A boring but pragmatic Budget speech

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IOL Gordhan budget speech 2014 GCIS Pravin Gordhans address was designed to please populists, industrialists and investors, says the writer. Picture: Siyabulela Duda

Pravin Gordhan’s address was designed to please populists, industrialists and investors, writes Sure Kamhunga.

If this was a valedictory Budget address by Pravin Gordhan, then South Africa’s affable Minister of Finance did not disappoint. His successor – whoever President Jacob Zuma chooses to handle the country’s purse strings – will take over a portfolio with a good foundation.

Gordhan delivered what many have described as a boring but pragmatic outline of government intentions to lift economic growth. And the Budget was even more poignant as it was prepared in the 20th year of South Africa’s democracy and on the eve of elections.

Commentators say this may explain why Gordhan adopted a business-as-usual approach to achieve the delicate balance of populism while appeasing the business sector, global investors and rating agencies. These may have scrutinised every word he said for any inconsistencies between economic policies and political statements by government leaders.

Many say this was not an easy Budget to prepare. This is because Gordhan found himself sandwiched between political considerations and how to implement tough solutions to deal with the challenges of anaemic growth, grinding poverty, worsening unemployment, poor service delivery, corruption and wasteful and irregular government spending.

However, business leaders and economists were united in their conclusion that Gordhan pressed the right buttons, dwelling on infrastructure investment, job creation and poverty alleviation while attracting and promoting inward and outward investment.

Sim Tshabalala, co-chief executive of Standard Bank, praised the Budget, describing Gordhan’s speech as “staggeringly good and important” for the country.

“Accordingly, it has sparked a lot of thought (and) I was really encouraged by the strong emphases on social cohesion and inclusion, and the repeated references to business and government working together to stimulate growth, job creation and economic inclusion, within a collectively agreed framework and guided by the National Development Plan,” he said.

The Budget identified the key themes of accelerating social and economic transformation – central to the success of the NDP.

Without a doubt, South Africa has done well since 1994, even managing to successfully weather the global economic storm unleashed by the 2008 recession.

But a combination of dithering and inconsistency in implementation of policy threatens to upend the progress.

On the social front, a restive section of the population, tired of promises about service delivery, has rampaged, destroying government property.

The business sector continues to fret about controversial policies such as labour laws and a lack of incentives and support for them to invest locally and across Africa.

The concern about the reliability of power supply, rising inflation and a rand under siege have added to the sense of gloom in the private sector, where many companies continue to hoard cash on their balance sheets rather than invest it.

While Gordhan is aware of these concerns, he insists South Africa has a “good story” to tell, repeating a similar statement Zuma made when he delivered the State of the Nation address recently.

Nevertheless, analysts say the good story cannot mask the fact that South Africa still faces the challenges of an emerging economy struggling to narrow a widening chasm between the poor and the rich.

But the minister appears to have taken heart from the progress that has been made to address the historical socio-economic imbalances bequeathed to the country by apart-heid policies. He is also under no illusion the battle is being won. “Twenty years of democracy have brought enduring achievements for South Africa. Yet there is no room for complacency. The country continues to face profound challenges,” said the Treasury in a pre-Budget policy document.

Gordhan announced a swathe of new measures to steer the economy to growth. These included tax relief for those earning up to R250 000 annually, which economists say will boost incomes and provide cash for indebted consumers.

The financial sector is particularly happy Gordhan made legislative proposals for tax-exempt savings accounts to encourage household savings, which remain low as a percentage of GDP, compared with those in emerging markets such as Brazil. “These initiatives will, I think, make a useful contribution to the long-term wellbeing of South African households and, more immediately, will mobilise more resources for investment,” said Tshabalala.

Gordhan promised further spending on infrastructural projects and announced incentives to encourage South African companies to invest in Africa.

Business leaders and economists say Gordhan did what he could under tough circumstances, even though some suggested the minister could have been more radical.

Mike Brown, group chief executive of Nedbank, said he was happy with the Budget, as it was likely to instil confidence in volatile markets. He listed a number of positives, including confidence in the NDP and that revenue collection was better than expected. The government appeared to recognise the importance of the business sector in creating jobs.

Treasury said despite slower-than-expected GDP growth, the budget deficit was expected to narrow to 4 percent in 2013/14 from 4.3 percent cent in 2012/13. It said the reduction would be the result of the government’s expenditure ceiling being reached, strong revenue collection and under-spending by national departments, provinces and public entities.

The budget deficit is expected to further narrow to 2.8 percent of GDP by 2016/17 as economic growth improves and tight spending limits stay in place.

Brown said it was good to see the continued focus by the government on reducing wasteful expenditure “and eliminating corruption”.

Chris Hart, chief strategist at Investment Solutions, welcomed the thrust of the Budget, but had reservations about its emphasis.

“The minister has pressed many of the right buttons, such as lower tax compliance costs and regulatory relief.

However, the claim that government is creating an enabling environment is not correct, given the escalation of regulations and financial repression.”

But he believed the Budget was more conciliatory to the private sector, an important part of the solution to problems facing the economy.

“The Budget speech is largely good. Growth and jobs are certainly a strong intention.”

Tshabalala said Gordhan made the right noises about spending plans and tax measures to address structural economic challenges and promote inclusive growth. These included incentives to support the manufacturing sector, funding for special economic zones to promote exports, support for job creation and improved production in the agricultural sector.

“These initiatives provide exciting opportunities for business to actively partner with the government to drive job creation.”

Estimates show there are more than 4 million unemployed South Africans and another 2.2 million who have stopped looking for work.

Other positives Tshabalala listed include government commitment to sustained improvements in competitiveness through infrastructure investment and microeconomic reform; the commitment to provide policy certainty for domestic and foreign investors through the formulation of a holistic framework for investment based on the NDP; and strengthening and standardisation of procurement processes, which will create a more level and predictable playing field for doing business with the government.

“This will benefit smaller businesses and black businesses in particular,” Tshabalala said, a comment also supported by Nedbank’s Brown, who says the focus on making life easier for small business is a welcome development.

“The minister committed the government to partnering with big and small businesses to work together to radically change our economy,” Tshabalala said.

“In effect, he has issued an invitation to the business sector to join the government in a social compact and work together to build inclusive institutions and to drive inclusive economic growth – an invitation that Standard Bank will certainly be taking up, and one which we expect all businesses will respond to positively and energetically.”

Analysts warn, however, that implementation of the measures Gordhan promised will test not only his mettle in steering growth of the economy, but also the political commitment of Zuma’s government, which has been derided as being indecisive and failing to demonstrate leadership both at home and in Africa.

What remains of concern is mounting evidence that the economy needs a major lift to boost growth, particularly through increased output from key sectors such as manufacturing and mining, where company executives have already warned of further job losses this year.

GDP growth in South Africa last year was 1.8 percent, compared with 2.5 percent in 2012, and this was well below the regional average of more than 5 percent. Gordhan estimated growth next year would increase to 2.7 percent, rising to 3.5 percent in 2016. Tshabalala said South Africa’s estimated growth rate this year made the country a laggard in the region.

But Tshabalala was optimistic that all was not lost.

“The minister argues that the next phase of growth is about the dynamism and agility of the private sector and the synergies created with government. We at Standard Bank strongly agree, and look forward to working closely with government to promote faster, more inclusive economic growth and job creation in our country.”

Sizwe Nxedlana, chief economist at First National Bank, is also hopeful about the future, citing planned government spending plans as well as the anticipated expansion of South Africa’s trade with the rest of Africa.

This is now 29 percent of non-mining exports, up from 19 percent 10 years ago.

He also says the government seems to be banking on new power stations to boost medium-term growth.

* Sure Kamhunga is a business journalist.

** The views expressed here are not necessarily those of Independent Newspapers.

Sunday Independent


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