Here we are, facing a medium-term budget policy that has taken on an importance far beyond what it was designed for. The Covid-19 crisis has meant severe disruption to our economy and rapid response through government policy that must be weaved together. This is a Herculean task for Finance Minister Tito Mboweni.
There is one overarching goal for the finance minister: to rebuild confidence in the economy. Without confidence in the future, companies will not invest in growing their businesses. If they don’t, the economy will not grow sufficiently to address our unemployment crisis — regardless of any stimulus measures the state may institute. And there are two prerequisites for building such confidence: policy certainty and a clear view of the state of government finances.
This is where the finance minister can make the most telling contribution to our economic recovery. His medium-term budget policy statement (MTBPS) does not need to set policy — that is not its role — but it does need to pull together the policies set out in the “emergency budget” in June with the policies outlined in the economic recovery plan presented by President Cyril Ramaphosa last week. That will help to establish a clear roadmap of our future.
In the emergency budget, the active vs passive scenario made the stark choices clear. The Cabinet committed to following the active scenario that avoids a debt crisis. We need to see evidence that this is actually being achieved and is not just a plan on paper.
The risk of a debt crisis is obviously a major concern for business. While SA has a strong financial architecture overall, with a strong banking sector and savings industry, the economy is inevitably highly vulnerable to the sustainability of government finances. If the government is unable to raise debt, an IMF bailout, likely with severe conditions including austerity, seems inevitable.
While this risk is on the table, businesses will be reluctant to take significant risks themselves in the form of large-scale investment, particularly in sectors vulnerable to government finances, which range from lenders to construction companies.
The MTBPS can assist confidence by showing progress made towards debt sustainability along the lines of the active scenario painted in the emergency budget. This must be supported by credible progress in dealing with the public sector wage bill and other consumption costs such as SAA and other state-owned enterprises. Spending must be protected in areas that are key to supporting the recovery, particularly infrastructure investment and institutions such as the National Prosecuting Authority.
As dire as our debt crisis is, if business leaders are fully informed of the measures being taken to address it and are confident that the government will succeed in bringing debt levels down to manageable levels, they will be able to adapt their strategies accordingly and be prepared to risk capital to invest in growth initiatives. Again, the belief that government will succeed is a prerequisite.
Then, from the president’s economic recovery plan, business would like to see Mboweni allocating the resources needed for each of the initiatives to be successful. This is critical — South Africa wins awards for the transparency of its budgeting process, but we have to be careful not to have transparent plans that then are not reliable guides to what actually happens. Implementation, of course, is key.
The president laid out a concrete plan of action to get the country’s economic recovery started, which is encouraging. Mboweni needs to follow through by convincing the country — and indeed, the international investment community — that it will be implemented as speedily as possible, mapping out the steps to do so. Of course, government hasn’t the proudest track record in the sphere of implementing plans and the minister has that obstacle to overcome.
Should he convince us, it will be a huge confidence-booster.
That would put the country in a different place, headed in a new direction. Suddenly there will be important reforms and initiatives happening that will stimulate economic activity. The tourism sector will get a much-needed mini-boost from streamlining the visa system, which will also benefit other industries. High-frequency spectrum will be released by March 2021.
Timeframes for water, mining and environmental licences will be halved. In transport, our rail infrastructure will be opened up to private sector participation — this is unprecedented. And, most importantly, the crisis in our energy sector is being addressed.
Even if each element has flaws and more detail is needed, what is important is that business leaders believe they will be implemented successfully. Combined with a conviction that the country’s debt is being brought under control, their confidence in the country’s future will soar and they’ll start investing in their own businesses to expand and employ more people as well as participate enthusiastically in the country’s infrastructure development drive.