Annabel Bishop
SOUTH Africa has seen ongoing fiscal slippage in its public finance figures each year, and fiscal consolidation remains elusive, as does rapid employment, creating growth.
The recent State of the Nation Address (SONA) saw repetition of many of the past themes, including rebuilding and reforming the economy to create jobs, achieve inclusive growth and improve education and skills levels, along with building a capable state.
The focus remains firmly on infrastructure and investment, defeating the country’s coronavirus epidemic and also the ongoing fight against corruption. While the SONA was light on new policy information, it detailed that the auction of high demand spectrum was at an advanced stage in line with previous plans, that additional wind and solar energy capacity will be sought, as indicated previously, as was the eVisas rollout for certain countries, to commence as international travel begins.
The SONA certainly had a positive tone, and did provide a feeling of optimism while not avoiding the dire issues South Africa faces in a number of areas, although it failed to mention the poor state of government finances.
On the restructure side, Operation Vulindlela, which focuses on reforms in the electricity, water, telecommunications and transport sectors, as well the visa and immigration regime, could serve to deliver valuable results by shortening he period to obtain licenses/visas etc.
Specifically, Operation Vulindlela, which involves a team in National Treasury and the President’s office, will hopefully bring about the speedy reforms needed to reduce regulatory inefficiencies as well as increasing the use of electronic systems to replace lengthy physical interactions between the private sector and state bureaucracy.
A quickening in economic activity can be achieved earlier by improving the ease of doing business, as has been achieved by e-filing and the BizPortal platform, both of which reduce interfacing with state bureaucracy and speed up the processes. In particular, the SONA states “the completion of digital migration is vital to our ability to effectively harness the enormous opportunities presented by technological change.”
Reducing regulatory inefficiencies in this regard speeds up both investment and entrepreneurship, leading to faster growth and employment. Indeed, key is the recognition that “(w)e will not achieve higher rates of growth and employment if we do not implement structural economic reforms”, as South Africa continues to fall behind on the ease of doing business (mainly by not achieving as much as other countries in its regulatory reforms) and so loses competitiveness as a result, lessening South Africa’s ability to achieve sustained, accelerating economic growth.
While South Africans have been disappointed many times in the past by slow, insufficient delivery or failure thereof, the SONA is not characterised by new information or objectives. Substantial work is going into seeking to achieve the goals, and while it is not necessarily happening as quickly as many, including the markets, investors and businesses hope, there are a lot of factors in process.
Regulations remain in the crosshairs, particularly the reduction of red tape and improving civil servants productivity, as the SONA insists “these reforms are necessary to reduce costs and barriers to entry, increase competition, stimulate new investment and create space for new entrants in the market”.
The Budget is on Thursday and South Africa looks likely to see a revenue overrun mainly due to the revenue collection estimate for the 2020/21 fiscal year being revised down significantly to R1.3 trillion, from 2019/20’s R1.5 trillion.
The potential over-collection should allow some adjustment for fiscal drag now, but is likely to be below R100 billion, and could well be closer to R50bn. However, we continue to believe that the revenue overrun, with collections so far looking to exceed the estimated level for the current fiscal year, will be sufficient to fully fund the full vaccine roll-outs programme, and allow for the avoidance of significant tax increases. Indeed, South Africa’s pace of its vaccine rollout, and switch in vaccines to overcome the variant, supports its 2021 gross domestic product (GDP) outlook of 2.9 percent year on year.
Some fiscal consolidation was planned in the 2020 MTBPS via closing the budget deficit to 7.3 percent of GDP by 2023/24 and stabilising the debt to GDP ratio by 2025/26, but this will likely not be enough as Fitch’s current negative outlook warns of further downgrades for SA (Fitch and S&P BB-, Moody’s ba2, which is BB), with Brazil at BB- a rating peer, along with Turkey, Uzbekistan, Guatemala, Bangladesh, the Hashemite Kingdom of Jordan and Oman.
Should South Africa revise down it its debt projections it could avoid credit rating downgrades in the first half of this year, and cause investor appetite to become more sustainable for its portfolio assets.
South Africa is moving, albeit more slowly at times than can be wished for, in the right direction on many regulatory reforms, and now needs to do the same for fiscal consolidation.
Annabel Bishop is the chief economist at Investec
*The views expressed here are not necessarily those of IOL or of title sites
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