Content presented by <a href="https://www.discovery.co.za/portal/">Discovery Invest ﻿</a><a href="https://www.discovery.co.za/portal/">﻿﻿</a>
With government needing to raise an extra R28 billion in taxes, it is a foregone conclusion that taxes will go up. The only questions are, which taxes will go up, and by how much?
Estate Duty
The budget is expected to discuss the 2nd Davis Committee report. That report recommended the scrapping of the paragraph 4q deduction, which is the deduction for any bequests made to a surviving spouse. It also recommended the scrapping of roll overs between spouses for Capital Gains Tax and donations tax. Finally, it recommended raising the estate duty rate up to 25% on all estates with a value above R30 million. The quid pro-quo was that it further recommended raising the primary abatement from R3.5 million to R15 million, which would take the middle class out of the estate duty net entirely. It is doubtful that government will accept all of this, as together it won’t raise much extra revenue and could cause much hardship. It is more likely that government will adopt some piecemeal suggestions, like that of raising the rate of duty on estates with a value above R30 million to 25%.
Capital Gains Tax
Investors are nervously watching this one. The inclusion rates were already raised in last year’s budget, resulting in the effective rate for individuals increasing to 16.4%, to 22.4% for companies and to 32.8% for trusts. Surely, it can’t go any higher now? Any increase for companies and trusts would push their rates ever closer to their incomes tax rates. It would be hard to justify, given that there is no inflation indexing in our capital gains tax system.
 Marginal rates and dividends tax are the most likely increases
The most likely increase will be to marginal rates. Last year all the marginal rates, bar the lowest one, were increased by one percent. There was minimal relief for fiscal drag, apart from the lower three bands. It is expected that there will be similar measures adopted this year, which would take the top marginal rate to 42%.
The second tax likely to be increased is dividends tax. The rate has not been increased since dividends tax was implemented in April 2012. Raising the rate from 15% to 20% will reportedly raise R7 billion in taxes. This seems like a relatively soft target, which is unlikely to raise too many objections.
Conclusion
The Minister of Finance has little choice but to raise taxes. It is hoped that there will not be any radical changes, like the scrapping of spousal relief. In addition, it is hoped that there will be an update on the progression in talks on forced annuitisation of provident funds on retirement, planned to be introduced in 2018. That is now only a year away, and time is short to tackle all the legislative amendments that will need to happen in this area.﻿
CNBC Africa in partnership with Discovery Invest will break from regular broadcasting to bring you live coverage and analysis of South Africa’s Budget on Wednesday, February 22nd 2017.﻿ 
Tune into CNBC Africa, DStv channel 410 from 13h30 CAT on 22 February. Alternatively, livestream via CNBC Africa’s YouTube channel <a href="https://www.youtube.com/watch?v=ThndtDo7WFA">https://www.youtube.com/watch?v=ThndtDo7WFA</a> or website <a href="/tv/cnbc-africa-live/">/tv/cnbc-africa-live/﻿</a>

Budget 2017: These South African taxes are likely to go up

Finance Minister, Pravin Gordhan and the National Treasury, have their work cut out for them in the 2017/18 financial year. The economic stewards of our country will be working to reduce the budget deficit, and promote stronger gross domestic product (GDP) growth, while simultaneously providing the resources for a far-reaching social grant and service delivery responsibility.
The funding machine that enables this is tax revenue – the primary means of income for the South African government. This lays a further challenge at the feet of the Treasury: boosting collection for the South African Revenue Service (SARS), while not overburdening the taxpayers themselves. It’s a fine balance to strike, even more so in a global environment of disruption and uncertainty.
As the 2017 Budget Speech day approaches, many individual South Africans and corporate citizens will be hoping for good news, including minimum increases to the various tax rates that affect them. On the other end of the spectrum, recipients of government spending and organs of the state will be hoping for more to work with.
One positive element that will assist Minister Gordhan in this perpetual tug-of-war is the expectation of slightly elevated GDP growth in 2017 – an estimated 1%, compared to 2016’s bleak 0.4%. But as that remains far below the growth figures needed in our own National Development Plan (NDP), where else will Treasury look?
Tax predictions for 2017/18
Forecasting ahead of the Budget Speech is often an exercise in frustration and disappointment. We look to prior trends and the current conditions to take our best guess on a direction going forward. With that caveat in mind, I will say that we expect any changes in tax rates for the most part to be subtle and reasonably palatable.
Personal income tax: One of the big questions is whether Treasury will increase the maximum marginal tax rate. It seems unlikely that Treasury will include a substantial increase in this rate beyond the current 41%. Having said that, I suspect what we will see, and have seen in the last two years, is an effective increase in the tax rate of everyone but the lowest bracket through not adjusting for bracket creep and inflation. We may see a combination of those two, given the pressure to increase revenue collection.
VAT rate: The value-added tax rate is likely to remain unchanged. Although this is a proposition that has been robustly debated in recent years, an increase in this rate would place an additional tax burden on all consumers. Treasury is likely to try minimise the impact of additional taxes measures on poorer households and is therefore likely to steer clear of increases in regressive taxes such as VAT. If Treasury were to take such a bold step, we would expect it to be tied to a very strong reciprocal policy – such as the roll out of the National Health Insurance programme.
Anti-avoidance measures:We anticipate that we may well see a stronger stance from the Treasury on circumventing deliberate tax avoidance as it continues to be a significant hurdle for Treasury and SARS.
Corporate tax rate:The “big question” for tax practitioners will be whether Treasury announces an increase to the corporate tax rate, and frankly speaking, this could go either way. There are strong arguments for both sides, and I suspect this issue will keep analysts glued to their seats on Budget Day.
Carbon tax: Finally, I suspect that we may get some more details as to what is going on with the much-discussed carbon tax rate. Any certainty here would be welcomed by industry.
Businesses and households alike are under severe pressure, so Minister Gordhan is faced with some tough choices as to where to look for sources of additional revenue.  Personal taxes contribute more to tax revenue than corporate taxes do – some may see this as justification for an increase in corporate tax rates over personal income taxes. On the other hand, it doesn’t make sense to overheat the engine that is creating the jobs and growth opportunities we so desperately need, and that the Treasury should show cognisance of this. In the end, both businesses and private households may be facing higher tax rates.
More than the sum of its parts
What the Minister did so deftly in his previous Budget was to combine a host of small incremental changes across the board on all the “small” taxes, such as the various levies. These are the ones that – at first glance – don’t hurt to the same degree as leaps in personal or corporate tax rates. These do, however, increase the overall burden on households and their net effect was profound: giving the Treasury the much-needed funds to support extended education, health and social grant spending. We can expect him to take a similar approach in 2017.
Time and confidence creation
What we’ve described above is not a new approach, but a continuation of an existing astute strategy on Treasury’s part. Apart from filling the fiscal coffers, incremental changes to the existing taxes provide an additional qualitative benefit flowing from continuation that is not measured in rands and cents: time for consolidation and stakeholder engagement.
Several years ago, each Budget Speech heralded dramatic changes in tax rates and policies. While necessary, these changes create work – on the side of the corporate looking to be compliant, and on the Treasury side, adjusting to new frameworks. Conversely, when there is no significant changes to tax policy, and you don&#8217;t have significant new taxes being implemented, this frees Treasury up to engage with industry and stakeholders, to bed down any loose ends from previous policy shifts, and to refine our existing system to the benefit of everyone, both tax payers and Revenue Services. ﻿

S.A's Budget 2017: Greater than the sum of its parts

The Minister of Finance, Pravin Gordhan, announced in the 2016 Medium Term Budget Policy Statement that the tax revenue is projected to fall short by R23billion. So, how will this deficit be made up?
A portion will most likely be collected from the Special Voluntary Disclosure Programme currently in place until August 2017. The new way of taxing loans to trusts, introduced in last year’s budget and effective from 1 March 2017, may also assist with the shortfall. Clearly the balance will need to be raised through taxes as South Africa cannot afford to reduce expenditure in areas where there is a dire need, for example Education, Health and Safety etc.    
A comparison of South Africa’s maximum marginal tax rate of 41% to the global average or African average – both at 33% &#8211; immediately puts South Africa at a disadvantage for attracting companies to relocate expatriate employees to South Africa, for South Africa to be the gateway into Africa and for high-net worth individuals.
If we want to attract and retain these individuals, an increase in the tax rate beyond 41% should not be considered. These individuals are highly mobile and can decide to leave South Africa at any time and relocate to countries with lower tax rates. The South African growth rate is also lower than expected and the tax revenue from corporates will also be under pressure. Value Added Tax currently levied at 14% is lower than the global and African averages – between 15 and 16% &#8211; and can therefore be increased by 1% to 15% to be in line with global trends. However, the Government may not consider this as an option during the current year. So, what is likely to be done to remedy the situation?
An increase in the fuel levy, transfer duty or Security Transfer Tax may be considered, but at the end of the day the biggest contributor to the tax revenue are individuals and, therefore, the Minister may look at increasing the personal income tax rates by 1 or 2 percent in the February Budget. Individuals may once again have to draw the short end of the stick and fork out a bigger portion of their income to pay the Taxman.﻿

Another increase in personal income rate for S.A?

South Africa&#8217;s Finance Minister Pravin Gordhan said in court documents on Monday that the Gupta brothers were carrying out an &#8220;organised campaign&#8221; against him and the Treasury.
Gordhan also denied in the affidavit that he had a vendetta against the Guptas as claimed in court documents filed by the Gupta family on Jan. 20. The Gupta brothers had accused Gordhan of planning to diminish their business.
This affidavit had been filed in response to one issued by Gordhan in October linking them and their firm to suspicious transactions made by Indian-born Ajay, Atul and Rajesh Gupta. The Guptas have denied any wrongdoing.
The Gupta brothers&#8217; lawyer were not available to comment on Monday.﻿

S.Africa's Gordhan alleges campaign by Guptas against Treasury

On Friday the 20th January 2017 the unwitting Twitter user may have been inclined to believe that respected South African journalists were suddenly squaring up against Finance Minister Pravin Gordhan. At a quick glance, the first of these appeared to be from Radio 702 where financial journalists Alec Hogg and Peter Bruce were quoted expressing anti-Gordhan sentiments:
<img loading="lazy" decoding="async" src="/media/19313255/alec_hogg.jpg" width="239" height="108" alt="Alec Hogg"/>﻿<img loading="lazy" decoding="async" src="/media/19313262/peter_bruce.jpg" width="238" height="108" alt="Peter Bruce"/>﻿
10 minutes later, these two posts were followed by Huffington Post South Africa seemingly quoting Ferial Haffajee’s views against the minister and 4 minutes later a similar post appeared to come from the Sunday Times.  
 <img loading="lazy" decoding="async" src="/media/19313269/ferial_1.jpg" width="240" height="109" alt="Ferial 1"/>﻿<img loading="lazy" decoding="async" src="/media/19313276/ferial_2.jpg" width="240" height="109" alt="Ferial 2"/>﻿
These accounts – despite their initial appearance, were in fact fake and all had “parody account” listed in their Twitter bios. The more astute users of this platform were quick to alert others, this was followed by allegations of “paid twitter” having a hand in it. The allegations that covert forces are operating on Twitter to defend certain individuals largely came to a head over the release of the State of Capture report in November 2016, and various researchers have tried to specifically identify those who aim to slander, amongst others, the Finance Minister. The Daily Maverick also published an <a href="https://www.dailymaverick.co.za/article/2016-11-10-paid-twitter-manufacturing-dissent-helping-guptas/#.WIiE9FN950x">in-depth report</a> on these paid authors. More recently, following an <a href="http://amabhungane.co.za/article/2017-01-24-inside-the-ancs-black-ops-election-campaign">amaBhungane expose</a> on an alleged ANC “war room” during the 2016 local government elections, Shaka Sisulu is accused of being a member of “paid twitter”.
 
A co-ordinated effort
These fake news accounts were relatively dormant before January 20th and the last tweets from any of them were on the January 6th. On the 20th these accounts collectively published 38 tweets in the space of 50 minutes, and then nothing thereafter.
<img loading="lazy" decoding="async" src="/media/19313283/tweets_from_fake_accounts_598x336.jpg" width="598" height="336" alt="Tweets From Fake Accounts"/>﻿ 
The mentions from these accounts were published between 16h49 and 17h38 and response to these tweets was quick – 92% of all the retweets happened in the first 2 hours after the content was posted.
The behaviour of those retweeting this fake content was also eerily similar in nature. There was a very strong positive correlation between their tweeting behaviour (wherer&gt;.87). All these relationships were statistically significant – suggesting a highly co-ordinated effort. 
<img loading="lazy" decoding="async" src="/media/19313290/tweets_from_fake_accounts_2_598x336.jpg" width="598" height="336" alt="Tweets From Fake Accounts 2"/>﻿
Also, the authors that retweeted this content were mostly from one grouping of people. For instance, 43% of this group tweeted content from 3 out of 4 of these fake accounts, while a further 21% retweeted content from all of these counterfeit accounts.
<img loading="lazy" decoding="async" src="/media/19313297/who_was_retweeting_598x336.jpg" width="598" height="336" alt="Who Was Retweeting"/>﻿
The strong correlation in behaviour and the clear overlap in authors again suggests that they were acting in unison to disseminate the fake content.
 
Prolific political commentators
Using the above authors as a starting point, we distilled the overlapping authors into a list of 225. From 1 July 2016 to 23 January 2017 these authors have generated 87 829 mentions, this is an average of 390 mentions per author. One of the most prolific of these contributors had 1 420 tweets in December – roughly 47 tweets per day.
What was striking analysing their activity over the past 6 months is that almost all of them were engaged in conversations over the November and December period – just after the State of Capture report had been released.
<img loading="lazy" decoding="async" src="/media/19313304/new_vs_returning_authors_598x336.jpg" width="598" height="336" alt="New Vs Returning Authors"/>﻿
In other words, returning authors refers to those who had posted at least once in previous months. This group was most heavily deployed between October and November.
What is their message?
<img loading="lazy" decoding="async" src="/media/19313311/what_is_their_message_600x366.jpg" width="600" height="366" alt="What Is Their Message"/>﻿
It is overwhelmingly obvious that the key themes of these tweeters aim to unseat Pravin Gordhan; #PravinMustGo was used 17 616 times (or 20% of these tweets). Another critique levelled by these authors is that Pravin Gordhan and others are merely puppets to white puppet masters.
<img loading="lazy" decoding="async" src="/media/19313318/arrest_gordhan.jpg" width="299" height="136" alt="Arrest Gordhan"/>﻿<img loading="lazy" decoding="async" src="/media/19313325/gordhan_2.jpg" width="298" height="135" alt="Gordhan 2"/>﻿
 
Also, another prominent theme is State Capture (#StateCapture or #StateCaptureReport). There are however stark differences in how these authors discuss the report when compared to how broader South Africans have approached this conversation.
  &#8220;Paid Twitter&#8221;
 <img loading="lazy" decoding="async" src="/media/19313332/paid_twitter.png" width="562" height="343" alt="Paid Twitter"/>﻿
 Broader SA Conversation
 <img loading="lazy" decoding="async" src="/media/19313339/broader_sa_conversation.png" width="505" height="308" alt="Broader SA Conversation"/>﻿
While the broader South African public has tended to focus on Zuma’s role within the State Capture report, it is evident that the tracked authors shift the conversation towards a critique of white capital and white-owned media. Notably, their conversations focused on Andile Mngxitama’s address at the New Age Business Brief event, particularly his statement that the South African economy had been captured by white capital. A striking hashtag used by this group when discussing State Capture was #HandsOffGuptas.
William Bird, director of Media Monitoring Africa, commented to <a href="http://ewn.co.za/2017/01/22/three-sa-media-organisations-targeted-in-fake-news-twitter-accounts">EWN</a> on the matter of the fake news accounts, stating “This is to try and persuade people that there’s another kind of reality, they’re aiming to shift political discourse”. The above word clouds seems to reveal this shift in dialogue.
Conversations also appear to adopt the rhetoric of populist leaders such as Andile Mngxitama and Julius Malema, with a dialectical focus on white capital and reparations. Our data reveals that the company that this group has most viciously targeted has been Absa after Public Protector Busisiwe Mkhwebane’s preliminary report on <a href="http://mg.co.za/article/2017-01-13-00-absa-may-have-to-pay-back-apartheid-era-bailout-billions">funds pocketed during apartheid</a>. The conversation analysis also highlights that apart from slandering Pravin Gordhan, it also aims to protect the Gupta family.
While the above research and analysis points to the types of behaviour and conversations this group engages in, we can still only guess as to their ultimate agenda. A number of commentators have alluded to the idea that UK-based PR firm Bell Pottinger – who represent the Gupta’s Oakbay Investments – are behind this. 
In December 2016 <a href="https://www.businesslive.co.za/bd/national/2016-12-02-johann-rupert-vexed-by-spin-campaign/">Business Live</a> reported comments that Johann Rupert had made at Remgro’s AGM. Rupert <a href="https://www.businesslive.co.za/bd/national/2016-12-02-johann-rupert-vexed-by-spin-campaign/">stated</a> of Bell Pottinger: “Their total task was to deflect attention [from state capture allegations involving the Guptas]. Guess who they took as a target? A client of theirs… Me!&#8221; More recently, Rupert told <a href="http://www.huffingtonpost.co.za/2017/01/25/how-rupert-was-warned-about-bell-pottinger-theyre-behind-it/">Huffington Post South Africa </a>that he’d received a text message from a member of the ANC stating “The Guptas have hired Bell Pottinger to push the &#8216;state capture&#8217; story onto you. They&#8217;ll earn R24 million, plus expenses, for their work. It will be paid by an intermediary [a known Gupta associate]&#8221;. From the conversations analysed above – these assertions appear to be upheld.
Ferial Haffajee, as a victim of one of these fake news stories, tweeted that she believed Bell Pottinger were the culprits. While Thuli Madonsela similarly hinted that the firm was behind this:
<img loading="lazy" decoding="async" src="/media/19313346/ferial_fake.jpg" width="293" height="160" alt="Ferial Fake"/>﻿<img loading="lazy" decoding="async" src="/media/19313353/thuli_fake.jpg" width="299" height="159" alt="Thuli Fake"/>﻿
Oakbay has <a href="http://www.news24.com/SouthAfrica/News/oakbay-denies-involvement-in-fake-news-campaign-20170124">denied any involvement</a> in the fake news campaign.
Against a global background of fake news, alternative facts, and misinformation – the South African online space seems to enacting what has become a world-wide trend. Particularly in the light of the alleged ANC War Room, South Africans need to keep an eye on potential forces covertly influencing news and social media for their own political ends. ﻿

OPINION: How is fake news driving South Africa’s political agendas?

2017 outlook: We expect the marked divergence to continue between what asset prices can do and what goes on in terms of macroeconomics, risk events and politics. Put simply, we expect some recovery in headline real GDP growth, albeit still shrinking per capita income growth, with the ANC elective conference dominating throughout the year to December. However, with South Africa looking somewhat better than peers such as Turkey, we believe asset prices and ZAR especially can do ‘ok’ until potential downgrades come – the timing of which remains uncertain, if still on the horizon.
<h2>Forecast overview</h2>
Are we bullish or bearish for 2017? This is a difficult question. We are only marginally below consensus forecasts for the coming two years on growth (though below official estimates marginally); we are roughly in line with them on CPI inflation (though above the SARB). That might be described as fairly neutral.
However, in 2016 the market appeared to define a narrative of “off the bottom” as being positive because we have passed the worst of the height of the Nene-gate impact on the economy. We think this is true – and the economy showed its resilience by not going into recession in 2016 despite all the political negativity – as we forecast a year ago. We think in 2017 the key investor question will be “what are the drivers of growth?” We think the answer is likely to be a very loud in 2017: “not much at all”. Indeed, in 2017 we believe the market will become more disappointed about the reforms already proposed and the lack of meaningful new ones forthcoming. Political constraints on government in this area may become more obvious as growth remains low in absolute terms and vs peers and as unemployment grinds higher as the level of employment grows far too slowly to absorb the bulging labour force. The negative effects of a national minimum wage should start to appear, although in our opinion, these will only become evident in the years after as data and studies emerge. Overall, we think negative per capita income growth and negative TFP growth will be the ‘low lights’ of the year in data terms. Looking at it in this way, we are not off the bottom and real incomes are still falling. The market should be more sceptical of official spin on such matters in 2017.
READ: <a href="/news/southern-africa/2015/12/22/sa-economic-insight-2016/">South Africa&#8217;s 2016 risk report, forecast update &#8211; CNBC Africa﻿</a>
We expect politics to remain very noisy, but the market has largely become bored of attempting to follow the intricacies of the ANC’s internal machinations. We think the markets will still overplay the tail risk of Zumxit, even though this seems highly unlikely before the December elective conference. In our opinion, internal compromises keeping Jacob Zuma in office after the November ANC NEC meeting will prevent PGxit; however, we believe there is a meaningful (if difficult to pin down) likelihood of a wider reshuffle that could shock the market.
South Africa however is not as dramatic a risk case at all vs peers and especially Turkey for 2016. Hence, we see South Africa outperforming Turkey at least in H1 2017 or longer if the TCMB’s credibility does not recover. If Turkey overcomes its current obstacle to the executive Presidency by mid-year this should allow the market to focus more on South Africa politics in the region in H2 in the run-up to the ANC elective conference in December.
Broadly, we see more of a magnified focus on EM under a Trump Presidency with the prospect of higher US policy rates and a stronger USD, which should weigh on South Africa as a dual-deficit country, albeit maybe less so than some of its peers. We see little meaningful upside of US policy on US growth in 2017 and hence are unable to be over-enthusiastic about it and the positive effects on South Africa, especially with a weaker Asia and prospects of US protectionism. The real unknown for 2017 is if South Africa’s yield offering – which since the US elections has provided adequate compensation – will still be protective enough. We think the curve may have to steepen somewhat, but again can outperform peers.
Ratings again will be an important factor wrapping together medium run growth and fiscal risks as well as the noise from parastatals. Indeed the ebb and flow of events around Eskom, particularly with regard to the issues of contingent liabilities and its nuclear build programme will dominate again.
In summary, with inflation likely to move lower (but less dramatically than expected by the market previously), growth grinding slightly higher and the labour market stabilising at a (very) weak level, 2017 might be described as ‘ok’, but from a developmental and inequality perspective will not be positive and result in another challenging year.
<h2>Risk timeline</h2>
<img loading="lazy" decoding="async" src="/media/19295733/nomura2_600x504.jpg" width="600" height="504" alt="Nomura2"/>﻿
Putting all this together we see several broad sweeps of risk narrative:
Political from President Zuma consolidating at the8 JanuaryANC anniversary celebrations through to the elective conference at thestartofDecembervia the endJune/start JulyANC policy and consultative conference. The9 FebruaryState of the Nation Address from President Zuma, as in previous years, will be an important marker. We then see reshuffle risk throughend Januaryand start February. We also need to keep a continual watch on ANC splits within parliament.
A fiscal and ratings narrative arch encompassing the Budget expected in thelast week of February, ratings updates to come betweenApril and June(in a longer period than 2016 which saw the agencies more tightly bunched), the MTBPS in thelast week of Octoberand then further ratings updates atend November and start December.
We see growth broadly constant through the year in y-o-y terms after a step-up in Q1 data out inMarch. Inflation should fall from a December peak (and rebase and reweight published) inJanuarythrough to a bottom in June data out inJulyand then a rise back up to the top end of the SARB’s target.
We believe the SARB will be steady but hawkish throughout the year, ready to act on a weaker ZAR, higher inflation expectations or an unanchoring of the long end of the inflation forecast.
Much of the event risk is hard to put on the calendar. For example, the raft of court cases against state institutions and political leadership by opposition parties and the Zuma 783 corruption charge appeals procedure. These narratives will grind on in the background with some regularity.  ﻿

Nomura's 2017 outlook for SA: The risk narrative

Improved electricity supply, an easing drought and a depreciation of the rand currency are underpinning a recovery in the South African economy, Finance Minister Pravin Gordhan said on Monday.
Gordhan&#8217;s comments echo the view of analysts who in a Reuters poll published last week forecast that rising commodity prices would also provide a fillip to South African growth, though they cautioned it was still short of the investor confidence needed to expand faster.
&#8220;We believe we are in the process of recovering as an economy,&#8221; he said on Monday at a conference of the National Union of Metal Workers of South Africa (Numsa) in Cape Town.
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The finance minister pressed the need for macroeconomic stability to cushion the economy from potentially volatile capital flows amid an uncertain global environment.
In his October mid term budget statement to parliament, Gordhan slashed the 2016 economic expansion forecast to 0.5 percent from the 0.9 percent predicted earlier by the Treasury, but said GDP growth would recover to 1.3 percent next year.
In a sign of the challenges ahead, however, data last week that Africa&#8217;s second biggest economy expanded an anemic 0.2 percent in the third quarter as manufacturing contracted sharply.
At a separate event, Treasury director-general Lungisa Fuzile said Africa&#8217;s most industrialised country needed to &#8220;fix its politics&#8221; in order to boost growth.
South Africa held on to its investment grade credit ratings with Moody&#8217;s, S&amp;P and Fitch, but all three warned that political turmoil could hurt growth.
&#8220;The world is seeing what&#8217;s happening within our borders,&#8221; Fuzile told a business forum.
President Jacob Zuma has faced several corruption scandals, more recently when the nation&#8217;s anti-graft watchdog this month asked for a judge to investigate alleged influence-peddling by a wealthy family Zuma has called his friends. Zuma denies any wrongdoing.
The state prosecutor dropped fraud charges in late October against Gordhan, executing a U-turn in a case that rocked financial markets and drew accusations of political meddling. But he is still under investigation for his role in setting up a unit at the tax department which police say illegally spied on politicians.﻿

South Africa's FinMin says economic recovery is underway

South Africa&#8217;s economy is recovering, supported by improved electricity supply, easing drought and a depreciation in the real exchange rate among other factors, Finance Minister Pravin Gordhan said on Monday.
Gordhan however told a labour union conference that macroeconomic stability was crucial to cushion the economy from potentially volatile capital flows in an uncertain global environment.
In his October mid term budget statement to parliament, Gordhan slashed the 2016 economic expansion forecast to 0.5 percent from the 0.9 percent predicted earlier by the Treasury, but said GDP growth would recover to 1.3 percent next year.
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&#8220;In terms of the numbers that we see, we believe we are in the process of recovering as an economy,&#8221; he said on Monday at a conference of the National Union of Metal Workers of South Africa (Numsa) in Cape Town.
Data showed last week that the economy had barely advanced, expanding by 0.2 percent in the third quarter as manufacturing contracted sharply.
Africa&#8217;s most industrialized country held on to its investment grade credit ratings with Moody&#8217;s, S&amp;P and Fitch all affirming its investment status, albeit with a negative outlook, and a warning that the weak economy was a risk.﻿

South Africa's economy recovering says FinMin Gordhan

South Africa&#8217;s Finance Minister Pravin Gordhan said on Tuesday that the country must tackle corruption and weak economic growth or face the risk of a credit rating downgrade to &#8220;junk&#8221; status.
Credit ratings agencies are due to visit South Africa next week ahead of reviews of its credit ratings, he said at a business gala event. All three major agencies have warned that slowing growth and political infighting could trigger downgrades.
&#8220;It is very important that we are able to recognise our weaknesses when they arise. We don&#8217;t need a downgrade to junk to wake all of us up,&#8221; he said.
Ratings agency Moody&#8217;s has South Africa on a rating two notches above subinvestment, or &#8220;junk&#8221;, grade with a negative outlook, and it is due to publish its next review later this month. Fellow ratings firms Standard and Poor&#8217;s and Fitch, whose reviews are also due before year-end, have the country just a step above junk.
Gordhan also reiterated that he had not, while head of the tax department, overseen the setting up of a surveillance unit which police say illegally spied on politicians.
Gordhan last month slashed the 2016 growth forecast for Africa&#8217;s most industrialised economy to 0.5 percent from 0.9 percent, raising fears of a credit rating downgrade from Moody&#8217;s, Fitch and S&amp;P Global Ratings by year-end.
Investors and the ratings agencies alike are worried that the police probe into Gordhan&#8217;s role in the surveillance unit could be part of a political ploy to pressure the Treasury into abandoning its prudent fiscal stance.
 
(Reporting by Stella Mapenzauswa; Editing by Hugh Lawson)﻿

S.A must tackle graft, weak growth to avoid junk ratings – FinMin

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PRETORIA (Reuters) &#8211; South Africa&#8217;s state prosecutor dropped fraud charges on Monday against Finance Minister Pravin Gordhan, executing a U-turn in a case that has rattled financial markets and drawn accusations of political meddling.
The rand currency raced to a near five-week high, rising 2.0 percent against the dollar, while bonds firmed as the head of the National Prosecuting Authority (NPA), Shaun Abrahams, announced his decision.
Investors have worried that Gordhan &#8211; who had brought some stability to South African markets since returning to the post during a currency crisis late last year &#8211; would be removed from his job if he was prosecuted.
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They also feared his departure would undermine efforts to revive economic growth, increasing the risk that South Africa&#8217;s credit rating would be reduced to &#8220;junk&#8221; status.
Abrahams said that after reviewing the case, he had decided that Gordhan did not have the intention to act unlawfully. &#8220;I foresaw great difficulty in proving &#8230; knowledge and intention to act unlawfully,&#8221; he told a media conference in Pretoria.
Gordhan, who is widely respected in financial markets, made no immediate comment but has previously described the accusations as frivolous and politically-motivated.
However, he is not out of the legal woods yet, and Abrahams said a separate investigation was continuing into Gordhan relating to events going back a decade.
Supporters of Gordhan and sympathetic financial analysts say all the charges could be a ploy by President Jacob Zuma and his allies to discredit a finance minister who stood in the way of their securing access to lucrative government contracts.
The president has denied that he is in conflict with Gordhan.
Gordhan had been due to face charges in court on Wednesday that he fraudulently approved early retirement for deputy tax commissioner Ivan Pillay and re-hired him as a consultant, costing the revenue service 1.1 million rand ($80,000).
Abrahams launched a review of the decision to pursue the case following a request to do so from Pillay and another former tax service employee Oupa Magashula, who was also charged with fraud alongside Gordhan.
However, Gordhan declined to join them in seeking a review, saying he doubted the &#8220;ability or willingness&#8221; of the NPA to give him a fair hearing.
 UNNECESSARY SPECULATIONS
The charges drew fire from opposition political parties, civil society groups, big business and some senior members of the Zuma&#8217;s African National Congress (ANC).
Abrahams denied any political interference in the inquiry and on Monday rejected calls for him to resign over his change of heart.
Senior ANC party figures, including Deputy President Cyril Ramaphosa, have said the fraud charges should not be allowed to undermine Gordhan&#8217;s efforts to revitalise the economy.
Following Abrahams&#8217;s decision, the ANC said the NPA&#8217;s plan to charge Gordhan &#8220;had a negative impact on the economy and created unnecessary speculations about the real motive&#8221;.
The main opposition party Democratic Alliance said dropping the charges showed &#8220;these charges were indeed manufactured for malicious political purposes&#8221;, while the ultra-leftist Economic Freedom Fighters (EFF) said Abrahams should be disbarred.
The EFF had planned to hold a rally in Pretoria on Wednesday to coincide with Gordhan&#8217;s court appearance.
Susan Booysen, a lecturer of politics at University of the Witwatersrand, said dropping the case against Gordhan &#8220;affirms that the charges were politically contrived&#8221;.
The Helen Suzman Foundation, which had filed a court application jointly with another civic group to have the charges set aside, said the case had damaged &#8220;our country, its financial standing and its international image&#8221;.
 SURVEILLANCE UNIT
Abrahams confirmed that Gordhan is also still being investigated for his role in setting up a surveillance unit at the tax department a decade ago that is suspected of spying on politicians including Zuma.
Gordhan was first questioned about this in February by an elite police unit but in August ignored a police summons on the inquiry, saying he had done nothing wrong.
Previously finance minister from 2009 to 2014, Gordhan was recalled by Zuma to stem a selloff in South African assets in December. This followed Zuma&#8217;s replacement of finance minister Nhlanhla Nene with a little known politician, who lasted only a few days in the job.
Investors and credit rating agencies back Gordhan&#8217;s plans to rein in government spending in an economy that has been forecast by the central bank to grow only slightly this year.
A cut to &#8220;junk&#8221; status in ratings reviews due later this year could push up Pretoria&#8217;s borrowing costs, making it harder to plug the budget deficit.
Nicky Weimar, senior economist at Nedbank, said more needed to be done than simply dropping the charges. &#8220;It does takes us a little further away from a downgrade but the main concern remains that we are not implementing the structural reforms to achieve faster economic growth,&#8221; said Weimar.
 
(Additional reporting by Mfuneko Toyana in Johannesburg; Writing by James Macharia; editing by David Stamp)
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© Thomson Reuters 2016 All rights reserved﻿

Fraud charges against S.A FinMin Gordhan dropped – state prosecutor

Despite the current tough economic climate in South Africa, exports have grown by 3 per cent in the second quarter of 2016 compared with the same period in 2015.
This was revealed in the mid-term budget policy statement, tabled by Finance Minister Pravin Gordhan in parliament on Wednesday.
The growth is supported by manufacturing and mining exports, particularly platinum group metals.
The first half of the year saw a two percentage- point decline in the share of exports to African markets compared with the same period in 2015, reflecting weaker economic conditions in the region.﻿

S.A net exports show a 3 per cent growth: mini-budget

Despite low GDP growth and constrained household balance sheets, South Africa’s financial sector has grown by 2.2 per cent during the first half of 2016 compared with the same period in 2015.
This according to the country’s medium term budget policy statement (mid-term budget), tabled by Finance Minister Pravin Gordhan, at the National Assembly on Wednesday.
The mid-term budget further stated that the country’s domestic banks remain well capitalised, with a total capital adequacy ratio of 15.2 per cent in June 2016, up from 14.2 per cent in December 2015.
“Tier 1” capital adequacy, the highest quality capital reserves, stood at 12.4 per cent in June 2016, well in excess of Basel III’s 6 per cent requirement.﻿

S.A financial sector growing amid gloomy economic times

S.A requires a new approach
<ul>
<li>Sustaining progress towards national development requires new approach</li>
<li>Economic cycle has reached lowest point; recovery is emerging</li>
<li>Without decisive action, recovery is likely to be weak &amp; ineffectual</li>
<li>Joint action needed to restore confidence and  mobilise private investment</li>
<li>Rapid progress on National Development Plan reforms can bolster confidence and promote investment</li>
</ul>
Economic forecasts
<ul>
<li>Roaring growth not expected over next 3 years</li>
<li>S.A’s economic growth estimate for 2016 revised down to 0.5% from 0.9%</li>
<li>Moderate recovery in growth expected over next 3 years; reaching 2.2% in 2019</li>
<li>Inflation forecast revised down to 6.4% for 2016</li>
<li>Inflation expected to remain close to 6% annually over medium term</li>
<li>Electricity prices expected to put pressure on inflation</li>
<li>Household consumption expenditure growth expected to reach 2.3% 2019</li>
<li>Government investment expected to average 4.8% growth over medium term</li>
<li>Public corporations investment expected to reach 2.3% growth in 2019</li>
<li>Government has budgeted R987bn for infrastructure over next 3 years</li>
<li>Government infrastructure spend to be on energy, transport &amp; telecommunications</li>
</ul>
S.A’s budget deficit needs to be narrowed
<ul>
<li>MTBPS seeks to narrow budget deficit &amp; stabilise debt</li>
<li>Budget deficit for 2016/17 is projected at 3.4% of GDP;  higher than 2016 estimate of 3.2%</li>
<li>Gross tax revenue projected to fall short of Feb estimate by R36bn in 2017/18 &amp; R52bn in 2018/19</li>
<li>MTBPS proposes R26bn in reductions to expenditure ceiling over next 2 years</li>
<li>Proposed tax measures amount to R13bn in 2017/18</li>
<li>Total revenue increases estimate to amount to R43bn over next 2yrs</li>
<li>Net national debt expected to stabilise at 47.9% of GDP in 2019/20</li>
<li>Revenue estimates are below 2016 Budget projections</li>
</ul>
Where the money will go
<ul>
<li>Reductions to spending ceiling of R10bn in 2017/18 &amp; R16bn in 2018/19 proposed</li>
<li>Spending on core social &amp; economic priorities will be sustained</li>
<li>Funds to be reallocated to ensure priorities are met</li>
<li>Public works programmes that contribute directly to employment to grow rapidly</li>
<li>Grants that support people living with HIV/AIDS will increase by 13.6 pa</li>
<li>S.A to establish financing facility for social infrastructure.</li>
<li>Child support grant raised by R10 to R360 t</li>
<li>Total government spending is expected to grow at 7.6%, see graph</li>
</ul>
 <img loading="lazy" decoding="async" src="/media/19242338/mtbps_fig_4.2.png" width="552" height="413" alt="MTBPS_fig 4.2"/>﻿
Students to get more
<ul>
<li>Government proposes an additional R17.6bn to post-school education &amp; training</li>
<li>Allocations to higher education institutions over medium-term to grow at 11% each yr</li>
<li>Allocations to post-school education &amp; training will be the fastest growing</li>
<li>University subsidies will grow at 10.9% PA</li>
<li>Money to NSFAS to grow at 18.5% pa</li>
</ul>
 <img loading="lazy" decoding="async" src="/media/19242345/mtbps_fig_4.4_596x234.jpg" width="596" height="234" alt="MTBPS_fig 4.4"/>﻿
State-owned enterprises
<ul>
<li>Advisers to be appointed to explore options for SAA shareholding</li>
</ul>
Public wage bill
<ul>
<li>Public sector employment needs further moderation</li>
</ul>
Procurement reforms
 Public Procurement Bill being considered by Cabinet before April 2017. The bill aims to consolidate the legal and policy framework for supply chain management
Transparency
Treasury launches open local government financial data portal for citizens called Municipal Money﻿

What you need to know about S.A’s mini-budget in a nutshell

Government debt has escalated over R2 trillion with rising debt service costs crowding out expenditure on priorities such as infrastructure and education.
This is one of the concerns highlighted in South Africa’s mid-term budget policy statement on Wednesday which was tabled by Finance Minister Pravin Gordhan.
The statement noted that government spending per capita has doubled in the first two decades of democracy. Moreover, since 2009, a growing portion of spending has been funded by borrowing, resulting in the current alarming government debt.
Seemingly, the call from protesting university students for free education for all is a far cry as the mid-term budget statement has highlighted two concerns:
&#8211;          First, despite massive increases in allocations to the National Student Financial Aid Scheme (NSFAS), the enrolment of academically deserving students from poor communities has grown faster than available funding.
&#8211;          Second, there is no clear national framework for financing students who – although not affluent – are above the modest threshold established by the NSFAS means test.
R16 billion was added to higher education in the February budget. With the MTBPS, Gordhan announced a further R9 billion to go to the National Student Financial Aid Scheme over the period ahead, raising its funding by over 19 per cent a year. Over R8 billion is earmarked to meet the costs of fee increases for students from households with incomes up to R600 000.
Addressing the media just hours before he delivered the mid-term budget policy statement, Gordhan said he hears the concerns raised by various parts of the schooling community.
“There is however no room for violence…we’ve been receiving well thought through technical proposals from various people,” said Gordhan.
Higher Education Minister, Blade Nzimande, was also in attendance at the briefing. He alluded to FET’s and Colleges being prioritised over universities in the future.
“I am happy about the allocations that are signalled… Many of the problems we face are not going to be resolved by directing our focus in universities only. We need a college sector that’s 3 or 4 times bigger than the university sector,” says Nzimande.
The mid-term budget statement also pointed out the realty of a low-growth trap, which will be caused by the further deterioration of the country’s economy. In this scenario, weak GDP growth produces less tax revenue, which is likely to lead to South Africa’s economy being downgraded to junk.
In avoiding a low-growth trap, National Treasury’s proposals include a combination of tax policy measures that will raise an additional R43 billion over the next two years, and a reduction in the expenditure ceiling of R26 billion.
While the long term average rate of GDP growth has fallen from 4 per cent a decade ago to 2 per cent today, National Treasury maintains that South Africa will emerge from a period of economic weakness.﻿

Free education for all a far cry as S.A Gov debt exceeds $500 bn

Uncertainty in the South African economy grows larger as Finance Minister, Pravin Gordhan, announces a revised growth estimate for 2016, down to 0.5 per cent, in his mid-term budget policy statement.
The halving of South Africa’s already ailing economic growth, from 0.9 per cent in February’s budget speech, was made in the national assembly where Gordhan added that the country’s economic performance continues to reflect low levels of business and consumer confidence.
The Finacne Minister is however positive about South Africa’s economic growth in future, stating that growth is expected to increase to 2.2 per cent by 2019. This will be achieved by having more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence, stabilising commodity prices and stronger global growth.
The agriculture, forestry and fishing sector has contracted by 8.3 per cent in the first half of 2016 compared with the same period in 2015. The drought, which has been constant for two consecutive seasons, has contributed to the contraction, which sees South Africa becoming a net importer of maize in 2016/17. Imports are expected to exceed 2 million tons.
The mid-term policy budget statement also noted the resilience in exports of certain fruits, nuts and beef, which is supported by the weaker rand and global demand. The statement eluded to the output recovering as weather conditions improve.
Low commodity prices and weak global demand saw mining production down by 8.3 per cent in the first half of 2016 compared with the same period in 2015, while manufacturing has contributed 0.2 per cent to gross value added in the first half of 2016.
Capital investment has seen a decline of 2.6 per cent in the first half of 2016, compared with a 3.6 per cent increase in the corresponding period of 2015. The mid-term budget policy statement says the contraction is a result of reduced private investment in a climate of weak business confidence.
Investment by public corporations also fell by 2.6 per cent in the first half of 2016, from an average growth rate of 3.7 per cent between 2012 and 2015. While government investment growth averaged 8.6 per cent during the same period, it has slowed to 5.8 per cent in the first half of 2016.
The silver lining to South Africa’s gloomy economic outlook is the Global Competitiveness Index which has improved by six spots to 47 out of 138 in the past three years.﻿

S.A economy hits turbulent times

JOHANNESBURG (Reuters) &#8211; South Africa&#8217;s Finance Minister Pravin Gordhan faces a tough balancing act on Wednesday when he unveils a midterm budget meant to boost the sickly economy and show his looming fraud case is not distracting him.
Gordhan has said he plans to reduce government spending, raise taxes and cut the budget deficit to 3.2 percent of gross domestic product (GDP) in the 2016/17 fiscal year, from 3.9 percent in the previous year.
But closer on his horizon are a Nov. 2 court appearance on fraud charges that he has dismissed as politically motivated, and pressure to provide more subsidies for students who have staged violent protests to demand free university education.
Analysts say any fiscal slippage could trigger credit ratings cuts to &#8220;junk&#8221;, and see little room for manoeuvre in an economy the central bank expects to grow by 0.4 percent this year.
&#8220;There is currently no space to loosen fiscal policy, or do much expenditure switching, ahead of 2019 national election,&#8221; said Maya Senussi, senior emerging markets analyst at Roubini Global Economics.
&#8220;With the political machinations, it becomes difficult for Gordhan to put something on the table that says we are re-engineering the economy for a different path,&#8221; Investment Solutions chief economist Lesiba Mothata said.
Opposition parties and business executives have backed Gordhan over the fraud charges, agreeing that they are politically motivated. President Jacob Zuma has said he is not in conflict with Gordhan and the country&#8217;s top prosecutor has denied any political motivation over the fraud charges.
The state prosecutor has said that Gordhan, in his previous role as head of the revenue service, cost the tax agency about 1.1 million rand by approving early retirement for a deputy commissioner in 2010 and re-hiring him as a consultant.
The outpouring of support for the minister, whom edgy financial markets see as a guarantor of stability, also reflects approval of Treasury&#8217;s commitment to rein in spending and cut debt, currently at 44.3 percent of gross domestic product.
But after losing much ground in August local government elections, including key urban centres, some in the ruling African National Congress (ANC) want him to loosen the purse strings to woo back voters before a 2019 national election.
A poll by Reuters last week showed economists expect Gordhan to now target a deficit of 3.4 percent of GDP.
The turmoil around the minister caused the rand to sink by 4 percent, but the currency has since recovered because of the support the minister has received.
Political analyst Daniel Silke said Gordhan had kept his political standing amid the fraud controversy by positioning himself as &#8220;the saviour of the national interest opposed to the forces of personal interest&#8221;.
 
(Editing by James Macharia and Tom Heneghan)﻿

Tough balancing act for S.A's FinMin in budget speech

South Africa&#8217;s rand was largely flat against the dollar on Tuesday, with dealers and analysts expecting cautious trade ahead of Finance Minister Pravin Gordhan&#8217;s medium term budget on Wednesday.
* Rand at 13.8950 versus the greenback by 0639 GMT, barely shifted from Monday&#8217;s close at 13.9050.
* Traders say currency will tread water as market participation remains low, with investors unsettled by prosecutors&#8217; order for Gordhan to answer fraud charges in court next week.
* Gordhan will this week present midterm budget plans under the watchful eye of ratings agencies who could cut South Africa to subinvestment grade if signs of fiscal slippage emerge.
* Stocks likely to open a tad firmer at 0700 GMT, with futures index inching up 0.22 percent.
* Government bonds edged slightly higher, yield on benchmark 2026 instrument dips half a basis point to 8.795 percent.﻿

Pravin Gordhan

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S.A must tackle graft, weak growth to avoid junk ratings – FinMin

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Free education for all a far cry as S.A Gov debt exceeds $500 bn

S.A economy hits turbulent times

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Pravin Gordhan

Budget 2017: These South African taxes are likely to go up

S.A's Budget 2017: Greater than the sum of its parts

Another increase in personal income rate for S.A?

S.Africa's Gordhan alleges campaign by Guptas against Treasury

OPINION: How is fake news driving South Africa’s political agendas?

Nomura's 2017 outlook for SA: The risk narrative

South Africa's FinMin says economic recovery is underway

South Africa's economy recovering says FinMin Gordhan

S.A must tackle graft, weak growth to avoid junk ratings – FinMin

Fraud charges against S.A FinMin Gordhan dropped – state prosecutor

S.A net exports show a 3 per cent growth: mini-budget

S.A financial sector growing amid gloomy economic times

What you need to know about S.A’s mini-budget in a nutshell

Free education for all a far cry as S.A Gov debt exceeds $500 bn

S.A economy hits turbulent times

Tough balancing act for S.A's FinMin in budget speech

South Africa's rand largely flat against in anticipation of mid term budget

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