Founder: Turnaround Talk
The Medium-Term Budget Policy Statement (MTBPS) is one of the most anticipated Government briefings of the year as it provides insights into whether the expectations set out in the budget speech are being adhered to.
Th2 2023 MTBPS, which is being presented tomorrow, carries a lot more fear and trepidation as tax revenue collection is down, and South Africa feels the impact of the tough economic climate being felt globally.
Intense levels of load shedding
The Moneyweb article points out that the intensity of load shedding was far more pronounced than initially thought, having a huge impact on growth forecasts for the current year and revenue collections, Finance Minister Enoch Godongwana said at the Kgalema Motlanthe Foundation’s Inclusive Growth Forum held over the past weekend.
This was echoed by Edward Kieswetter, Commissioner of the South African Revenue Service (Sars) when he addressed the parliamentary finance standing committee earlier in October.
“If the country could recover the revenue lost from load shedding this year, we would have been in a surplus and not lagging behind as we are year-to-date,” he said.
The article adds that Wikus Kruger, Director of the Power Futures Lab (PFL) at the University of Cape Town’s School of Economics, believes there is light in the tunnel. In the past 12 months, about 4.7 gigawatts (GW) of solar was installed by consumers, and this is increasing.
“The PFL sees a pipeline of 60-90GW of renewable energy projects being developed, most of which will be selling power directly to private consumers, only ‘wheeling’ the power through the Eskom grid,” he wrote in an article published by Daily Maverick.
Image By: Supplied
Compounding factors
The Moneyweb article points out that Casey Delport, an Investment Analyst at Anchor Capital, says in a note that the MTBPS typically serves as an update on the primary budget set in February. However, this year, it carries added significance due to the substantial deterioration in the country’s fiscal health.
The investment community “remains hopeful” that Godongwana will provide reassurance that Government will address the looming financial challenges and the mismanagement of state-owned enterprises (SOEs) in particular.
“A variety of other factors have compounded SA’s fiscal challenges, such as lower commodity prices, lower revenue collection, Eskom and public sector wage increases, the expected continued roll-over of the Social Relief of Distress [SRD] grant and rising borrowing costs,” says Delport.
Conflicting priorities
The Moneyweb article points out that Busi Mavuso, CEO of Business Leadership South Africa, says in her regular Moneyweb column the looming elections next year will put pressure on Godongwana to allow the public sector wage bill to grow, extend the SRD grant, bail out SOEs, and fund many government departments to extend services.
“We need to see investment, particularly in the infrastructure required to drive economic growth,” she says, noting that the minister has signalled that some infrastructure spending will be delayed as Government seeks to shore up cash to manage the shortfall.
The SRD grant, which offers R350 per month to about 8.6 million jobless adult South Africans, will likely be extended again beyond the current fiscal year. This grant alone amounts to an expense of more than R36 billion in the current fiscal year. Delport notes that it is not budgeted for beyond this year.
The article adds that National Treasury has proposed funding options for the SRD grant, which include terminating some government programmes and increasing value-added tax (Vat) by 1% or even 2%, which could generate anything between R25 billion and R50 billion.
“Neither of these is particularly politically palatable for the ANC, given the upcoming elections,” says Delport.
Begging bowls
The Moneyweb article points out that the usual lineup of non-performing SOEs looking for cash bailouts remains.
These include the Post Office (which requires a further R3.8 billion on top of the R2.4 billion allocated in the current fiscal year), the SABC (with a loss of R1.1 billion), and Transnet (a loss of R5.8 billion in the previous year).
Delport adds that in addition to these “usual suspects”, the Gauteng Provincial Government still needs to pay R12.9 billion to settle the South African National Roads Agency (Sanral) Gauteng Freeway Improvement Project debt and interest rate obligation, with the government paying R23 billion.
The article adds that, beyond the upcoming budget reviews, SA’s medium- to long-term fiscal trajectory requires a credible economic growth reform agenda.
Image By: Eskom
Delport warns that without this agenda, fiscal sustainability will not be possible.
“Much rests on the hope of forming a coherent and stable government after the 2024 election.”
Creating a credible economic growth reform agenda
How do we enable this credible economic growth reform agenda?
First, if we look at South Africa’s Production Possibility Frontier graph, it is clear that we need more resources to grow the economy beyond its current means. Resolving the Eskom and Transnet crises will help, but more intervention is required. The world is moving from product-led economies (which rely heavily on imports and exports) to service-led economies, which embrace the global marketplace. To enable this, Government needs to accelerate the move from analogue to digital, increase the country’s fibre network and come up with a way to make data access affordable for all South Africans.
The second fundamental global shift is towards renewable energy and clean energy. Hydrogen is a byproduct of gold mining, and South Africa has the potential to be so rich in this resource that it could be one of five exports of green hydrogen in the world. Government needs to accelerate the infrastructure that will establish our hydrogen infrastructure as the proposed Hydrogen Valleys have the potential to add between $3.9 billion (low demand case) to $8.8 billion (high demand case) to the economy by 2030 and create between 14,000 (low case) to 32,000 (high case) during this timeframe.
This may be a very muted MTBPS. However, the value blueprint is there for all to see.
