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South Africa has taken a hiding in recent weeks from the rating agencies and foreign investors, The Economist and The Wall Street Journal, strikes and unions. We are facing increased electricity tariffs and urban tolling, unsecured lending challenges and decreasing Foreign Direct Investment. At the centre of it all, is the economy’s current inability to deliver satisfactory growth and create sufficient jobs. With inflation running at over 5%, and growth of less than 2.5% expected this year, it seems as if lower income earners and the unemployed have  found their collective voice and are starting to make themselves heard.
 
This was the background against which the Finance Minister Pravin Gordhan had to deliver his medium-term budget policy statement (MTBPS) today.  Some were of the view that the Minister faced an almost impossible task of trying to maintain some semblance of fiscal discipline, while continuing to increase spending without increasing taxes.
 
The Minister was  positive about South Africa’s achievements over the last few years, but he made it clear that although the global economic environment has negatively impacted on South Africa’s economy, we have also contributed to our own challenges – we scored an ‘own goal’, some might say. He made a point of trying to reassure investors, firstly through making it clear that the labour market and other challenges will be addressed and, secondly, through not throwing fiscal prudence in the wind.
 
As expected, the decrease in tax revenue has resulted in a small increase in the expected budget deficit, from the 4.6% forecast in February, to 4.8% now. However, the Minister still made his intentions clear of bringing the deficit down to 3.1% over the MTEF. This will hopefully be reassuring to investors and rating agencies alike.
He announced a good mix of social infrastructure plans and continuing to build our economic infrastructure; something that the Minister has been criticised for in the past. He did elude that different funding options will be considered. However, in my opinion and given the current market environment, this challenge has been understated and will require a good deal more of Treasury’s time over the next few years.
 
No change was made to the total February allocation, but savings, reallocations and adjustments totalling R40 billion were announced. Education still remains the single biggest budget item and, while no-one would question the need, many must be wondering about ‘bang for buck’.
 
Although this might not have been the right time and place, it will be positive if more detail can be provided soon and more concrete plans can be announced as to how Government plans to restore confidence in labour market institutions. Some plans have been announced over the last few weeks, but I think the market wants quick and decisive action.
 
Amidst the very real concerns regarding the current environment, South Africa’s strong economic fundamentals must not be forgotten. Bureaucracy and labour market constraints are two of the biggest concerns for international investors. We need to address these urgently and it was clear that the Minister is of the same opinion. South Africa’s plans are world class and the stimulatory infrastructure plan is clearly aimed at keeping the economy on the road to recovery. Today’s MTBPS will have gone a long way to assist in reassuring investors that we are planning to address the challenges. However, what they would like to see now, is implementation.