Maarten Ackerman, Citadel’s Chief Economist, and George Herman, Citadel’s Chief Investment Officer, discuss business’s expectations for the budget.
16 February 2023, Cape Town – Citadel experts state that in order to achieve higher economic growth and resolve the growing crises in the country, a competent and dynamic cabinet is an absolute necessity. In the space of a week, government has declared two national state of disasters in an effort to stimulate urgent responses and solutions for both the energy crisis as well as the recent flooding which affected seven provinces across the country.
Finance Minister Enoch Godongwana will need to consider his allocations carefully, putting money where it will make the largest impact in turning the economy around, thus regaining the trust of South Africans.
“We are faced with a zero-growth economy, since the South African Reserve Bank recently cut its estimate for 2023 economic growth to only 0.3%,” says Ackerman. “In this climate, it is vital to develop a budget that will create policy certainty by giving clear direction and outlining specific and attainable targets.”
CUT RED TAPE, PRIORITISE ECONOMIC GROWTH AND JOB CREATION BY ALLOWING PRIVATE SECTOR PARTICIPATION
Herman agrees, adding that one of the top priorities should be stimulating job creation.
“Job creation is a priority in light of a rapidly growing population and dangerously high unemployment rate. If job creation does not drastically improve, it runs the risk of being South Africa’s Achilles’ heel,” says Herman. He adds that clear-cut policies to create an enabling environment are needed, meaning government must start delivering on its 2022 promises of ‘unleashing the economy.’
“Government has proven it cannot do this on its own,” says Herman. Business has long been putting pressure on government to allow greater private sector participation and collaboration in resolving the many issues we face, and into growing the economy. “To effectively achieve this, we need a drastic cut in unnecessary red tape and bureaucracy, as well as greater government willingness to cooperate with the private sector,” says Herman.
APPOINT COMPETENT CABINET MEMBERS IN PRIORITY AREAS
To date, cabinet has shown little enthusiasm in acting upon the policies and targets set in last year’s budget, and both Ackerman and Herman echo the private sector’s desire for the removal of under-performing ministers. Capable and qualified individuals with proven track records should be selected, and they must also be bold in implementing policies and giving clarity on achieving set targets.
The main challenges in balancing a budget in such a stagnant economy, in light of the decreasing tax revenue, are government’s social responsibilities, the sovereign debt burden, logistics and transport, and of course, the energy and growing water crises.
PRIORITISE ESKOM, BUSINESSES ARE BLEEDING
“Eskom is in debt of approximately R400 billion. Though there has been talk of debt restructuring for the past few years, nothing concrete has been done yet. There has also been considerable speculation about ‘unbundling’ Eskom into three different entities, and clarity should be given on this and on the way to resolve the now constant load shedding issue,” states Herman.
The market is increasingly apprehensive about the possibility of a large portion of Eskom’s debt being absorbed into the sovereign balance sheet, which would have a significantly negative effect on the sovereign debt metrics.
Ackerman urges private sector participation in developing the transport sector in particular, as a powerful impetus to resolving logistics issues thus stimulating exports.
“The previous advantages the fiscus enjoyed due to higher commodity prices, the global economic environment and lower interest rates have run their course and are no longer in play,” he explains. “Inflation is growing as is the cost of living and the ordinary South African, as well as business, is struggling with mounting expenses which are exacerbated by the constant energy and water outages. Clear-cut social policies are necessary to get the economy on a sustainable growth path and to ensure we avoid the kind of civil unrest we saw in KwaZulu-Natal in 2021,” says Ackerman.
Herman and Ackerman conclude by saying that what business is requesting is a budget that effectively balances government’s financial constraints with its social responsibilities while also empowering the private sector to participate on a greater scale.
