By: Aviwe Mtila
Job creation, which has escalated to an alarming all-time high of 27 per cent, and small business development top the list of South Africa’s spending priorities.
<img loading="lazy" decoding="async" class="wp-image-10289 size-full" src="http://cnbc.africa/wp-content/uploads/2017/01/employment.jpg" alt="Job creation is driven by demand" width="1310" height="873" />
This is contained in the Medium Term Budget Policy Statement (MTBPS), delivered by the country’s Finance Minister, Malusi Gigaba, in Cape Town this afternoon.</div>
The MTBPS states that Cabinet approved a Mandate Paper in August to guide the spending choices of national government. It further states that this was done to strengthen alignment of the national budget, the medium-term strategic framework and the National Development Plan (NDP) during the remaining term of the current administration.
The proposed seven expenditure priorities are as follows:
<ul>
<li>Job creation and small business development</li>
<li>Youth development</li>
<li>Infrastructure expansion and maintenance</li>
<li>Land reform, smallholder farmer and agriculture development</li>
<li>Comprehensive social security, education and skills</li>
<li>An integrated plan to fight crime</li>
<li>Advancing the national interest in the Southern African Development Community, throughout Africa, and through participation in the BRICS (Brazil, Russia, India, China and South Africa) bloc and the Indian Ocean Rim Association.</li>
</ul>

SA’s 27% unemployment tops spending priorities-MTBPS

By: Aviwe Mtila
South Africa is unlikely to achieve its National Development Plan goals and some programmes may have to be cut to meet unanticipated spending pressures.
<img loading="lazy" decoding="async" class="aligncenter wp-image-41719 size-full" src="http://cnbc.africa/wp-content/uploads/2017/02/cape_town_-_pixabay.jpg" alt="Britain warns of possible terrorist attacks in South Africa" width="960" height="633" />
This is contained in the Medium Term Budget Policy Statement (MTBPS), delivered by the country’s Finance Minister, Malusi Gigaba, in Cape Town this afternoon.
The National Development Plan (NDP) was developed five years ago and culminated in a long term vision for South Africa, Vision 2030, which spelled out what was required to realize the country’s aspirations.
Among other goals, the NDP set out to grow the economy by 5.4 per cent yearly, and bring unemployment down to 6 per cent by 2030. At present, South Africa’s unemployment rate sits at 27 per cent.
The Finance Minister spearheaded his MTBPS by passionately giving a background on the NDP. Interestingly the actual MTBPS, seen by journalists’ hours before the minister’s speech, raises concerns about the NDP not being achieve because of the country’s current economic trends.
“It was absolutely critical for Vision 2030, which spelled out what was required to realize our aspirations for our society, and for all who live in it. That is what government is about, and that is what development is also about – putting in place the conditions for the people to realize their aspirations for themselves,” says Gigaba.
The MTBPS also notes that there will be no additional funds available to increase baseline expenditure over the 2018 Budge
<img loading="lazy" decoding="async" class="aligncenter wp-image-288430 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/Aviwe_03.png" alt="" width="948" height="492" />
As the country’s economic outlook takes a turn for the worst, with the GDP contracting by 0.7 in the first quarter of 2017, a stronger economic growth is required to return the public finances to a sustainable position. This will put South Africa back on a path of rising employment and increasing prosperity states the MTBPS.

SA Government could lose sight of Vision 2030

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In a few hours’ time, South Africa’s Finance Minister, Malusi Gigaba, will be making big decisions regarding the country’s economy in his first Mid-Term Budget Policy Statement.

What’s at stake for South Africans in the mid-term budget

James Turp | ABSA Asset Management
Finance Minister Malusi Gigaba’s Medium Term Budget Policy Statement (MTBPS) on October 25th will come under intense scrutiny as it is the first opportunity for the Minister to demonstrate his performance in the position.
<img loading="lazy" decoding="async" class="aligncenter wp-image-119380 size-full" src="http://cnbc.africa/wp-content/uploads/2017/04/Gigaba_Flickr.jpg" alt="" width="1024" height="720" />
Historically, the MTBPS has been seen as a useful scorecard for progress made on the February budget. It provides detail on government’s spending priorities, sets out fiscal objectives over the medium term (three years) and sketches government’s take on the South African economic context.
Having recently emerged from a technical recession and with real economic growth projected at 0.6% for 2017 following from the mere 0.3% in 2016, the country is growing way below its potential and conspicuously in contrast to global growth trends.
Many observers will be looking out for the degree of its consistency with the February budget, tabled by former Finance Minister Pravin Gordhan, and whether any introduced measures are ratings agency and investor friendly, as well as what progress has been made on inclusive growth deadlines.
As fixed income investors in South African Government debt, we will naturally be observing the important fiscal metrics that indicate the health of the fiscus &#8211; which are expected to have slipped significantly since February; at the worst rate since the 2009 global financial crisis.
In a large part, 2009’s slippage was related to the global situation but 2017 is in contrast as negative global output gaps are generally closing. South Africa is an obvious exception to this trend.
In trying to explain why South Africa is missing out on the global recovery, the South African Reserve Bank, in its October 2017 Monetary Policy Review, attributes this to two main factors: lower commodity prices (largely outside government’s ability to influence) and subdued consumer confidence (a proxy for general confidence and a factor that is influenced by government policies and behaviour).
Their analysis indicates that subdued confidence levels alone removed 115 basis points from GDP growth in 2016 (i.e.0.3% realised instead of 1.45%).
It follows that actions taken to influence confidence are critical to address this low growth paralysis. As a result, the MTBPS becomes a far more interesting and powerful event which could provide a much needed boost to confidence levels, and positively influence investor, business and consumer behaviour via discretionary spending and also labour and capital productivity.
Minister Gigaba should use the opportunity to announce actions that to improve confidence, to address this low growth paralysis and positively influence investor, business and consumer behaviour.
Focus will be on the size of the revenue shortfall, forecast to be anywhere between R25 to R50 billion, having widened due to the lower realised economic growth, apparent revenue collection inefficiencies, lower tax buoyancy and disappointing receipts from the international tax amnesty.
The delicate act of raising revenue against this backdrop of a struggling domestic economy will be difficult. It is thought that an extra R25 billion of revenue could be required.
Higher personal income tax rates or customs duties could undermine economic growth. As a result, it is possible that the lens will turn to medical aid tax credits, VAT zero ratings, petrol and municipal rates.
According to the February Budget, debt/GDP was expected to peak at 52.9% at the end of 2018/19 budget year. This now seems unlikely given the much eroded fiscal space that has various consequences.
The figures show that South African government debt levels are already in line with non-investment grade countries (BB). Although South Africa’s high proportion of domestic currency debt has its benefits, when contingent liabilities and State Owned Entity (SOE) debt are included these levels approach 75% of GDP as seen below (Figure 1).
<div id="attachment_288156" style="width: 552px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-288156" class="wp-image-288156 size-full" src="http://cnbc.africa/wp-content/uploads/2017/10/ABSA-MTBPS_Graph-1.png" alt="" width="542" height="310" />Figure 1: Debt ratios: sovereign credit rating comparison (sources National Treasury and S&amp;P Global ratings).</div>
The funding cost of government debt needs to be lower than nominal GDP growth to assist in reducing the debt burden. The term structure of National Treasury’s issuance is expensive as they attempt to secure long term debt on a steep yield curve.
One could argue that taking bold steps and rolling funding along the shorter area of the yield curve could be more prudent even if less comfortable for the issuer.
Possibly the biggest issue at present is the source of funding for SOEs going forward.
With economic growth negatively impacted, in particular by the severe low levels of confidence, what remedies are immediately available to provide the much needed shot in the arm?
Though implementation of policy is complex, the mere signal of intent would be enough to raise confidence levels quickly. Suggestions of a 1% VAT increase, which could add as much as R20 billion to the revenue, would arguably do more and benefit the economy over the longer term as a consumption tax.
Diversifying trade agreements and strategies away from commodity dependent trading partners where possible could be considered. The elephant in the room, however, remains the severe loss making SOEs which could be aggressively addressed in steps such as the outright liquidation of the national airline or the selective sale of Eskom’s generation and distribution assets &#8211; though it is unlikely that these are available options.
This MTBPS will be closely monitored by ratings agencies, international investors and domestic businesses/entrepreneurs as well as the general public.
Ultimately, the entire country suffers as a result of South Africa’s weak growth trap, and this could be the perfect opportunity to signal a decisive turnaround in strategy.

SA’s 2017 MTBPS: A fixed income perspective

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Investors will be looking to the Finance Minister Malusi Gigaba&#8217;s Medium Term Budget Policy Statement tomorrow to provide more certainty about government&#8217;s commitment to fiscal consolidation, growing the economy and reforming State-owned enterprises.

Guidance for Gigaba

There’s a great deal hanging on South Africa’s 2017 medium term budget policy <a href="http://www.treasury.gov.za/comm_media/press/2017/2017091801%20Media%20Advisory%20MTBPS%202017.pdf">statement</a>. Three factors are at play: there is political turmoil around the governing African National Congress, the country’s economy is performing poorly and this is the first budgetary statement from the new Finance Minister Malusi Gigaba. The Conversation Africa’s Sibonelo Radebe asked Jannie Rossouw to layout his expectations.
What keeps you up at night in relation to this medium term budget?
The single most worrying factor is the lack of economic growth South Africa faces. Growth has <a href="https://tradingeconomics.com/south-africa/gdp-growth-annual">slowed down</a> significantly in recent years and the economy flirted with <a href="https://mg.co.za/article/2017-06-07-sas-in-a-recession-heres-what-that-means">recession</a> after shrinking during the last quarter of last year and the first quarter of this year. The economy did <a href="https://www.iol.co.za/business-report/breaking-news-south-africa-moves-out-of-recession-11086750">bounce back</a> into positive growth during the second quarter but the outlook remains unimpressive. Only 0.5% growth is expected for 2017 and less than 2% over the medium term.
Owing to this lack of growth, <a href="https://theconversation.com/the-lesser-known-and-scarier-facts-about-unemployment-in-south-africa-83055">unemployment</a> is on the increase – it now stands at a staggering 27% – while government revenue is under pressure. It also implies that the government’s burden on the economy (for instance total government debt as percentage of gross domestic product, or<a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">Debt/GDP ratio</a>) will increase.
Government’s debt to GDP ratio is currently <a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">budgeted</a> to level out around 50%. This is to be welcomed because any increase in the ratio increases the interest burden.
But if slow growth and revenue shortfalls persist, government debt will increase. The debt to GDP ratio will be on its way to 65% of GDP in the medium term.
And should the combination of low growth and growing government expenditure continue after the period of this medium term statement (2017/18 &#8211; 2020/21), the debt/GDP ratio might be on its way to 100%. This projection really stresses one of the most worrying factors that has to be addressed in this statement: Limiting the level of government debt before it reaches this level.
In other countries where this level has been exceeded, severe adjustments had to be forced on their economies. Take the <a href="https://tradingeconomics.com/ireland/government-debt-to-gdp">Irish Republic case</a>. Remuneration levels and employment numbers in the civil service had to be cut dramatically to deal with the <a href="http://cpsu.ie/the-cuts/">Irish government debt crisis</a>.
There is a new finance minister in place and he comes with shifting political dynamics. How do you rate him and what do you expect from him?
It is difficult to rate the new minster, given that he’s only been in the job since April and the fact that he has not yet tabled his first budgetary statement. The only statement against which his performance can really be assessed is the <a href="http://www.huffingtonpost.co.za/2017/07/13/governments-economic-growth-action-plan-gigabas-speech-in-f_a_23027748/">14-point plan</a> he announced in July 2017.
We’ll be watching the medium term statement for his report back on progress in implementing it.
But Gigaba comes with worrying political dynamics, including accusations that he is party to <a href="http://www.fin24.com/Opinion/connecting-the-dots-on-gigabas-state-capture-project-20171009">corruption</a>.
And its difficult to separate him from the history of bad policy options of the African National Congress which has delivered the prevailing lacklustre economic performance. The fiscal crisis facing South Africa is a direct result of these policies.
How significant is the medium term budget policy statement?
It’s very important as it provides an overview of government’s plans for expenditure and for raising revenue over the next three years. A three year view is significant because it provides insight into planned government expenditure and indicates expected tax increases that South African taxpayers have to face. It also informs decisions of the credit rating agencies about South Africa’s fiscal stability.
The statement forms the basis of the <a href="http://www.treasury.gov.za/documents/national%20budget/default.aspx">annual budget</a> of government revenue and expenditure that is tabled in Parliament in February each year.
The statement is the first formal opportunity after the tabling of the annual budget where the government reports on the actual performance of revenue raised in comparison to budgeted revenue and of actual expenditure in comparison to budgeted expenditure.
This reporting by government gives an early indication of expectations for the main budget in February. For instance, if government revenue is underperforming, the expectation is that taxes will be increased the following February. Indeed a tax increase might materialise in this medium term statement.
What in you view will be key focus areas in this medium term statement?
As South Africa’s economic growth is currently lower than the forecast used for the <a href="http://www.treasury.gov.za/documents/national%20budget/default.aspx">2017/18 fiscal year</a>, tax collection has come under pressure. A <a href="http://www.fin24.com/Economy/gigaba-faces-r50-billion-budget-shortfall-economist-20170901">revenue shortfall</a> is expected for this fiscal year. The medium term statement is when the size of the shortfall will be formally disclosed.
Given expectations of a substantial shortfall, South Africans should brace themselves for substantial tax increases in the main budget in February 2018. The fiscal crisis might even be so serious that the government might decide to divert from previous practice and announce tax increases in this medium term statement.
Like any other government in the world, it raises revenue through taxes and use this revenue to fund its expenditure. If expenditure exceeds revenue, the difference must be borrowed, which adds to the level of government debt, or expenditure must be cut.
One of the biggest budgetary headaches is the ailing state owned enterprises. What should be done?
<img loading="lazy" decoding="async" src="https://counter.theconversation.com/content/85643/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" />Government is really throwing good money after bad by using public money to bailout <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2017-08-23-secret-gigaba-plan-to-rescue-bankrupt-saa-exposed">ailing</a> state owned enterprises. I have said a long time ago that South African Airways should simply be <a href="https://theconversation.com/south-africa-must-free-itself-from-the-burden-of-owning-a-national-airline-64004">given away</a>. This is a much cheaper option for the taxpayer instead of never ending bailouts. The South African government should reassess its holding of state owned enterprises and close, sell or give away those that are no longer financially viable. Such action will remove a large financial burden on the South African taxpayer.
<a href="https://theconversation.com/profiles/jannie-rossouw-135800">Jannie Rossouw</a>, Head of School of Economic &amp; Business Sciences, <a href="http://theconversation.com/institutions/university-of-the-witwatersrand-894">University of the Witwatersrand</a>
This article was originally published on <a href="http://theconversation.com">The Conversation</a>. Read the <a href="https://theconversation.com/whats-at-stake-in-south-africas-new-finance-ministers-first-budget-85643">original article</a>.

This is what SA’s FinMin Gigaba needs to consider when he gives his maiden medium term budget policy statement

Jannie Rossouw |University of the Witwatersrand
There’s a great deal hanging on South Africa’s 2017 medium term budget policy statement. Three factors are at play: there is political turmoil around the governing African National Congress, the country’s economy is performing poorly and this is the first budgetary statement from the new Finance Minister Malusi Gigaba. The Conversation Africa’s Sibonelo Radebe asked Jannie Rossouw to layout his expectations.
<div id="attachment_120542" style="width: 770px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-120542" class="wp-image-120542 size-full" src="http://cnbc.africa/wp-content/uploads/2017/04/Gigaba-GovernmentZA.jpg" alt="" width="760" height="522" />South Africa&#8217;s Finance Minister Malusi Gigaba. Photo: GovernmentZA</div>
What keeps you up at night in relation to this medium term budget?
The single most worrying factor is the lack of economic growth South Africa faces. Growth has slowed down significantly in recent years and the economy flirted with recession after shrinking during the last quarter of last year and the first quarter of this year. The economy did bounce back into positive growth during the second quarter but the outlook remains unimpressive. Only 0.5% growth is expected for 2017 and less than 2% over the medium term.
Owing to this lack of growth, unemployment is on the increase – it now stands at a staggering 27% – while government revenue is under pressure. It also implies that the government’s burden on the economy (for instance total government debt as percentage of gross domestic product, orDebt/GDP ratio) will increase.
Government’s debt to GDP ratio is currently budgeted to level out around 50%. This is to be welcomed because any increase in the ratio increases the interest burden.
But if slow growth and revenue shortfalls persist, government debt will increase. The debt to GDP ratio will be on its way to 65% of GDP in the medium term.
And should the combination of low growth and growing government expenditure continue after the period of this medium term statement (2017/18 &#8211; 2020/21), the debt/GDP ratio might be on its way to 100%. This projection really stresses one of the most worrying factors that has to be addressed in this statement: Limiting the level of government debt before it reaches this level.
In other countries where this level has been exceeded, severe adjustments had to be forced on their economies. Take the Irish Republic case. Remuneration levels and employment numbers in the civil service had to be cut dramatically to deal with the Irish government debt crisis.
There is a new finance minister in place and he comes with shifting political dynamics. How do you rate him and what do you expect from him?
It is difficult to rate the new minster, given that he’s only been in the job since April and the fact that he has not yet tabled his first budgetary statement. The only statement against which his performance can really be assessed is the 14-point plan he announced in July 2017.
We’ll be watching the medium term statement for his report back on progress in implementing it.
But Gigaba comes with worrying political dynamics, including accusations that he is party to corruption.
And its difficult to separate him from the history of bad policy options of the African National Congress which has delivered the prevailing lacklustre economic performance. The fiscal crisis facing South Africa is a direct result of these policies.
How significant is the medium term budget policy statement?
It’s very important as it provides an overview of government’s plans for expenditure and for raising revenue over the next three years. A three year view is significant because it provides insight into planned government expenditure and indicates expected tax increases that South African taxpayers have to face. It also informs decisions of the credit rating agencies about South Africa’s fiscal stability.
The statement forms the basis of the annual budget of government revenue and expenditure that is tabled in Parliament in February each year.
The statement is the first formal opportunity after the tabling of the annual budget where the government reports on the actual performance of revenue raised in comparison to budgeted revenue and of actual expenditure in comparison to budgeted expenditure.
This reporting by government gives an early indication of expectations for the main budget in February. For instance, if government revenue is underperforming, the expectation is that taxes will be increased the following February. Indeed a tax increase might materialise in this medium term statement.
What in you view will be key focus areas in this medium term statement?
As South Africa’s economic growth is currently lower than the forecast used for the 2017/18 fiscal year, tax collection has come under pressure. A revenue shortfall is expected for this fiscal year. The medium term statement is when the size of the shortfall will be formally disclosed.
Given expectations of a substantial shortfall, South Africans should brace themselves for substantial tax increases in the main budget in February 2018. The fiscal crisis might even be so serious that the government might decide to divert from previous practice and announce tax increases in this medium term statement.
Like any other government in the world, it raises revenue through taxes and use this revenue to fund its expenditure. If revenue exceeds expenditure, the difference must be borrowed, which adds to the level of government debt, or expenditure must be cut.
One of the biggest budgetary headaches is the ailing state owned enterprises. What should be done?
Government is really throwing good money after bad by using public money to bailout ailing state owned enterprises. I have said a long time ago that South African Airways should simply be given away. This is a much cheaper option for the taxpayer instead of never ending bailouts. The South African government should reassess its holding of state owned enterprises and close, sell or give away those that are no longer financially viable. Such action will remove a large financial burden on the South African taxpayer.
This article was first published in The Conversation.

What’s at stake in South Africa’s new finance minister’s first budget

South Africa Finance Minister Malusi Gigaba on Friday asked government pension fund Public Investment Corporation (PIC) to investigate concerns of irregularities at the asset manager to ensure transparency at the institutions.
The PIC has been in the spotlight in recent weeks after reports that the finance ministry had requested money from the pension fund to bail out struggling state firms. Gigaba has denied making such a request.
“We need to assure pension holders that those with political or economic power will not be allowed to unduly influence the PIC,” Gigaba said in a statement on Friday.
<div class="Attribution_attribution_o4ojT" data-reactid="42">
Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia
</div>

South Africa’s FinMin Gigaba asks state pension fund to investigate concerns of irregularities

<div class="ArticleHeader_upper-container_3g5eM" data-reactid="7"></div>
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 South Africa is not planning to raid the government pension fund to bail out struggling state firms, Finance Minister Malusi Gigaba said on Tuesday.
Gigaba also denied reports that he told a COSATU union meeting that indebted state-owned entities needed 100 billion rand ($7.50 billion) to survive.
Citing people familiar with the matter, Bloomberg reported on Friday that the Treasury needed at least 100 billion rand to rescue power utility Eskom Holdings, oil company PetroSA and aerospace company Denel.
($1 = 13.3375 rand)
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Reporting by Mfuneko Toyana; Writing by Olivia Kumwenda-Mtambo; Editing by Joe Brock
</div>
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South African pension fund won’t be used to bailout state firms: Finmin

By: The National Treasury
The Minister of Finance would like to express deep concern about audit matters currently surrounding KPMG. These developments have created a bad image and have undermined the reputation of good governance and audit independence in one of the key sectors and institutions in our economy. These developments further threaten to undermine our efforts in reinforcing confidence and enhancing a climate for investments, both domestic and international.
The developments over the past week surrounding KPMG have reaffirmed our position that there must be mandatory rotation of audit firms. In this regard, government should explore possible regulations for both the public and private sector in an effort to ensure and preserve the integrity and good governance in the audit fraternity. This move will not only ensure that companies diversify their audit options but also build in a peer review oversight mechanism. It cannot be in the interest of good governance to have one audit firm auditing a company perpetually. 
In the immediate term, and as a measure to restore confidence in audits, all of government and its entities must consider reviewing their work programs with KPMG, to ensure that their audit processes have not been compromised in any way, and to take appropriate steps if it has been compromised.
Recent developments further highlight the risks posed by market dominance and concentration of a few firms in key industries and offer yet another opportunity for introspections and reforms. We call for a concerted effort by all stakeholders to open up the sector to more players for a more de-concentrated and transformed audit sector.
It is our belief that despite the setback, not all is lost. We should all join hands in rooting out bad elements that undermine the optimal functioning of our promising economy and its globally reputable institutions. 
It is therefore, warranted and critical that the relevant law enforcements and bodies such as the Independent Regulatory Board for Auditors (IRBA) look into this matter to identify and sanction those responsible for any wrong-doing.

South Africa’s Minister of Finance responds to KPMG

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South Africa is in danger of missing its growth target of 1.3 per cent this year, because of poor performance of major sectors that will likely restrain tax revenues.

SA economy not out the woods – Gigaba

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The Tax indaba is currently underway at the Sandton Convention Centre. Addressing the media Finance Minister Malusi Gigaba highlighted the need for the government to be decisive when it comes to issues of policy and careless spending.

Economic growth important to revenue collection – Gigaba

Steven Friedman | University of Johannesburg
What business is willing to say to itself is as important, as what it says to government. Which is why the document, a contract with society, released by an organisation representing big business, Business Leadership SA’s Contract with South Africa may be setting a new tone not only on how business deals with government but also how major economic actors deal with the economy’s problems.
When most commentators are asked how South African business should respond to government, the common response is that it should complain, loudly and in public. This view has no doubt firmed since the March cabinet reshuffle damaged the economy and denouncing “white monopoly capital” became a refrain of the ANC’s patronage faction. Business, as the argument goes, should stand up for itself even if that means offending government.
But, while this approach makes great headlines and makes many people feel better, it does little or nothing to advance business interests or fix the economy.
Those who want business to shout at government seem to assume that this country has no history. But it does, and it is a history in which business is associated – and not only in the minds of patronage politicians &#8211; with the minority privilege which apartheid ensured. No one would use the phrase “white monopoly capital” if it did not seem to describe the world in which many black business and professional people feel that they live.
This makes the relationship between business and government more difficult than in most other countries. It also means that politicians cannot afford to be seen to be ordered about, by business. After all, what better way to confirm that “white monopoly capital” rules us all than to insist that business people tell politicians off in public?
<h2>Yelling is not the solution</h2>
Yelling at government is not helpful to the economy because it keeps alive the myth that its difficulties are caused by government alone. But, as very mainstream figures such as International Monetary Fund deputy MD David Lipton have pointed out, the fault is not government’s alone. Other economic actors, including business, have also contributed to the problem.
If businesses want a healthier economy, they need to look at what they can change as well as what the government can fix. This will undermine the “white monopoly capital” claim by showing that businesses are willing to change what they do as well as asking the government and other interests to change.
This is precisely what Business Leadership SA’s contract seeks to do. It feels as strongly about the “white monopoly capital” slur as others. It’s chief executive officer, Bonang Mohale, said at the contract’s launch that it hoped to undo the legacy “of the ugly and deceitful white monopoly capital campaign (which) sought to blame business for all the problems that beset this country”. He said the campaign was “dishonest”; it “tried to deflect from the real issues of state capture”. It had severely damaged business’s reputation.
All of this is music to the ears of the “give government a proper scolding” school. The key difference is that the organisation seeks to counter the campaign not simply by denouncing it but by taking responsibility for fixing the problems which made the campaign possible in the first place.
<h2>Problem is not just government</h2>
The contract recognises that corruption is a two-way process. It vows to root out corruption in the private sector too and wants companies to sign an integrity pledge, to fight corruption.
It also commits to fighting economic exclusion by creating jobs, encouraging and empowering senior black leadership, building skills, investing in communities and supporting small businesses.
Only after making these commitments does the organisation’s document say something about government. It says it cannot achieve these goals on its own. The government “must also step up” and create the conditions necessary for the country and economy to succeed.
This approach is more likely to dispel the “white monopoly capital” campaign than one which yells at the government. While those who coined the slogan will not be impressed, it’s not them to whom businesses are talking. Their audience is the tens of thousands of South Africans who have no axe to grind but want the economy to offer opportunities to more people.
The contract recognises the problem that undermines the image of large businesses as arrogant vehicles of power. By showing that they are sensitive to economic exclusion and those who suffer it offers to do something to solve the problem.
<h2>Conversation is the key</h2>
The document also creates opportunities for mending the economy by opening the way to a bargain between government, business and other economic interests. This is the essential route to change because none of the economic interests are strong enough to impose their favoured solution on the others.
By spelling out in broad terms a willingness to change, the contract enables politicians and government officials who do want to negotiate change to begin a discussion on the specifics. This promises to restart the conversation between government and business which was beginning to blossom during the later days of Pravin Gordhan (former finance minister) and Mcebisi Jonas (former deputy finance minister) at National Treasury.
It also makes negotiation possible by taking the three steps all the parties need to take to create a negotiation climate:
<ul>
<li>it acknowledges that the economy needs to change,</li>
<li>spells out what business is willing to do to change it, and</li>
<li>what it expects in return.</li>
</ul>
This opens the way for the other parties to do the same – if they do, the negotiations will have effectively begun and a way out of the economy’s dead end will be possible.
Business Leadership SA’s contract is hardly guaranteed to succeed. In the past, initiatives which depended on business and other economic interests making changes ran aground because business leaders, like the other negotiators, lacked the muscle to take those they represent with them.
It is not at all clear how many businesses are willing to follow Business Leadership SA’s approach. Nor is it clear if government and labour, whose participation is crucial, are willing and able to respond with their own bargaining positions.
What is clear is that the economy’s revival depends on the business strategy for change.
&nbsp;
This article was published in The Conversation.

How South African business can help government fix the economy

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State-owned arms maker Denel has cancelled its partnership with Gupta-linked company VR Laser Asia, citing reputational damage. Minister of finance, Malusi Gigaba had this to say about the decision.

Arms maker Denel cuts ties with the Gupta family

South Africa is considering selling its stake in landline provider Telkom to fund a 10 billion rand ($757 million) bailout of South African Airways (SAA), a Treasury spokesman said on Wednesday.
The airline runs one of Africa&#8217;s biggest fleets but is loss-making. It received state funds in July to help to repay debts and also depends on government debt guarantees of about 20 billion rand.
&#8220;It&#8217;s an option among others we are looking into, and nothing has been finalised,&#8221; Treasury spokesman Mayihlome Tshwete said.
Mayihlome was responding to comments by opposition Democratic Alliance party lawmaker Alf Lees, who told parliament Treasury was looking to sell its stake in Telkom to fund SAA.
Minister of Finance Malusi Gigaba told parliament on Aug. 4 the state would not privatise SAA or sell its stake in Telkom to fund bailouts of struggling state firms.
The government holds a stake of about 39 percent in Telkom, while government pension fund the Public Investment Corporation holds another 11.4 percent.
Gigaba has said he would disclose a preferable financing option for SAA at the medium-term budget statement in October.
Deputy finance minister Sfiso Buthelezi earlier on Wednesday told parliament SAA would not be allowed to &#8220;go under.&#8221;
The Democratic Alliance party has called on the government to privatise the airline.
&#8220;We have seen this movie before and we know how it ends – SAA continues to fail and will need more bailouts,&#8221; Lees said in a statement, adding that bailouts of state firms were depleting the state coffers and were also a cause of credit ratings downgrades.
Credit ratings agencies say SAA should be reformed and cite the cost of propping it up as a threat to South Africa&#8217;s credit rating. S&amp;P Global Ratings and Fitch have downgraded South Africa&#8217;s credit to &#8220;junk&#8221; status.
($1 = 13.2013 rand)
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Reporting by Olivia Kumwenda-Mtambo in Johannesburg and Wendell Roelf in Cape Town; Editing by James Macharia and Jane Merriman
</div>

South Africa considers Telkom stake sale to fund SAA bailout: Treasury

Steven Friedman | University of Johannesburg
Finance ministers in today’s South Africa should be judged not by whether they have plans to rescue the economy themselves, but by their plans to get others to help them to do it.
South Africa’s new finance minister Malusi Gigaba recently unveiled a 14-point plan to revive the economy. He did this as part of his campaign to restore trust in the economy, partly damaged by the cabinet reshuffle in which he replaced a minister respected in the market place.
The plan has not achieved the desired effect – credit ratings agencies and commentators have rejected it, labelling it a restatement of existing government commitments which will do little or nothing to grow the economy.
On one level, the complaint is accurate. Gigaba’s plan, like the governing African National Congress’s economic discussion document, fails to move out of the rut which currently hobbles the economy. It, too, assumes that the solution lies in doing what is currently being done better rather than in doing things differently.
In particular it has nothing to say about how to include millions who are shut out of the mainstream economy. It’s difficult to see how South Africa’s economy can achieve sustained growth until and unless this problem is addressed.
On another level, the complaint that Gigaba did not come up with a plan which will rescue the economy misses the point – that, given the balance of power in South Africa, no government plan could rescue the economy on its own. Government promises to revive the economy should be judged not on whether they tell the country that the government – on its own – has come up with a cure, but on whether it has a credible plan for ensuring that all the key economic actors play a role in negotiating change.
<h2>Bargaining is the key</h2>
Those who expect the government to solve the economic problems on its own believe, of course, that government created them on its own. In this view, South Africa’s economy worked well until politicians came along and damaged it. All that’s needed is for politicians to behave differently and the economy will again function as it should.
But growth levels are too low to offer a better life to all, and other obstacles which ensure that South Africans do not all enjoy rising living standards, didn’t emerge when the current president took office or even in 1994, when the governing party took over the reins. To take one example: unemployment began rising in the 1970s, a quarter century before apartheid ended. The economy has always excluded most people – what we see now continues patterns set decades ago.
The government obviously does have a role in addressing these problems. But it’s not the only source of the problem and so it cannot be the only source of a solution. Some of what business or labour or the professions or educational institutions do is also responsible for the problem. And so they all need to become part of a solution by changing some of what they do.
While this picture of all the parties coming together to work out solutions sounds attractive, getting them to the table is difficult. And finding solutions will be even harder because they are deeply divided on what the problems are, and so on what the solutions may be.
Any particular idea for change will force one or other party to give up something in order to reap dividends later. Naturally, they all think that the others should do the sacrificing.
So a process which placed the economy on a sustainable path would require some hard bargaining and would need to continue for quite some time. It’s this bargaining process, not a magical government formula, which will place the economy on a new growth path.
<h2>Rebuilding trust</h2>
The government clearly has a key role in triggering the process of bargaining. This is precisely what the National Treasury seemed to be doing under Gigaba’s predecessor, Pravin Gordhan.
Its attempts to stave off a downgrade by ratings agencies began an exchange between government, sections of business and labour which may have developed into a negotiation about change. The chief priority for Gigaba – or any other finance minister – is to revive the process which ended when the cabinet reshuffle destroyed the trust which made it possible.
Gigaba’s plan does contain two points which might begin the revival. One is a commitment to a financial sector summit, the other a promise to resume talks on a mining charter.
Both may well fall short of what is needed. The summit idea repeats a flaw in government thinking on bargaining with business which has been evident for decades. It assumes that deep –rooted problems can be solved, and deep divisions healed, by a grand summit which gets the parties into a conference venue for a few days to hammer out a joint declaration.
This has been tried repeatedly and, each time, the declarations sounded good but were ignored. This is hardly surprising: precisely because the divisions are deep, they cannot be bridged at one event. Change is likely to need a process – not a summit. This should take as long as needed and concentrate on reaching agreement on what can be agreed, and building from there.
It is possible, however, that both initiatives could be the start of a productive process in which parties will be willing to negotiate changes which entail giving something up provided they get something in return. This is far more likely if this process too is not left to government alone.
Gigaba’s plans for negotiation may be improved, and so may move the economy towards growth which includes many more people. But only if commentators and interest groups treat them with the same seriousness they now reserve their hopes for a magic government plan to save the economy.
&nbsp;
This article was first published in The Conversation.

Hard bargaining, not another magic plan, will get South Africa’s economy growing

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Rating agency Standard and Poor’s which downgraded South Africa to junk in April warned earlier today of a further downgrade South Africa.

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Malusi Gigaba

SA’s 27% unemployment tops spending priorities-MTBPS

SA Government could lose sight of Vision 2030

What’s at stake for South Africans in the mid-term budget

SA’s 2017 MTBPS: A fixed income perspective

Guidance for Gigaba

This is what SA’s FinMin Gigaba needs to consider when he gives his maiden medium term budget policy statement

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South Africa’s FinMin Gigaba asks state pension fund to investigate concerns of irregularities

South African pension fund won’t be used to bailout state firms: Finmin

South Africa’s Minister of Finance responds to KPMG

SA economy not out the woods – Gigaba

Economic growth important to revenue collection – Gigaba

How South African business can help government fix the economy

Arms maker Denel cuts ties with the Gupta family

South Africa considers Telkom stake sale to fund SAA bailout: Treasury

Hard bargaining, not another magic plan, will get South Africa’s economy growing

Standard and Poor’s warns of further downgrade for SA

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