We live in interesting times
For the first time in many years, the South African public can look forward to the National Budget with a renewed sense of optimism that the economy is on the verge of growth. Finance Minister Malusi Gigaba should see this as a positive but be aware that he faces a balancing act of doing the right thing politically and doing what is in the public’s best interest.
Despite the political uncertainty that is surrounding the continent’s second biggest economy there are a few issues that need to be resolved. However, since the rise of Cyril Ramaphosa into a greater position of power and influence, it looks like the sky is the limit.
After a positive address at his first State of the Nation, as the newly elected President of South Africa, Ramaphosa has the country believing that there is a plan to grow the economy, and that a workable plan is finally in place to achieve this.
A few nagging issues
There are some nagging issues the country needs to resolve before this optimism transforms itself from a spark into a raging fire.
One of these issues is the current budget deficit, which sits at about 4.3% of the country’s Gross Domestic Product (GDP).
To achieve this, government needs more revenue.
In a release to the media, Citadel pointed out that last October’s Medium-Term Budget Policy Statement (MTBPS) painted a bleak picture of South Africa’s economic outlook. The consolidated debt to GDP ratio had widened, the projected tax shortfall for 2017 was estimated at R50.8 billion, and debt-servicing costs were cited as the fastest growing expenditure item on the national balance sheet.
“Government may also be backed into a corner by the promise of free education. They will not be willing to borrow more and increasing the VAT rate would represent the simplest method for producing the greatest amount of income needed,” said Maarten Ackerman, Chief Economist and Advisory Partner at Citadel, “while politically sensitive, the ANC could very well be willing to risk the controversy of this decision.”
What effects will this have on our pockets if it is passed?
Some reports suggest that if the VAT rate is going to be increased, it will be increased by 2%. When the FAnews attended an Old Mutual Investment Group Fourth Quarter economic media briefing at the end of 2017, Rian le Roux – Economic Strategist at the Old Mutual Investment Group – said that a 1% increase in the VAT rate will cost the consumer 60c more for a basket of goods. This means that a 2% increase should translate to an increase of R1.20.
Supporting SMME’s
While South Africa has its fair share of large corporations, it is the Small, Medium and Micro-Sized Enterprises (SMMEs) that are the beating heartbeat of the South African economy.
However, very little has been done in the past to support these organisations.
In a release to the media, Pieter Bensch, Executive Vice President, Africa & Middle East: Sage, said that according to recent research, 15% of invoices in South Africa are paid late. Further, more than 8% of payments due to the country’s SMMEs are never made or made so late that businesses are forced to write them off as bad debt.
He added that Government departments and state-owned entities are among the organisations with a reputation for slow payment.
“What would businesses like to hear? Small businesses that do business with the public sector would love to hear about tangible steps such as new regulations and legislation to speed up the government payment and the procurement process,” said Bensch.
The digital divide
If you look at any developed country in the world, their current success is built from the back of a strong IT infrastructure. They are truly taking advantage of the digital age.
While South Africa is rapidly building its IT infrastructure, we have a problem that developed countries do not. Our data is expensive by world standards and we do not have government sponsored WIFI which SMMEs can use to grow their businesses.
This is a problem that government is looking into. Addressing the 2017 Institute of Risk Management South Africa Annual Conference, Communications Minister at the time - Ayanda Dlodlo - said that government sponsored WIFI would become a reality once South Africa's communication infrastructure moved across from analog to digital. This would take at least two years to achieve.
“Low adoption of digital tools brings about low growth. Gigaba should encourage small businesses to embrace technology,” said Bensch.
Addressing the high cost of data should also be high on governments list of priorities.
The huge red flag
Government’s tax revenue income is a problem. We get it. However, there are very few signs that the tax being collected by government is being used in the best manner. Infrastructure development in South Africa is a major problem.
“Cape Town is counting down to Day Zero while the Eastern Cape is also facing a drought crisis. The City of Johannesburg is struggling with frequent power outages and a massive backlog in maintenance of critical infrastructure such as its road network. These infrastructure problems are adding to the cost of doing business since companies need to ensure they are resilient enough to keep running through power and water outages,” said Bensch.
He added that now is the time for government to step up with concrete plans about how it will work with local government to address the country’s infrastructural challenges.
Editor's Thoughts:
For the first time since the recall of former President Thabo Mbeki, the 2018 budget is going to be delivered against the backdrop of political uncertainty and in an environment where one false move will place a cabinet minister firmly under the spotlight. We live in very interesting times. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
