The South African economy must negotiate its self out of the binary of a budget deficit and the socio-economic effects of Covid-19, the Minister of Finance, Mr Tito Mboweni, told South African citizens and investors in the Medium-Term Budget Speech (MTBS) he tabled before Parliament yesterday afternoon.
“It’s time to rebuild, like Mandela did in 1994,” he proclaimed. Nelson Mandela inherited an apartheid economy that could not meet the expectations of a new South Africa, but turned it into one of the most thriving economies in Africa. Today, he declared, “fiscally we are not unlike that in 1994. We must rebuild our economy, rehabilitate our public finances and recover from the devastation wrought upon us by Covid-19.” The tabling of the Economic Reconstruction and Recovery Plan is a means to this end.
This plan is urgent and all of us should do everything in our power to implement it, he declared. The consensus-driven and action-orientated economic plan announced by President Cyril Ramaphosa recently gives a strategic direction to this newly-found resolve. It’s mainly driven by the concern to avert our fiscal from “turning into a sovereign debt crisis. This speech sets out active measures to avoid this risk and realise the ideals of the Economic Reconstruction and Recovery Plan,” the minister stated reassuringly.
To foreground his assertion, he pointed out that this plan will be driven by “a consolidated government spending of R6.2 trillion over the 2021 Medium Term Expenditure Framework, of which R1.2 trillion goes to learning and culture, R978 billion to social development and R724 billion to health.”
South Africa has a growth forecast of 3.3 per cent in 2021,1.7 per cent in 2022 and 1.5 per cent in 2023. Green shoots are emerging and “it looks like there will be a strong rebound in the next quarter”.
Infrastructure and energy are at the heart of this economic optimism. Realising the significance of energy to the economy, he maintained that “the way has been opened for the procurement of almost 12 000 MW of new electricity capacity to be provided by independent power producers” to avert the effects of load shedding on the economy.
The Infrastructure Development Fund that is at the centre South Africa’s economic revival. Out of which, “subsidies of R2.2 billion will support the social housing programme aimed at poor, working South Africans. A further R6.7 billion has been contractually committed to this programme. We expect that the total investment from this programme will be R20 billion over the next 10 years.”
Treasury is optimistic that the district development model will fast-track infrastructure and socio-economic development by leveraging and coordinating the infrastructure expenditure of the three spheres of governance. “The revised division of revenue for 2020/21 proposes allocations of R806.7 billion to national departments, R628.3 billion to provinces and R139.9 billion to local government, part of which will contribute to infrastructure investment.”
Cross-border trade flows have been identified as economic catalysts that need special attention. “Work is well advanced to modernise the cross-border flows management regime to support South Africa’s growth as an investment and financial hub for Africa.”
To give impetus to job creation, the President’s employment initiative received well over R12.6 billion in this financial year. “We augmented the provincial equitable share by R7 billion to support jobs at fee-paying public schools and government-subsidised independent schools. R600 million goes to employ early childhood development and social workers. R2 billion is allocated to Working for Fire, Working for Water and Working for Forests.”
Work is also underway to improve access to finance to small business entrepreneurs who have been most affected by lock down regulations. “After extensive consultations between the Banking Association, the National Treasury and the South African Reserve Bank, work is underway to review the loan guarantee scheme to improve business take-ups and to boost business restart efforts.”
Well aware that he is presiding over a budget haunted by fraud and corruption, the minister gave an account of how the 500 billion stimulus package was allocated. “It is not true that the R500 billion relief package has been entirely lost to corruption. As pointed out above, it is being used to cushion the impact of the pandemic.”
South Africa needs to curb borrowing to maintain its financial health, cautioned the minister. “Right now, government is borrowing at a rate of R2.1 billion per day.” An untenable predicament, he concedes. As such, there is urgency to ensure that South African taxes are spent on investment and service delivery mandates rather than on servicing debt. He explained why: “Countries that find themselves in default see sharp gross domestic product contractions and currency depreciations. On current trends, more of our taxes are being transferred to bondholders, rather than to critical services for our people.
Part of the fiscal consolidation measures aimed at bringing about improved governance and strict budget management include the notion of zero budgeting, he said. “We must discard those things that we no longer need to do and scale up those that are essential for progress.”
Operation Vulindlela will be a critical coordination tool to unlock and fast track implementation of the structural economic reform agenda, promised the minister. “Deputy Minister David Masondo is leading this initiative and a technical team, headed by Dr Sean Phillips, will draw on expertise and capacity from the public and private sectors. This will ensure that implementation is well coordinated, sequenced and timeous.”
The finance minister concluded by saying that this Medium-Term Budget Speech matters because: “We act to instil confidence amongst discouraged work seekers, businesses bruised by lockdown and facing uncertainty, farmers and farm workers who produce the food for the country, and our international partners who know that South Africa is a great place to invest.”
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