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Fuel levy, toll fees damper South Africa’s growth

09 March 2012 Paul Jooste, senior manager-portfolio business, Coface South Africa

The South African economy showed remarkable resilience through the recent recession compared to other developed countries. The strong governance of the financial sector and counter-cyclical government policy assisted in what was a short and relatively sm

South Africa showed a six month lag in reaction time to the 2007-2009 global financial crisis, and appears to be following a similar trend in the current economic downturn.

Coface has, since August 2011tracked a marked increase in overdue account notifications across the world. Coface South Africa noted a 40% increase in the value of overdue notifications in February 2012 indicating a deterioration in the South African market, six months after the global market deterioration.

As the global economy faces the potential of another financial crisis, it is important to understand how the South African economy is placed to manage the effects of a global economic slow-down. The recent budget speech by Praving Gordhan highlighted several areas of GDP growth enablers, and several of GDP growth dampers.

In terms of GDP growth enablers, the R845-billion allocated to infrastructure development will assist the construction and associated industries as work on roads, schools, hospitals and housing moves forwards. The R12,3-billion allocated to Health will continue to assist the country’s pharmaceutical and associated industries.

The R300-million allocated to the building of new law courts, and in particular the high court being built in Neslpruit and Polokwane, are welcome assistance to an over-burdened and vital public service. Coface South Africa has seen a deterioration in the processing time of corporate disputes, to the point that many businesses are using alternate methods to obtain outstanding monies owed, rather than following the formal legal route.

The support for small and micro business, which makes up 68% of the private sector, in the form of tax relief, a R4,8-billion job creation allocation and R9,5 -billion in tax relief for individuals, will assist in creating more spending capacity for South African consumers.

Unfortunately much of the relief expected from this tax relief is likely to be negated by the three primary GDP dampers. The 20 cent increase in the fuel levy along with the planned tolling of the Gauteng freeways, although even at a lower rate, will put increased pressure on the cost of transport of goods. Freight companies have already indicated increased margin pressure.

The result of these additional costs is likely to be passed on to the consumer, as producers, freight companies, wholesalers and retailers, struggle to absorb the increases. The result is expected to be higher inflation to the cost of goods.

In addition to the potentially inflated cost of goods, the phasing in of national health insurance will require substantial funding, which is currently over and above the country’s budget.

The proposed method of funding this enormous project is through increased VAT, a payroll tax payable by employers, and a surcharge on taxable income. Government has yet to finalise how the health project will be financed and whether it will include one or a combination of the above mentioned methods.

The effect on South African business, already having to manage the disturbing disparity between inflation and wage increases, increased transport costs, increased electricity costs and an additional tax burden of some sort to fund the National Health Insurance, could be detrimental to many businesses just managing to stay afloat in these difficult times.

Going into 2012, Coface South Africa expects local companies to remain risk and sales focussed, as they seek to manage the international economic changes and additional cost burdens. Companies will need to assess opportunities in new markets as sales opportunities arise, based on the merit of each individual potential client.

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