Mboweni’s rocky road to economic reconstruction and recovery

There are many expectations when pres. Cyril Ramaphosa presents the South African Economic Reconstruction and Recovery Plan in a joint hybrid sitting of parliament on Thursday afternoon.

These extraordinary measures for a speedy and sustainable economic recovery will, however, leave a rocky road to navigate for finance minister Tito Mboweni in his Medium-Term Budget Policy Statement.

Mboweni had asked on Wednesday that the Medium-Term Budget Policy Statement, or mini-budget, be delayed by a week, probably due to the reality of having to align the president’s address and the budget, says Annabel Bishop, chief economist at Investec.

Prof. Jannie Rossouw, interim head of the Wits Business School, says it is clear that there are problems to curtail spending, due to the fact that there is no growth in income.

The absolute minimum Mboweni has to do to jump start the economy is to implement existing plans, such as the growth plan of National Treasury.

Debt

Bishop says it is likely that budget allocations and debt projections are the sticking point, both for negotiations before the budget with stakeholders, as well as the consideration of the likely impact on markets.

According to recent reports debt could increase to 100% before peaking, instead of 87.4% of gross domestic product (GDP).

“The President is likely to outline the need to switch to expenditure on growth initiatives, away from heavy spend on civil servants and debt servicing costs. Spending on the poor will remain, but the need to get them into employment is increasingly critical. Debt projections also need to be lowered not raised,” she says.

Rossouw wants to hear the president outline the steps to contain the growth in government debt. He also wants to hear how service delivery can be improved within current budgets through improved efficiency.

Paul Marais from NFB Asset Management points out that we are already a highly indebted nation with very limited options to finance that deficit without significantly reducing expenditure. “However, it remains to be seen what appetite and political will government has to reduce expenditure in a meaningful way.”

According to Bishop, she wants the president to say that monies will remain allocated to critical areas of upliftment and be cut from civil servants’ remuneration to meet these objectives.

“The overriding one of preventing debt default by lowering borrowing projections and so improving fiscal sustainability and the future of all South Africans.”

Accountability

No accountability is considered the main reason why the South African economy was in trouble even before the pandemic, and the president is expected to include it in the plan.

“Key players have not been arrested. A cabinet reshuffle and high profile arrests are necessary to restore investor confidence, along with lower debt levels and a cut to fiscal expenditure,” Bishop says.

Marais says South Africans across the spectrum are tired of the lack of accountability.

“The NPA’s recent charges against those accused of corruption are encouraging and these efforts need to be intensified.” Rossouw wants to hear an announcement that all tenders and contracts of all government departments and SOEs will be published for public scrutiny in the future.

Priority areas

Rossouw wants a focus on efficiency in an enabling environment for aggressive infrastructure investment, employment orientated strategic localisation, reindustrialisation and export promotion, while Bishop wants a sharp reduction in red tape, increased productivity for civil servants and a reduction in state control of the economy.

She believes priority areas should include debt reduction, cuts in expenditure, removal of red tape and rapidly increasing the productivity of civil servants to speed up starting a business. South Africa is currently one of the countries where it takes the longest to start a business.

Rossouw also wants to hear about infrastructure projects with maximum returns regarding employment creation given the serious unemployment figures. He also wants to see red tape go along with the stifling, onerous and complex regulatory environment.

Marais is hoping for projects that will create a return, such as the release of spectrum or infrastructure projects, such as toll roads, waste water treatment or independent power producers that provide a return on investment.

Growth enhancing economic reforms

Bishop says that low interest rates are no trade-off to stimulate economic growth.

“Growth enhancing reforms need to be more rapidly implemented. Low inflation, chiefly on the back of low oil prices and the recession, will not persist in SA and therefore the plan has become critical”.

Rossouw recommends a focus on buying South African products by the government at all levels. “A good start would be an announcement that only vehicles manufactured in South Africa will in the future be bought for cabinet ministers, deputy ministers, premiers, MECs, government departments at all levels and municipalities.

Reprioritisation of public spending to support job creation can be done though a switch from current expenditure, notably on civil servants’ remuneration, to increase into investment instead, Bishop says.

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