Business Leadership South Africa (BLSA), which represents many of the country’s largest listed companies, has welcomed the budget presented in parliament last week by finance minister Enoch Godongwana, saying it sends encouraging signals for business confidence and infrastructure-led growth.
Godongwana announced that over the next three years, public spending on infrastructure will exceed R1-trillion to build and maintain roads and rail lines, expand energy infrastructure, and build and maintain water and sanitation infrastructure.
“While not addressing every challenge we face, it demonstrated continued fiscal discipline and improving infrastructure spending that should help unlock the private sector investment South Africa desperately needs,” BLSA CEO Busi Mavuso said in her weekly newsletter on Monday.
The fiscal position is clearly on an improving trajectory, she said, noting that the government is on track to deliver a primary surplus for the third consecutive year, “meaning revenue exceeds non-interest spending”.
“The debt-to-GDP ratio is stabilising and beginning to decline. Tax collection performance remains strong,” with the South African Revenue Service (Sars) exceeding revenue targets.
“This matters. It is what enabled the S&P credit upgrade, what drives lower borrowing costs, and what gives investors confidence that South Africa won’t face a fiscal crisis. The macroeconomic stability this creates is the foundation for everything else.”
The three-year medium-term expenditure framework projects more than R1-trillion in public infrastructure investment, with approximately R340bn allocated for the current fiscal year.
“More significantly, Treasury expects this year to show the first increase in infrastructure spending in several years, reversing a decade of decline that saw public sector investment fall from nearly 10% of GDP to below 5%.
Cheap imports
“About 40% of the projected spending should come through state-owned enterprises, particularly Eskom and Transnet, whose improved financial performance now enables infrastructure investment rather than requiring bailouts,” Mavuso said.
She criticised the budget for not offering a strategy to address de-industrialisation from cheap imports, devastating automotive manufacturing and other sectors.
“Treasury mentioned efforts with Sars to tackle illicit cigarettes but provided no specific targets or resourcing details,” she said.
“There was also limited follow-through on the president’s state of the nation instruction to unbundle Eskom’s transmission assets into the independent transmission system operator. Treasury could have clarified the next steps towards the financial framework for the new entity to raise capital for grid expansion.
“These omissions matter because manufacturing capacity and infrastructure are interconnected. Reliable electricity and efficient logistics enable manufacturing competitiveness, while healthy manufacturers generate the tax revenue and economic activity that justify infrastructure investment. The budget addressed one side of this equation well but left the other largely untouched.”
On the whole, however, “this budget continued progress in the right direction. Fiscal discipline is being maintained, infrastructure spending is beginning to recover, and the foundations for improved business confidence are solidifying. Finance minister Enoch Godongwana and his team deserve credit for sustaining the institutional recovery from the state capture era.”
In his weekly newsletter on Monday, President Cyril Ramaphosa said the budget builds on the progress made over the past few years to stabilise, reform and transform the economy.
“Improvements in public finances, stabilising debt, a narrowing budget deficit, credit rating upgrades and improved market confidence all signal the beginning of an economic recovery,” Ramaphosa said.
“A stable macroeconomic environment boosts investor confidence and increases the government’s capacity to invest in both growth and poverty relief without compromising sustainability. The stabilisation of public finances gives us space to accelerate public investment, sustain the social wage and direct resources to reforms that drive growth and job creation.”
Ramaphosa noted that the budget acknowledges the dire financial distress many municipalities are in, driven by weak revenue collection, poor management and substantial service delivery backlogs.
“Many municipalities are not spending appropriately. For several years, water and electricity revenue has not been invested in infrastructure maintenance or expansion but has been redirected to cover other municipal costs,“ the president said.
“Local government finances have to be placed on a more sustainable footing to support the delivery of basic services. Over the medium term, R19.2bn will be reallocated to the reform of electricity, water, sanitation and solid waste trading services in metros. These allocations will be linked to performance against clear targets.”
He noted the budget focuses on three imperatives: maintaining fiscal sustainability, driving inclusive growth and protecting society’s most vulnerable.
“It is a balanced budget that reflects the realities of our economy, limited financial resources, high unemployment and urgent infrastructure needs,” the president said. “As we build on the momentum of our recovery, we will continue to be guided by fiscal discipline, structural reform, targeted investment and an overarching commitment to improving the material conditions of every South African.”
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