Finance minister Enoch Godongwana’s medium-term budget policy statement (MTBPS) on Wednesday would provide “markers” to the medium-term development plan the government of national unity (GNU) partners have agreed on, unveiling the starting steps to achieve a 3% growth rate, says agriculture minister and DA leader John Steenhuisen.
That is what he told investors on Monday at the 11th SA Tomorrow Investor conference in New York, which he joined virtually.
While Operation Vulindlela had made gains in implementing reform, the new administration wanted to see those accelerated and private public partnerships made a reality, he said.
He also disclosed that the GNU partners in the cabinet would be discussing what SA’s national interest was and how that was best served and expressed by its foreign policy. And while there would be “wrinkles”, Steenhuisen cautioned “we must be careful we don’t catastrophise differences of opinion on various matters”.
The annual SA Tomorrow, one of oldest investor conferences, attracted about 180 people representing 70 international investors and 20 JSE-listed companies, including Transnet and Eskom, as well as government leaders and policymakers.
This comes ahead of an MTBPS in which Godongwana is expected to reaffirm the government’s commitment to reducing its debt burden to more sustainable levels and report progress on achieving the spending curbs it has promised, as well as to provide detail about plans to attract private capital into infrastructure projects that will enhance economic growth.
It’s been estimated that SA needs as much as $150bn worth of infrastructure investment by 2030 if it is to deliver on its energy transition goals, as well as provide much needed logistics, digital and other economic infrastructure.
Government debt has climbed to about 67% of GDP from 40% a decade ago, and the cost of servicing that debt now consumes a fifth of tax revenue, crowding out other more productive government spending as well as private investment. The government is committed to stabilising and reducing the debt burden, mainly by cutting spending.
February’s budget pencilled in more than R150bn in spending cuts over the medium term, and projected that debt would stabilise at about 75% in fiscal 2025/2026. Some economists believe the Treasury is on track to deliver on these targets, but others including the International Monetary Fund are more sceptical.
Standard Bank deputy CEO Kenny Fihla, speaking on the sidelines of the conference, said the bank believed SA could reduce its debt level if it did the right things. He warned of what would happen if the debt were allowed to get out of control citing the examples of countries such as Ghana that had to restructure its debt and now struggles to tap international capital markets.
Standard Bank, operating in 20 African countries including SA, has first-hand experience of the impact of debt restructuring in countries such as Kenya and Malawi and currency devaluations in countries such as Nigeria. “It’s very, very easy for things to go pear-shaped,” said Fihla.
The Treasury, presidency and some economic departments understood the risks. But Fihla, who was in government in the City of Johannesburg before joining the bank, said the real public-sector challenge was that where the costs were incurred was separate from where the revenues were collected. Departments that had to optimise and reprioritise spending did not consider what taxpayers could afford. “That makes the job of the Treasury difficult. They are talking to people who don’t see the constraints.”
But he was upbeat on post-election developments that saw asset values leap as investors who were in wait-and-see mode and sitting on cash gained confidence. But he said more was needed for significant investment flows. Investment in the real economy also looked set to improve, with loan origination picking up and a strong deal pipeline in the unlisted space. He said the private capital market had been very active.
Investors and policymakers could be forgiven if they have severe roadshow fatigue after a series of visits to the world’s financial centres in recent weeks to showcase the government of national unity (GNU) and try to attract investment into SA.
The SA Tomorrow conference follows investor meetings in New York on the sidelines of the UN General Assembly and last week’s International Monetary Fund meetings and a recent London outing led by Deputy President Paul Mashatile.
Fihla said it gave SA companies opportunities to connect with US investors, exposing companies, especially medium-sized companies, to a greater pool of capital in the US and investors to opportunities in SA especially in the listed and fixed-income space. It was also an opportunity to engage with major multinationals with exposure to SA, or likely to set up businesses.
“Given the recent election, it is important for SA to be on the front foot in terms of how peaceful the transition has been, and to showcase the progress that’s been made, especially in electricity,” he said.
The head of Standard Bank’s corporate and investment bank, Luvuyo Masinda, said this week’s conference also included a round table on Tuesday with US-based pension funds that invest in infrastructure projects, which would look at the instruments the government was proposing to make it easier for private-sector money to materialise.
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