BUSINESS WELCOMES DISCIPLINED FISCAL OUTLOOK, THE IMPLEMENTATION OF INFRASTRUCTURE REFORMS AND RECOGNITION OF THE PRIVATE SECTOR’S KEY ROLE

Johannesburg, South Africa — 31 October 2024 – Business Unity South Africa (BUSA) commends Finance Minister Enoch Godongwana for tabling a robust and credible Medium-Term Budget Policy Statement (MTBPS) amid South Africa’s challenging fiscal landscape, characterised by a revenue shortfall and competing social security and other priorities. The Minister’s emphasis on economic growth, underpinned by investment in infrastructure and the role of the private sector, is welcomed.

Still, this MTBPS is a stark reminder of the depths of the fiscal problems that this Treasury is seeking to recover from – symptoms of structurally low growth, a historic lack of prioritisation in expenditure by cabinet, previously delayed reforms, and very high costs of borrowing. While there is light at the end of the tunnel, record high levels of debt service costs as a share of revenue are a reminder that it will take some time to exit the current situation. As such, the Minister is right to continue his current course.

Business is encouraged by National Treasury’s efforts to prioritise fiscal consolidation and contain the risks of an unsustainable debt-to-GDP trajectory, although the goal of stabilising debt at 75.5% remains ambitious. Future announcements on a fiscal rule are important and will be closely watched. South Africa’s growth remains subdued and its tax base narrow, despite projections of an average growth rate of 1.8% over the medium term, with revenue growth fundamentally depending on GDP growth. Business agrees with National Treasury’s key position that only through faster growth and a wider tax base can structurally higher spending be possible.

Business welcomes various reviews of budget processes and spending announced in this MTBPS, including those related to employment and social support. However, we also note that wide prioritisation decisions by Cabinet appear to be limited.

The focus on infrastructure reforms to diversify infrastructure finance and de-risk projects bodes well for private sector participation in reducing the country’s infrastructure deficit – a move business has been lobbying for. This decision, complemented by the soon-to-be-enacted amendments in public-private partnership (PPP) regulations, will attract key investments to fund bankable projects. Redirecting spending away from debt servicing costs towards high investment in capital projects will guide South Africa towards a path of recovery and sustainable growth. Reforms to rules around investment funds to promote the holding of infrastructure assets are also important and welcome.

Furthermore, the prioritisation of network industries such as water, transport, and electricity will support the ease of doing business and boost consumer and business confidence. We believe this focus will also enhance the business and government partnership, which continues to yield positive outcomes. The recognition of the key role of the private sector in these reformed industries is also important – there are no other options, such as the leveraging of state companies or more fiscal spending in these areas.

The monitoring of municipalities, the reform of municipal trading entities, and ensuring their adherence to the financial recovery plan remain critical for improving service delivery and ensuring stability at the local government level. These reforms will be long and hard – business looks forward to further details but also stands ready to assist through its partnership with government. We are also mindful that while the broad fiscal framework is credible, there are still problems, particularly in spending cuts at lower levels of government. This cannot be fixed until economic growth generates more revenue.

The Minister’s speech and the MTBPS documentation were extremely muted on the funding mechanisms for National Health Insurance (NHI), which we have consistently engaged government on. A small amount of money for the NHI regarding the digitisation of patient records arguably is needed, regardless of the NHI, and the documentation from National Treasury makes it clear that no major funding shifts are seen before the end of March 2028.

We caution National Treasury about the risk that the public sector wage bill potentially poses to fiscal sustainability, as achieving debt stabilisation remains contingent on fiscal discipline, which necessitates difficult expenditure choices. There is simply no room in the budget for above-inflation increases. Business is mindful of the announcements made on early retirement – which can be a positive structural shift in the level of spending on the wage bill through short-term investment in this initiative. However, business cautions that talent and experience needed for key reforms must be retained, if not strengthened.

Business also notes the necessary further investment in SARS, which will hopefully deliver further structural gains in revenue collection, as well as make the processes easier for businesses and individuals.

Business welcomes the lack of further bailouts for state-owned enterprises, though is equally mindful that reforms to the logistics industry will require substantial amounts of private capital and some state support to right-size Transnet’s balance sheet for its future role in a reformed industry. This can only happen after, as National Treasury points out, a firm view on its future balance sheet has been completed. Broadly, it seems evident that National Treasury is following a similar strategy to the one it has successfully followed with Eskom.

Business will continue to hold government accountable for maintaining a solid fiscal stabilisation policy to ensure that surplus resources are deployed effectively, as well as to provide partnership and support on key reforms that can similarly ease fiscal problems through growth in the medium run. While we are certainly not out of the fiscal or growth “woods” yet, there is clearly progress, and this MTBPS provides a firm foundation.

Ends

Khulekani Mathe

Business Unity South Africa CEO Designate