Wednesday, January 19

Economic conclusions of MTBPS 2021


FIFI PETERS: Moneyweb has asked some of the country’s leading economists to rate Finance Minister Enoch Godongwana’s first medium-term budget speech.

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To give you an indication of some of the responses we have received, Adrian Saville has given the minister seven out of ten; is an investment specialist. Kevin Lings, Stanlib’s chief economist, has given the minister six out of 10. Lumkile Mondi, a professor at Wits, rated the budget a seven. And we also had Tabi Leoka, an independent economic strategist, who gave the minister a nine out of 10.

Right now on Market Update we have Alexander Forbes Chief Economist Isaah Mhlanga to give us his take on the budget as well as the score. Isaah, thank you very much for your time. Most of his colleagues are rating the minister quite favorably. How would you rate the minister out of 10?

ISAAH MHLANGA: I would give it a rating of eight out of 10, for the simple reason that a lot of what we’ve been saying we need to see in the budget was in the budget. Spending is being restructured towards investment, which was in the gross capital formation projections. Away from current spending, which was also in the projections for government consumption that we see for the next three years, there is a contraction, a reversal of what we have been seeing in the three years before the pandemic, where government spending It has been growing positively for three consecutive years.

So for me, it’s really an eight: balancing immediate needs, but taking care of the medium to long term.

FIFI PETERS: We have a snippet of what the minister said a little earlier. Let’s hear it. I want to ask you a question on the other side.

ENOCH GODONGWANA: Central to the fiscal path that we have chosen is the need to be clear and unequivocal about the tradeoffs we are willing to make as a nation. We cannot do everything we want to do at the same time.

FIFI PETERS: That’s the minister talking about the fact that there would be opportunity costs involved in the path that he and this government have decided to take. So can you just give us some reflection on the priority areas that the minister has listed for the economy and what could be the costs of prioritizing those specific areas?

ISAAH MHLANGA: Maybe let me tell you an anecdote about something that happened when we went to jail. We were used to a buffet of lamb chops, chicken meatballs, fruit salad and a variety of drinks, and cake for dessert, before the pandemic.

FIFI PETERS: Under which finance minister?

ISAAH MHLANGA: That’s what you get in the pre-pandemic budget with Minister Tito Mboweni, and almost all of them before him. But today we were greeted with something very different: a cheese sandwich, an orange yogurt, a chicken wrap, and a Lunch Bar. That is a downgrading of the menu we were used to. But they haven’t cut everything. They still maintain a decent menu. I mean, you know, something similar to the budget that Minister Godongwana presented. They continue to cut public spending, but they are not cutting absolutely necessary items of spending. But they keep saying ‘we are on a path of fiscal consolidation’, the same one presented by the Minister of Finance, Tito Mboweni, in February.

Just to use an anecdote from Minister Godongwana, he said that the only difference between him and Minister Mboweni is that he has better shoes. Also, if you look in terms of income, he has a better income than Mr. Mboweni. Remember that in February, Mr. Mboweni had about R100 billion in additional tax revenue. Minister Godongwana now had R120 billion in additional tax revenue relative to the February budget. That means there was some room to maneuver, and in particular to take care of the unbudgeted spending on R350 riot relief that was implemented after the July riots and also the third wave, but also to deal with the fix. salary of approximately R20 billion that was given as cash bonuses to public sector employees. That now taking care of using this extra tax revenue.

So it’s really a relief for the finance minister, which would have been a bummer if we hadn’t gotten the additional tax revenue.

FIFI PETERS: Well, I think the former finance minister also had a finer menu than his successor. I would choose lamb chops over a cheese sandwich any day. But nevertheless, joking aside, the minister amply emphasized that this is a pro-poor budget, given that 60% of spending goes to social reforms in the form of housing, health, education, social assistance and the like. But is this a business-friendly budget that will get businesses to invest in this economy and grow it?

ISAAH MHLANGA: In fact, if we look at the figures, but also if we look at the reform side, it is business-friendly. Typically, you must first see the public sector investing in infrastructure before you can see the private sector invest. As I indicated, if you look at the investment line projection, [has been] growing for three consecutive years. That needs an investment from the public sector that is included in that forecast, which should be positive for the private sector.

But also look in terms of the growth story that underlies much of the projections going forward. It is in the reforms that stood out in the budget. Some of them are planned or scheduled to be implemented in 2022. We can talk about water, we can talk about spectrum, we can talk about the Transnet railway being opened to third parties so that they can also run their wagons on the existing railway lines that belong to Transnet. That should be able to increase the volume and capacity of goods moving from road to rail as they make their way to export markets. That is one of the weak points that many large corporations, such as ……[calm?] 6:58 that manufacturers have complained about. So that’s investor friendly, to say that we are reducing the cost of doing business and we are putting [down] an implementation schedule, against which we can measure success or failure. And 2022 is not that far away, only a month or two to go. Then we can measure if they can implement or not, which will build confidence if they are about to implement.

FIFI PETERS: Not to mention Eskom and some of the things the minister had to say there. But Isaah, to the point that infrastructure is at the heart of the growth of this economy since Covid-19 and even beyond the pandemic, what the minister also mentioned was the financing gap of around R441 billion with respect to to projects on the table. Given that you’ve identified this as a business-friendly budget, how confident are you that the private sector will come to the party to fill that funding gap?

ISAAH MHLANGA: That’s still a work in progress because most companies and investors are going to wait for implementation before investing their billions in infrastructure. So what the government must do, which is what we have been saying for some time, is that they must demonstrate the implementation of economic reforms that reduce the cost of business.

So until we see that implementation in 2022 as set out in the budget, we are unlikely to see investors coming to the party. They will remain on the sidelines. Again, you can look from a growth point of view: from 5% this year, which is actually a lot of the best effects, but also commodity prices, 2% next year and below the 2% the following year, that’s very mediocre economic growth. to encourage the private sector to come and invest.

That is why structural reforms, particularly the ones that were listed in the budget, are so important to implement because that is what is increasing sentiment: to say that growth prospects are going to improve above 2% and therefore So now there is something we can get in terms of profitability. That is why we would then see private sector investors come to the party.

FIFI PETERS: It’s okay. And of course a stronger economy is going to change the menu you get in the dungeons. Mr. Mhlanga, we’ll leave it there for now. Thank you. That’s Alexander Forbes Chief Economist Isaah Mhlanga.


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