Not disastrous, but could be better

On February 25, Minister of Finance, Nhlanhla Nene, delivered South Africa’s annual budget speech to Parliament in Cape Town. Azar Jammine, director and chief economist of Econometrix, offered some interesting analyses of what was said. CLAIRE RENCKEN reports

As it does every year, Econometrix held its 30th annual budget conference, in Sandton, the day after the speech was delivered. This year’s conference was sponsored by Business Report.

The figures that are sticking in everyone’s minds are a one percent tax hike for all, an overall 80,5 cents increase in fuel levies (the general fuel levy will increase by 30,5 cents per litre and the Road Accident Fund levy by 50 cents per litre), and an overall growth forecast of two percent for 2015 (revised down from an expected 2,5 percent in October last year), which will hopefully rise gradually to three percent by 2017.

What does all this mean? Is our country doomed, or is there a dim light flickering at the end of the tunnel? “The economic situation in which South Africa finds itself is not entirely of the country’s own making. Our economy is very closely linked to the world economy. With commodity prices being depressed, our exports have been negatively affected, and, therefore, so has the government’s revenue.

“However, what is cause for concern is that our country’s trend of rising debt is worse than those of other emerging economies. About 60 percent of our problems can be attributed to domestic factors,” says Jammine.

He continues: “Even though there has been a bit of an economic recovery after last year’s debilitating strikes, what is worrying is that private sector capital investment has turned negative over the last year, due to a lack of confidence in our economy.”

Then, there is of course the fear that electricity outages will damage our growth going forward. “I don’t want to overstate the effects of load shedding. I think the government has been realistic in its forecast, and has factored the effects of load shedding into its calculations. However, some businesses in the private sector believe that if load shedding intensifies, economic growth will be even lower than two percent, and have, therefore, predicted their growth to be a more modest one to 1,5 percent,” explains Jammine.

“Another area of concern, is that, while Nene spoke about the funds that will be allocated to education, healthcare and safety and security, what is often overlooked is that more and more of the government’s budget is actually being devoted to serving the country’s debt, and proportionately less is being spent on these basic social services,” he points out.

So, what might the future hold? “Make no mistake; things are going to be tight for a good few years. Fiscal austerity is going to be needed if the government is to stop its debt levels from rising. Over the next few years, we may see the introduction of wealth taxes (which will be based on assets rather than on income), and value-added tax (VAT) will go up.

“In terms of the cost of fuel, even with the increase in the fuel levies and the imminent increase in the fuel price, we should still be paying less per litre than we were this time last year,” Jammine reckons.

As for the currency, he predicts that we’ll be looking at much the same trend as the last few years, with the rand continuing to gradually depreciate, without any major collapses in currency.

“It’s hard to draw an overall conclusion about the budget speech,” says Jammine. “Some of it was good, some of it wasn’t. It was a bit of everything. Nene was caught between a rock and a hard place, and he did what he could under the circumstances, but it was nothing great. There is a lack of trust between the government and the private sector, and if we’re going to save this sinking ship, better coordination and cooperation between the two are vital.”

He adds: “What’s more, we’ll need bold, decisive leadership going forward. Otherwise, we’ll just continue to trudge along at two to 2,5 percent growth over the next few years, which isn’t a disaster, but it could be so much better.”

Jammine concludes: “On the upside, international investors seem to be gradually regaining a little bit of confidence in our economy, which will help us to start consolidating our expenses.”