Tito Mboweni's opportunity to turn the SA economy around through MTBPS
Budget / 29 October 2019, 6:00pm / Miyelani Mkhabela
JOHANNESBURG – The Minister of Finance has no many options to exhibit his economic determinist or reformist traits. In the search to finding sustainable solutions comes a question on how to create economic growth in South Africa?
An intelligent seasoned economist can respond by saying, The economic growth of a country is the increase in the market value of the goods and services produced by an economy over time. South Africa is synthetically expected to grow by four to five percent to create jobs and reduce the structural poverty that's perpetuated in democracy.
Furthermore, South Africa must experience an outward shift in its production possibility curve or frontier for a long-awaited positive economic growth. This means the department of trade, industry and economic development in partnership with the National Treasury must conduct a feasibility study to diagnose which manufacturing products must be prioritized and invest in the production of such to force change in a struggling economy.
We can take 10 years without seeing an outward shift of the South African production possibility frontier when the ANC doesn't face the market realities and put enough allocation to focus on the production of our resources.
At the epoch, South Africa is highly unlikely to experience an increase in total output or real gross domestic product (GDP) or gross national product that will also create jobs.
The total value of all final goods and services produced within a South Africa economy declined mainly in sectors such as manufacturing, textiles and mining. For South Africa to see a turnaround, an increase in a country’s production must take place from the additional investment commitment in manufacturing, textiles and mining sectors as those are our competitive sectors based on the national resources.
Growth doesn’t occur in isolation, strategic events in one country and region can have a significant effect on the growth prospects of the domestic economy.
For example, if there’s a protectionist policy to make South Africa great again, that will assist our domestic corporations to grow and feed the national consumption first and that can assist in reducing global dumping of products to South Africa.
South African manufacturing competitiveness was boosted by electricity generation in the past, a great selection of capable human capital must be deployed to run Eskom to operate efficiently and commercially profitable.
That will boost foreign direct investment in mining and manufacturing as the cost of electricity will go down. Our electricity generation declined but also its too expensive to produce electricity at the epoch precisely because the state-owned electricity company has been captured and badly operated. Other state-owned enterprises need a credible plan to make all SOE financially viable and Independent.
When that fails, a stake from SOEs might need to be sold to ensure external oversight and reduce corruption in SA SOEs.
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South African fiscal expenditure are part of government budget balance calculation that's not enough to handle our national demands. We have an opportunity for the next six month to commit huge capital allocation that we will see it start fixing our economy in the next eighteen to two years.
Do we have enough revenue collected and what will be prioritized from the little funds available?
We mustn't be over-optimistic and ambitious that change will happen over-night, it will take time to fix the economy but it's the right thing to do now before we are downgraded. It's unmerited favour that South Africa is not downgraded to the Sub- Investment grading by now.
Fiscal expenditure in South Africa decreased to R161 091 million in August from R182 477 million in July of 2019.
Government debt in South Africa increased to $71 035 million in the second quarter of 2019 from $68 588 million in the first quarter of 2019.
South Africa recorded a government debt equivalent to 55.80 percent of the country's GDP in 2018, a point of concern that invites South Africa to seek financial assistance from World Bank and International Monetary Fund, a painful route we are not willing to take understanding its economic negative impact to South Africa.
Standard & Poor's credit rating for South Africa stands at BB with a stable outlook. Moody's credit rating for South Africa was last set at Baa3 with a stable outlook. Fitch's credit rating for South Africa was last reported at BB+ with a negative outlook. Credit ratings are important as they are used by sovereign wealth funds, pension funds and other investors to gauge the creditworthiness of South Africa thus having a big impact on the country's borrowing costs.
A large pool of investors will be expected to withdraw from SA bonds and other investments when the country gets downgraded, as they are prescribed to invest in attractive markets with fewer risks.
Rating agencies previous reviews by Moody's as well as S&P Global Ratings and Fitch Ratings recommended political stability emanating from populist policies; Policy Certainty must be prioritized; credible plan to turnaround SOEs urgently needed; critical structural reforms ( the ruling party had failed to implement recommended reforms because of inconsistencies in government and all its agencies) and finally the pro-growth roadmap, that we believe the country can experience a production possibility curve outward from increased investment allocation in manufacturing, agriculture, mining and textiles while on the other hand, other sectors such as business and services industry remain productive as they do now.
This MTBPS is the last hope for South Africa as the Geopolitics and expected global recession will be taking the investment gains made thus far, when we don't repent from our ill discipline in implementing reforms.
Miyelani Mkhabela is an economist and director at Antswisa Transaction Advisory.