President Jacob Zuma and Deputy President Cyril Ramaphosa share a light moment before Minister Gigaba delivered his maiden budget speech in Parliament. 25/10/2017, Elmond Jiyane, GCIS
JOHANNESBURG - Captains of industry have slammed Finance Minister Malusi Gigaba’s “gloomy” maiden Medium-Term Budget Policy Statement (MTBPS), saying it would do little to instil the confidence South African business so desperately needs.

Karl Westvig, chief executive of Retail Capital, a company funding small and medium-sized enterprise (SME) retailers and restaurants, said the critical sector would be disappointed about the “absence of any real plans” to improve support for SMEs.

“With a revised economic growth projection of 0.7percent for 2017, down from 1.3percent, the market was hoping for a rallying cry supported by a meaningful and tangible plan to address over-indebted consumers and unsupported businesses,” said Westvig. The sector welcomed the instruction that SMEs were to receive payment of legitimate invoices within the prescribed 30 days, but charged that Gigaba appeared to have missed the point.

Westvig said the sector, which employs 60percent of the country’s workforce and contributes 57percent of the GDP, needed a “concrete plan with a single-minded objective to ease the burden of doing business so they can employ more people and contribute to economic growth”.

He also criticised the “crisis in credibility, which is leading to a general negative sentiment in the economy”.

Small business owners needed to be confident of the environment before they invested in capital equipment and hired more staff. “This budget speech does little to improve this sentiment. We expect business owners will adopt a wait and see approach before investing further,” said Westvig. However, Gigaba commended the CEO Initiative, which brings together various business formations across economic sectors, saying they would set up an R1.5billion SME fund “which will soon be operational”.

Ruaan Van Eeden, managing director of tax and exchange control at Geneva Management Group, said Gigaba’s MTBPS painted a “gloomy picture” and warned that in the coming days, “talk of the looming fiscal cliff - where government debt spirals out of control - will again take centre stage”.

Budget deficit

The country’s consolidated budget deficit will widen to 4.3percent of GDP in 2017/18, as tax revenue is projected to fall short of the 2017 budget estimate by R50.8bn in the current year, the largest under-collection since the 2009 recession, according to the National Treasury.

This jeopardises social and economic spending as debt-service costs are set to spiral. The Treasury yesterday said by 2020/21, nearly 15percent of main budget revenue would be spent servicing debt.

When the budget is in deficit, the government borrows in order to fund the shortfall, hence the risk of soaring debt-service costs. “As gross debt expands, debt service will remain the fastest-growing category of spending over the next three years,” the Treasury said yesterday.

Van Eeden said: “South Africa is caught in a low-growth trap, despite the fact that drought has ended in most parts of the country, agriculture has had a bumper year, load-shedding is largely a thing of the past, labour unrest has moderated and commodity prices have recovered somewhat.” In line with the Treasury’s predictions this time last year, “all of these factors should have led to real GDP growth this year of 1.3percent, growing to 2.3percent by 2019".

Van Eeden pointed out that the “hard truth” was that the growth recovery the Treasury had hoped for had not materialised, “largely because the policy uncertainty that scares off investors has continued. The problem Minister Gigaba and the team at the Treasury now face is this: when actual economic growth falls below forecasts, so does actual tax revenue".

“But national spending is prepared based on the forecasts, so a shortfall in tax revenue widens the budget deficit and an increase in tax is no guarantee that the deficit will be closed. In fact, the opposite is generally the consequence.”

The focus needed to be on stimulating economic growth through incentives and programmes that encourage entrepreneurship.

David Crosoer, executive of research and investments at PPS Investments, said the revenue shortfall of R50bn will be made up by “some stop-gap measures, but the debt-to-GDP ratio is still forecast to slide to more than 60percent by 2022”.

For investors, he noted, “nothing was said that they didn’t already know, and there were no unwelcomed surprises, but there hasn’t been enough done to start restoring confidence.”