• Agri SA congratulates the Minister of Finance, Tito Mboweni, on his first Medium-Term Budget Policy Statement (MTBPS) as it contains several promising policy indicators.

  • "The general assumption that the interest rate policy of the Reserve Bank and all the other central banks in the world can contain inflation, protect the exchange rate and promote economic growth by stabilising prices is the biggest single delusion in total economic science," says Fanie Brink, an independent agricultural economist.

  • In the press conference, which wasn’t very long, Mboweni managed to slay 10 holy cows. You don’t have to agree with all his views to see that he is a breath of fresh air. Mboweni is clearly no fan of the mooted expropriation without compensation law which the ANC is putting through Parliament.

  • A strong Budget will come down to simple action and hard choices taken now for the long-term benefit of the country, says Citadel portfolio manager Mike van der Westhuizen.

    Finance minister, Tito Mboweni will deliver the 2020 National Budget Speech on 26 February, to announce how the government plans to spend its budget, while also collecting money.

    “The main thing to look at, given that the Moody’s is watching closely, is the need to rein in the budget deficit, which is starting to spiral even more out of control,” he said.

    In the 2019 Medium Term Budget Policy Statement (MTBPS) the Treasury projected a consolidated Budget deficit of 5.9% of GDP, averaging 6.2% of GDP over the next three years.

    A low growth, low inflation environment also affects the debt-to-GDP trajectory, the sustainability of which minister Mboweni has already warned about.

    As a proportion of South Africa’s GDP, the MTBPS notes a hike in gross debt from 56.7% in 2018-19, to 60.8% in 2020-2021 and 71.3% in 2022-23 if the status quo does not change, something the rating agencies are understandably concerned about.

    “These numbers show that the previous goal of fiscal consolidation is currently not on target,” said Van der Westhuizen. “Although it must be said that while Treasury appears to be doing everything in its power to stop the slow bleed, it’s a cooperation issue with the rest of government and other influential stakeholders.”

    This disconnect between what needs to happen and the disinclination within government to act is likely to come through on Budget day.

    Revenue under pressure

    Distilling the multiple issues at play, Van der Westhuizen said that “government needs to find about R150 billion in savings over the medium-term expenditure framework, being the next three years. So that’s essentially R50 billion a year in savings that needs to come through.”

    But how can this be achieved?

    Treasury could look, once again, to the taxpayer. But, said Van der Westhuizen, “with the taxpayer already squeezed, options are increasingly limited. In prior years, we’ve seen personal income tax hikes and last year a VAT hike”.

    “Easy wins are fuel levies and sin taxes that rise every year, as well as bracket creep, i.e. not adjusting the tax brackets for inflation. Other potential tax avenues could include a new upper tax bracket, wealth tax, estate duties or even changes to capital gains tax or dividend tax. Although helpful, these don’t really do the heavy lifting.”

    There has been talk that the only really effective lever left to pull could be to raise VAT by one percentage point to 16%, which would inject between R20 billion and R35 billion in revenue. Although it would be a particularly unpopular move politically, it is increasingly possible, said Van der Westhuizen.

    Expenditure in the crosshairs

    Given the revenue constraints, Van der Westhuizen believes all the hard work should be done on the expenditure side. But, again, taking steps to contain and curb expenditure will come down to political will.

    “The big line items here are public sector wages (about 34% of expenditure), debt service costs (10%) and social grants (10%). Interest payments and social grants are essentially fixed, leaving the wage bill as the main lever.

    “This is a bit tricky at this stage since multi-year wage negotiations are still in process and will only conclude around March 2021, so we will watch this carefully,” said Van der Westhuizen.

    “The government tried a voluntary resignation and natural attrition approach to reduce the wage bill, but that hasn’t been effective. Maybe the lower inflation outlook from the Reserve Bank and pinning of inflation expectations might help in negotiating lower wage hikes, but that is unlikely to be enough.”

    “Even if government took a firm stance of CPI less 2%, which would have the trade unions baying at its feet, it would only save about R105 billion over three years, leaving us some R45 billion short. The point is that even a drastic decline in wage growth doesn’t result in sufficient scaling back in spending,” Van der Westhuizen said.

    The SOE drag continues

    Despite this constrained picture, there is still bound to be more budgetary support doled out for state-owned enterprises (SOEs) and this issue will loom large over Mboweni’s speech, said Citadel.

    “In late-January we saw the Development Bank of South Africa (DBSA) grant a loan to South African Airways (SAA) as part of its restructuring,” said Van der Westhuizen.

    “That represents a red flag in terms of the cross contamination of SOEs, with a well-performing SOE such as the DBSA bailing out a poor-performing one. Government cannot afford to use its balance sheet to rescue these SOEs, so it is rearranging the deck chairs.

    “Our concern is the strain this might put on the better-performing SOEs. For now it might not be a big issue given that the DBSA does have rules governing its lending, but the trend isn’t pleasing.”

    And Eskom is likely to remain both a concern and a drain. Clearly there is much in-fighting at the parastatal and disagreement about its turnaround direction coupled with bouts of load shedding, which indicates that South Africa is certainly not out of the woods. “Eskom will, again, be a massive issue to watch for in the Budget,” said Van der Westhuizen.

    “For at least the next few years, support will have to be pencilled in for the utility. If that number were to rise significantly or if there were further talk of taking Eskom debt on the government balance sheet, then we would be in deep trouble.”

    What could prove a fillip for the country would be positive developments around key issues such as power generation.

    “There has been much talk about mining companies, and other businesses, being permitted to generate their own electricity and for independent power producers to come onto the gird, but we are yet to see formal communication in this regard.

    “If something concrete is announced, even some compromise around public-private partnerships, then that would be very positive,” said Van der Westhuizen.

    The D-Day downgrade

    While the state fiddles, and South Africa’s economy burns, a downgrade in the country’s sovereign credit rating continues to hang over South Africa’s head. While the markets have long priced this in, the continued expectation that the axe will fall is, in itself, creating uncertainty and tension.

    On 28 January 2020 Moody’s Investors Service analysts noted that it was “a bit early” to judge the impact of both policy and structural reforms. Lucie Villa, Moody’s lead sovereign analyst for South Africa, told Bloomberg that while the data was not pointing to either a particularly positive or negative direction, that “there is nothing really to flag for the time being”.

    This indicates that Moody’s may well be prepared to give SA more leeway, but obviously, the credit rating agency will be keeping a close eye on Mboweni’s Budget.

    “Certainly, everyone expects this Budget to be poor,” said Van der Westhuizen, “but they might manage to demonstrate the will to cut expenditure and show just enough fiscal consolidation and, in that case, Moody’s might delay any decision until November, after the next MTBPS.”

    That said, while government might do enough to keep Moody’s at bay for the first half of this year, it remains Citadel’s view that the agency will downgrade South Africa in 2020. While this would put South Africa out of the World Government Bond Index, Van der Westhuizen believes it is time for the country to take its medicine.

    “Foreigners would come in and sell some of our bonds on index exclusion but, with some of the most attractive yields available, there would definitely be buyers stepping in,” he said.

    Reading the mood

    Citadel noted that anyone who follows Mboweni on Twitter will be keenly aware that the finance minister is getting significant pushback, making him increasingly despondent with the lack of progress. There appears to be considerable opposition to his plans, as laid out in the economic strategy document released in August 2019.


    South Africa - FEBRUARY 2019

    The Honourable Minister of Finance, Mr Tito Mboweni, has called on South Africans to send him and his team ideas on how South Africa can boost its economic growth. The Treasury said in a statement on 24 January 2019 that the Minister would like to hear from South Africans about how the country can achieve faster and more equitable growth, and what the government can do differently to grow the economy.1)
    It is a privilege to have this opportunity and a pleasure to present this submission to the Minister of Finance.

    Fanie Brink

    An independent agricultural economist, advisor and mentor with more than 40 years of experience in the agricultural industry in South Africa. He was for almost 22 years a Senior Agricultural Economist with Agri SA and Deputy General Manager: Research and Development with Grain South Africa. He was the most of his career directly involved in the profitability and sustainability of grain and oilseeds production, food security and the
    development of a biofuels strategy for the government. He is also a member of a group of 30 economists in the country who evaluate and predict the state of the economy in South Africa on a monthly basis for the Business School of the University of Stellenbosch. He obtained a BSc-Agric degree from the University of the Free State in 1974 and a MSc- Agric degree from the University of Pretoria in 1978.

  • Agri SA hoop die 2019 begroting sal positiewe verbintenisse lewer wat doeltreffend geïmplementeer sal word om die begrotingstekort te beperk en ekonomiese groei te ondersteun. Agri SA sien uit na die Minister van Finansies, Tito Mboweni se eerste Nasionale Begrotingsrede. 

  • In a hard-hitting Budget that bluntly put a daily R1-billion price tag on borrowing costs, Finance Minister Tito Mboweni pulled off a political juggling act “in the interest of our people and our country, and not in the narrow objectives of any political party”.

  • “Die ANC-regering se aanslag op die Reserwebank is nou groter as wat dit ooit voorheen was na die uitsprake deur president, Cyril Ramaphosa, in die staatsrede wat hy gister in die parlement gelewer het,” sê Fanie Brink, ‘n onafhanklike landbou-ekonoom.

  • Finance Minister Tito Mboweni’s economic policy document has a snappy 30-word summary of where the country finds itself:

  • Policy confusion, expropriation without compensation and economic instability will foil Minister Tito Mboweni’s good economic intentions. This is according to TLU SA, commenting on Mboweni’s release of the Treasury’s economic policy document on 27 August.

  • “The rise in economic growth for the second quarter of 3,1% released by Statistics SA today still shows that the likelihood is not good that the economy will grow this year despite this improvement.

  • In its August 2019 economic strategy, Treasury outlined the laudable objective of increasing agricultural exports by R6 billion over the next ten years.

  • Over the past decade South Africa’s public finances have come under more and more strain.

  • Ahead of his Medium Term Budget Policy Statement (MTBPS) on Wednesday 30 October 2019, the SA Canegrowers Association (SACG) and the South African Farmers’ Development Association (SAFDA) call on Minister Tito Mboweni to halt the sugar tax, pending a full socio-economic impact assessment of it.

  • Finance Minister Tito Mboweni started his budget speech with his usual aloe reference: “The Aloe Ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it.” Here’s the executive summary of this plus hour long discussion.

  • Fanie Brink, Independent Agricultural Economist

  • At the core of this year’s budget proposals from South Africa’s national treasury is the admission that national debt is no longer expected to stabilise.

  • Landbouprodusente sal die ondersteuning en finansiering van sosialisme baie dringend en ernstig moet heroorweeg wat deur Agbiz, (Agriculturul Business Chanmber/Landboubesigheidskamer) en sy “sosialistiese vennote” onderskryf word,” sê Fanie Brink, ’n onafhanklike landbou-ekonoom.

  • The government needs to support all enterprises in its Covid-19 relief funding, regardless of the race, finance minister Tito Mboweni said on Tuesday.

  • Fanie Brink, Onafhanklike Landbou-ekonoom-