Medium-Term Budget Policy Statement is FDI-friendly

  • Market Overview

Finance Minister Enoch Godongwana’s first Medium-Term Budget Policy Statement (MTBPS) speech was satisfactory in that there were no negative surprises, such as alluding to tax rate increases.

The minister made it clear that he would continue the policy stance of his predecessor, Tito Mboweni. My own interest in the speech was what it would do for Fixed Direct Investment (FDI) into the country, and whether foreign firms would feel more, or less, inclined to acquire South African based companies. On balance, I would say it lies more in the former category, that it is FDI positive. When looking for offshore buyers of South African companies which are looking for foreign backers to either expand their markets globally, or for an exit strategy, I feel I will have a more positive story to tell.

First, policy continuity is important against what remains a challenging macro and political backdrop. It is too early to conclude that ideology is playing a smaller role, but Godongwana did maintain the Treasury’s stance that government must maintain accelerated reforms to boost growth and create more jobs.

Treasury’s expenditure estimates point to a spending balance tilting in favour of growth enhancing expenditures, though social spending still crowds out everything else with just under 60% of the total. The tilt is demonstrated by real growth in capital outlays expected to average 3.7% in the medium term economic forecast, while real growth in the compensation of employees is expected to decline on average by 3.3% during the same period. That said, the announced shifting of funds from the Infrastructure Fund, to partly cover the wage bill overrun, dilutes the message of prioritising spend on growth drivers.

Given Treasury’s projections on longer-term economic growth of 2.1%, it appears as though it anticipates some progress on proposed structural reforms. What I see these as being include the following structural reforms in a number of areas in the economy, which have already been announced:

  • Electricity: Lifting of the self-generation cap and Bid Window 5 on renewables will alleviate pressure on the grid.
  • Logistics (railway and ports): Third-party access to freight rail network and corporatisation of the Transnet National Ports Authority should improve competitiveness and lower costs.
  • Tourism: eVisa system to be rolled out to 15 countries by March 2022 will boost tourist activity.
  • Water: Fast-tracking licences will alleviate the regulatory burden.
  • Telecommunications: The auctioning of broadband spectrum start from 1 March 2022 will (reduce in data costs.
  • Infrastructure: It has been proposed to simplify regulations may boost public private partnerships, which currently constitute a marginal proportion of infrastructure projects.
  • Corruption and wastage: The Public Procurement Bill is nearing finalisation.

This is all policy only, and has yet to be translated into action. Relative governance indicators have yet to show a marked improvement against global best practices and in fact most show a deterioration relative to a decade ago.

The facilitation of trade is a huge enabler of economic growth, and Godongwana said he had been on a road trip with SARS Commissioner Edward Kieswetter, including a visit to the border post at Beit Bridge between SA and Zimbabwe, Lebombo border post between South Africa and Mozambique, and Oshoek border post, between South Africa and Swaziland. Shortly after the MTBPS the commissioner himself gave an interview on the truck delays, the congestion and the cost to South Africa’s fiscus as a result of what is happening particularly at Beit Bridge, covering the inefficiencies.

There are delays because of the physical constraints and of inspections. Beitbridge has two lanes at the Beitbridge border post which limit the amount of cars that can be processed at any one point in time. To aggravate that, once they have cleared South African customs, there’s a single bridge lane to enter Zimbabwe for pedestrians, and a single lane for trucks and cargo. The border post is absolutely unable to process the volumes of trucks and people that it should be doing, which is a peak of 25 000 people, travellers and 900 000 trucks a day.

The notion of a one-stop border post has long been talked about but is no nearer reality. Companies wishing to establish local manufacturing in South Africa as a hub for exporting to sub-Saharan Africa will be extremely deterred by such bottlenecks.

There are many reforms that need to take place for South Africa to resume its previous manufacturing status, but the MTBPS at least suggested the corner had been turned and we are headed in the right direction.

There are many things that we can do to improve public sector efficiency. It’s going to take time, additional infrastructure and better collaboration between countries’ agencies and across agencies.

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