#MTBPS2019: Low growth, high spend continues to plague SA economy, but SAA, Eskom get more funds

By Kopano Gumbi, reporter at CNBC Africa

In his inaugural medium-term budget policy statement, Minister of Finance Tito Mboweni had the difficult task of explaining to South Africans and the broader investment community how each one of the levers– save, spend and grow– would be pulled, and in what ratio, to arrest fiscal wastage, reignite economic growth, stave off a sovereign downgrade and improve the lives of 56 million South Africans.

READ:SA #MTBPS2019: Finance Minister Tito Mboweni’s full speech

The South African economy has struggled to recover after over a decade of low and jobless growth. The downward spiral, partly initiated by the global financial crisis, was exacerbated by a failure to implement structural reforms, policy uncertainty and wide spread looting. GDP growth since 2010 has averaged at 1.8 percent. Lagging far behind continental peers of similar market sizes and economic activity. South Africa’s debt-to-GDP ratio is currently at an unsustainably high, 56.7 percent, with outlooks estimating up to 80 percent in the next decade, if nothing changes.

READ:#MTBPS2019: Low growth, high spend continues to plague SA economy, but SAA, Eskom get more funds

“Our problem is that we spend more than we earn. It is as simple as that,” said the minister, while delivering his speech in parliament. And while he tried to assure the public that this bad habit would soon be kicked, the government finds itself in the not so simple situation of needing to save, spend and grow the economy.

GDP growth has been revised down for the year to 0.5 percent. In February this year growth was forecast at 1.5 percent but was later revised down to 0.6 percent. Unemployment is at the highest it has been in over 10 years, currently at 29.1 percent. In this MTBPS, the government acknowledges that there is little chance that the 9.4 million unemployed adults will find a job.

Tax revenue collection continued to be constrained. The government expects a collection shortfall of R53 billion this year and R84 billion next year. The majority of tax, 38 percent, is collected from personal income taxes, 16.7% from company taxes and just over a quarter from Value-Added Tax.

“We must also wean state-owned companies off the national budget. They must learn to stand on their own feet,” said Mboweni during his speech. Currently this is easier said than done. The state has committed to spend an additional R60 billion this year to make sure delinquent state-owned entities remain going concerns.

Power utility Eskom, is seen as the biggest risk to the South African economy and will receive an extra R26 billion in this financial year.  This is in addition to the R23 billion it received at the beginning of the year. Smaller state-owned entities will receive R11 billion and R450 million will be given to support an increase in student housing. On top of that, the National Prosecuting Authority will receive R1.3 billion to continue its work, including prosecuting state capture crimes. And the South Africa Revenue Services will receive R1 billion over two years.

Another state-owned entity which has failed to take off is struggling airline South African Airways and its subsidiary SA Express. The companies are currently discussing the possibility of a merger as well as equity buyouts from the private sector.

“We have essentially chosen to subsidise the middle class and wealthy flying around the country and other parts of the world,” said Mboweni, “rather than the ordinary workers who sit in old trains from the townships every day, often getting stuck and being late for work.” The minister has been clear in that he doesn’t see the value of having a state-controlled airline, and yet the national carrier will receive R5.5 billion in a bailout this year.

Savings efforts have been muted, the minister says that efforts to reduce spend and save have not materialised. Stricter measures around cabinet and provincial executive salaries have been proposed, as well as the controversial e-Toll system remaining as an additional revenue collection stream.

Whether the minister’s stern words will be enough to stave off a sovereign downgrade, remains to be seen.  Moody’s is the last of the international ratings agencies to keep South Africa at investment grade. They are expected to release a note on our ratings on November 1, 2019.

“We shall return to this House next February with the nation’s beloved Aloe Ferox plant having flourished and show a government at work,” said the minister in closing.


Related Content

Court sides with Eskom over dispute with Nersa

In a decision that surprised many, South African High Court favoured Eskom dispute with energy regulator Nersa today.

THE WEEKEND READ: Analysis– a budget long on words but short on detail.

Approaching the IMF and World Bank for assistance will rankle many within the ruling African National Congress (ANC) and its alliance partners. Mr Mboweni found himself in the cross hairs in April when ANC Secretary General Ace Magashule and his alliance counterparts called on President Cyril Ramaphosa to reject an approach to the IMF or World Bank for assistance in the fight against Covid-19 following comments by the finance minister.

Is SA ready to deal with a looming sovereign debt crisis?

A day after Finance minister Tito Mboweni delivered his crucial supplementary budget speech, the markets are down, the rand dollar exchange is taking a hit and the economy looks bleak at best. So where to now? Arthur Kamp, Chief Economist at Sanlam Investments joins CNBC Africa for more.

#SpecialBudget2020: Economists react to Mboweni’s supplementary budget

Joining CNBC Africa to discuss a post-budget analysis of the emergency budget speech yesterday is Azar Jammine, Director and Chief Economist at Econometrix and Maarten Ackerman, Chief Economist and Advisory Partner at Citadel.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Zimbabwe’s health minister, accused of corruption, sacked: statement

HARARE (Reuters) - Zimbabwe’s President Emmerson Mnangagwa has sacked health minister Obadiah Moyo with immediate effect for inappropriate conduct, a statement from...

Senegal slave island, moved by George Floyd’s death, renames Europe Square

“But we also said to ourselves...that in another sense it is celebrating the persecutor,” he said. “What happened to George Floyd was the final straw.”

Ivory Coast’s 2020 growth seen sliding to 0.8% due to pandemic

ABIDJAN (Reuters) - Ivory Coast’s gross domestic product growth is expected to slow to 0.8% in 2020 compared to a previous forecast...

Omnia delivers solid results from a stabilised business

South Africa's biggest fertilizer producer Omnia was profitable in the year to March after extensively restructuring its business units. Omnia CEO, Seelan Gobalsamy joins CNBC Africa to breakdown the results.

Partner Content

Maktech’s Godwin Makyao: Now Is A Time of Entrepreneurial Opportunity in East Africa

As an executive decision-maker in both the telecommunications and tourism industries, Godwin Makyao could not have experienced a more diverse set of...

Sanlam launches urgent job-preservation initiative in response to COVID-19

Sanlam Investments is responding to the COVID-19 pandemic through large-scale support of the recovery of South African companies, from small enterprises to...

Trending Now

Parts of South Africa’s Edcon set for sale to Durban-based retailer

JOHANNESBURG (Reuters) - Parts of South African retail chain Edcon are likely to be sold to private equity-backed Retailability Ltd, administrators in...

Africa to rebound from pandemic slump in 2021 but damage done: AfDB

JOHANNESBURG (Reuters) - Africa is expected to partially rebound next year from a pandemic-induced economic slump, but it could still lose nearly...

Chinese factories to face headwinds in next phase of post-lockdown recovery

The rosy outlook stands in stark contrast to the dismal industrial landscapes of other economies still fighting COVID-19. Factory output plunged further in May from a year earlier in Japan, South Korea and the United States. Euro zone manufacturing output fell by a record 28% in April.

WHO acknowledges ‘evidence emerging’ of airborne spread of COVID-19

But in an open letter to the Geneva-based agency, published on Monday in the Clinical Infectious Diseases journal, 239 scientists in 32 countries outlined evidence that they say shows floating virus particles can infect people who breathe them in.
- Advertisement -