BLSA: Medium Term Budget – Another seminal moment, Newsline

By Busi Mavuso

JOHANNESBURG – For close to a decade, we’ve watched the economy struggle and toil as deterioration in both the domestic and global environments tightened the noose around a stretched fiscus.

Our calendar entries in recent years have been littered with dates that are singled out as seminal, or for dramatic purposes, “Damascus” moments in the South African story. Not to break with that tradition, Finance Minister Tito Mboweni’s medium-term budget speech this month pretty much falls into the same category.

Coming just four months after his emergency budget enforced by the Covid-19 pandemic, the speech will be closely watched for just how the department will manage to balance the need for fiscal restraint, including the reduction of public sector wages, with stimulating an economy sluggishly emerging from what the IMF termed the “Great Lockdown”.

It’s important that Treasury along with all affected ministries are backed in their efforts at fiscal reform that will come with some rather difficult political choices. That’s imperative if we are to win back confidence and breathe life into what has been an impressive investment drive by President Cyril Ramaphosa over the past two years. There’s a promise of more than R300bn worth of pledges on the table that need to be unlocked in a world where many nations are clamouring for any sort of investment.

Accepting this reality, the state has made some undeniably positive steps. Treasury has gotten signoff from Cabinet for “Operation Vulindlela”, which is their push to implement the department’s economic policy proposals that were championed by Mboweni in August last year. As business, we came out in support of those proposals as they were centred on structural reforms in areas such as energy, where our over-reliance on Eskom has time and an again proved our Achilles heel. It is in the medium-term budget where we hope to see some tangible signs of progress in following a path that the governing party has also endorsed.

The “mini-budget” fits into a larger reform push by government as it launches its economic recovery plan post the National Economic Development and Labour Council process, where business, labour and social groups agreed on an action plan. We expect the R230bn of spending cuts promised for the coming two years to be delivered but it may very well be offset by spending on state-owned enterprises spending and lower revenue.

There’s been much debate in the media in recent weeks about the fate of SAA, which has now been placed into care and maintenance. Wherever one stands on its future, one thing couldn’t more certain: its fate needs to be resolved. As the business community responsible for our vast number of employees, we can understand the state’s “moral obligation” to paying the severance packages for SAA staff that amount to just over R2bn. Allocations above this would be worrisome for an investment community and South African public tired of bailouts gobbling up scarce public budgets. In the long run, we hope the state finds a way to exit the airline and concern itself with ensuring that we have a competitive aviation industry as a whole.

We need to get back to a position where the South African budget is used for investment and capital spending because of the associated multiplier effects, rather than on SOE bailouts and public sector wage growth that in the past has outstripped private sector wage growth.

Operation Vulindlela is a path to that future. Deputy finance minister David Masondo is tasked with driving it and he will need political support. The country needs more money to play its role as an enabler of big ticket items such as infrastructure development, which will lead to growth that is good for business and good for social support.

In what has to be a shared journey between the state, business and labour to grow the economy and reduce unemployment, infrastructure spending will be a key component. We expect to see some detail in the medium-term budget and in the investment conference to follow in November on the different opportunities that exist. Government should play an enabling role through concessions and regulatory amendments to allow the private sector to start building its own infrastructure, steps that are fiscally neutral but growth positive. This can be done for energy through embedded generation, for example, but also for rail and ports where private operators are willing to put in infrastructure if regulations permitted it.

We’ve long spoke of the electricity generation capacity that lives in the private sector that would help Eskom meet demand as it deals with a decades long maintenance backlog and the shutdown of some of its older coal-fired power plants.

sets the stage for another country defining statement on how it allocates a shrinking revenue pool. We can no longer waste time with promises. Action is required by the state if we are to avoid falling deeper into “junk” status. The state has to now convince us of its political will to make the difficult choices.

Busi Mavuso is the chief executive of BLSA.