Category Economy
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A budget breakdown with a difference

26 February 2018 Steven Nathan, 10X Investments
Steven Nathan, CEO of 10X Investments.

Steven Nathan, CEO of 10X Investments.

Expert panel questions the Ramaphosa honeymoon … and casts doubt on the VAT increase.

Some observers may have been surprised this weekend when Mmusi Maimane launched a resistance campaign against the VAT increase announced by Malusi Gigaba in last week’s Budget speech. But not those who attended the Daily Maverick and 10X Investments’ Budget Breakdown event last week: they knew it had yet to be promulgated into law and had been told to expect some sort of resistance.

The alternative Budget breakdown event, held on Thursday in Cape Town, held true to its promise of breaking down what the first Budget under the watch of new President Cyril Ramaphosa meant for ordinary South Africans. In fact, senior members of the opposition, the Treasury Director General, the head of Standard & Poor’s Ratings for sub-Saharan Africa and 10X Investments’ chief executive Steven Nathan gave Capetonians a lot more than they bargained for.

Both panels at the event acknowledged that the general sentiment in the country was one of optimism, with many people praising the Budget speech for its strong focus on fiscal consolidation and growth stimulation. But, although there is movement in the right direction, others are asking whether the current “Ramaphosa feel-good factor” will carry enough momentum to steer the country away from further downgrades and get us back on a path to economic recovery. Yet others are asking if the VAT increase will be allowed to take effect.

The no-nonsense first panel at the one-of-a-kind Budget Breakdown Event included 10X Investments Nathan, Director-General of Treasury, Dondo Mogajane, and Konrad Reuss, the head of Standard & Poor’s (S&P) ratings agency for sub-Saharan Africa – bringing together a diverse range of views that did not always see eye to eye.

This panel discussion was followed by a second session, which saw the DA's deputy shadow for finance, Alf Lees, and General Bantu Holomisa offer a compelling opposition response to the Budget.

Addressing issues of governance and state capture head-on, Treasury’s Director-General Dondo Mogajane conceded that South Africa was heading into trouble towards the end of 2017. “In October last year, things were bad. Growth was stifled, state capture issues came out in the open, and the country was at its lowest ebb. As such, this was a budget to reset what needed to be reset.”

Whether or not this would be effective was, however, questioned by Konrad Reuss of S&P. “We are closer, but there is still much that has to be done. S&P is the most conservative ratings agency, and we would have to see two upgrades to get back to investment grade.”

When asked how bullish he was feeling following the budget, Nathan’s view was somewhere between those of his two fellow panel members’. “In absolute terms, things are still very concerning, but what is encouraging is the progress that is being made from a relative perspective. The rand has strengthened significantly, the ALSI Index has improved by roughly 6%, and we are a lot more comfortable today than where we were three months ago.”

Nathan points out, however, that people tend to have very short-term memories and are often ignorant about the recent past. “If you go back to, say, 1956 as an example, a rand invested in the JSE, adjusted for inflation, would be worth something like R130 today. If you had invested that same rand in cash or the bond market, your R1 would only be worth around R3. This shows that despite periods of extreme uncertainty, the resilience of the South African economy has actually been quite staggering.”

While this is encouraging, Nathan reminds us that, like investing, the future success of this country is a long game. “One thing that we have lacked as a country is a proper and credible long-term plan that we can all get behind. There is no quick-fix solution. However, if the correct measures are put in place now, we will be able to work towards a more secure and inclusive future.”

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