing our ability to maintain this posture, is cause for concern,” Manufacturing Circle executive director Coenraad Bezuidenhout said in a statement.

He warned that various challenges were still hindering investment sentiment in South Africa. These obstacles included low demand in traditional export markets, concerns over the country’s dwindling manufacturing competitiveness, a lack of consensus on the economy, policy coordination and the precarious nature of the assumptions on which the savings, spending moderation, deficit reduction and debt stabilisation projections are based.

Bezuidenhout indicated that prioritising spending on the productive side of South Africa’s economy was crucial, adding that this should have been emphasised in this year’s Budget speech, as in previous years.

“Crucially, we believe [the National Treasury] should also trigger a monetary policy review to better support productive sectors of the economy and decrease budget and trade deficits, as also gestured at by recent statements by the Organisation for Economic Cooperation and Development. This could be done by employing a range of tools in addition to inflation targeting, including boosting our inadequate reserves, appropriate economic controls, macroprudential regulations and a periodically reviewed currency ban,” he put forward.

Although South Africa’s currency was currently trading at more competitive levels, which supported the competitiveness of manufacturing and the maintenance of export levels, Bezuidenhout noted that this advantage was being undermined by currency volatility and various domestic policy challenges.

“Rapid, steep electricity price increases are one such a challenge. Despite the recent National Energy Regulator of South Africa determination on electricity price increases for the third multiyear price determination period, increases for manufacturing will still occur at around 10% or more [almost double the inflation rate], while Brazil just effected a 28% cut in electricity rates for industrial customers.

“We, therefore, believe that until we have energy pricing right, an industrial policy measure to help manufacturers offset steep electricity cost increases are necessary,” he stated.

Bezuidenhout highlighted that administered prices also needed to be addressed.

He said that, in addition to a targeted fiscal review, the Manufacturing Circle would also support recommendations of the ‘Study to Collate all Research Done on Administered Prices’ concluded under the Fund for Research into Industrial Development and Equity in 2011.

The study proposed that new, up-to-date studies on the regulatory frameworks and processes underpinning the determination of administered prices be commissioned, and that greater attention be paid to the economic impacts of administered pricing decisions and to the effectiveness of administered pricing in terms of its contribution to national objectives was assessed.

Further, the study also suggested that the capacity and resources of independent regulators be improved, benchmarking analyses be undertaken, and greater attention be given to alternative approaches for administering prices.