David Shapiro
In another country-critical speech where the EFF could not resist an opportunity to heckle a minister who has already been persecuted for not complying with President Jacob Zuma’s attempts to use the state as personal bank account, Finance Minister Pravin Gordhan managed to achieve a standing ovation. The 2017 budget speech was received with acclaim on Wednesday February 22, despite the impact it is going to have on personal income tax — a necessary one to narrow the deficit.
The speech was dissected at the annual Sasfin Budget Day event, held at the Sandton Convention Centre on 22 February, 2017, attended by some 800 delegates.
The event was opened by Anna Mokgokong, honourary consul general to the Republic of Iceland and executive chairperson of Community Investment Holdings, who said that the speech took place against “the backdrop of belt tightening, due to the current fiscal year running with a R5-billion deficit.
She continued, “I was rather intrigued as I read in the Sunday media, the expectations, views and predictions of varied stakeholders. [While I was] travelling with the honourable deputy minister [of finance] Mcebisi Jonas on Monday, he commented that the budget speech was already written for them by the media.
“All collectively alluded [to the fact] that with the plethora of challenges our country faces, including the #FeesMustFall issues, the National Health Insurance financial requirements and others, this year’s budget would not be a ‘business as usual’ one.
“With a stagnating economy, a few fancy and catalytic moves by the minister would be required to stimulate it in a rather dramatic manner.
“Such interventions should have a positive spin on growth and job creation with the current 26.5% unemployment rate. This sincerely calls for effective utilisation of all resources and hefty cost containment.
“Issues around gross inequality continuously haunt us as a nation — hence the much-needed assistance to small businesses to bring about a sustainable micro economy is a constant expectation of the budget.
“Our expectation [as black industrialists] is elimination of red tape, bureaucracy — and most importantly — funding that is efficient and friendly to our borrowings.
Mentioning the importance of fast-tracking the government’s proposed mega projects, she reminded that ”industrialisation is one of the key highlights of the government’s nine-point plan and has to be focused on stimulating economic growth. Tangible progress in that direction is paramount.
“Multinational and global investors still view our country as an attractive investment destination, as in their countries they face almost zero growth in their investments; however they are deterred by our lengthy, tedious processes. In Dubai and Rwanda, you can apply for a license and all regulatory requirements, all in one day.
“The ease of doing business in our country is an imperative to attract those investors.”
‘No-one is clapping’
Opening his presentation, David Shapiro, deputy chairman and director of Sasfin Securities, described the situation — where on both sides of the hall there are tremendous pressures.
“The one thing about this budget you understand is that the measures we are taking to increase taxes when rest of the world is moving to reduce taxes make you realise that things are not that good,” explained Shapiro.
“Companies that do well are those that increase their top line, and my biggest worry is the top line is not increasing and the measures are severe.
“Growth has been too slow at one percent a year per capita in 25 years, which has seen markets affected. We need to remember that savers are going to be hit in different ways [by the budget] and most of the productive people — which has nothing to do with the colour of their skin — are the ones that are going to be hurt.”
Shapiro emphasised that he thinks that this government approach — taking more away — has produced unconvincing results in the past for the country’s growth.
“Yes, we are going to see improvements such as inflation ease — mainly because of the fading effects of the drought, improving global demand, higher commodity prices and rand recovery,” he continued.
“Wage disputes are diminishing, there is power recovery, but policy incoherency is unlikely to diminish ahead of the election we are going to see later on [this year].
“Growth is still too low to reduce unemployment.
“No-one knows if we are facing a credit rating downgrade, but this hinges on policy reform and something we have to watch out for. The rand at the moment is just trotting on.
“We are growing at a quarter of the rate of global output. With a population of 50-million people whose lives could be improved, we are underperforming — especially looking at our peers and developed countries.”
Looking to the future
Shapiro highlighted a perception raised about the Johannesburg Stock Exchange (JSE) in the recent State of the Nation Address.
“I went through the top 75 companies and broke down the JSE, and today 64% of JSE-listed entities are foreign operations — businesses that do not operate in South Africa, pay tax, employ South Africans or even sell their products here. The JSE is not the JSE. It is an international entity, and while government can get their share, it will not be from the international companies.”
South Africa’s real challenge in the context, stressed Shapiro, is not only inequality at home or popularism abroad, but technology and changes to technology that are going to change the way economies operate.
“Technology beginning to grow at such a fast pace will present the biggest challenges, not just in South Africa but in other economies. Broadly, advances in technology could displace 5.1-million jobs across 15 major economies by 2020. Smart algorithms will transform all industries, from white-collar workers in the financial sector such as high frequency traders to doctors in health care with robotic surgery and diagnostics.
“Suddenly companies like Amazon and Alphabet are producing vast amounts of cash — growing profits in double digit figures. These companies are growing because they are ploughing back money into research and development.
“Growth opportunities are not confined to developed countries. There are opportunities, for example, in Africa for companies like MTN and Vodacom, but we need to energise our economy and attract investment and have functional state institutions,” he concluded.
Economic conversations
Integral to the event was a live interview with the deputy finance minister, the honourable Mcebisi Jonas, and two of his colleagues, who said that they appreciated the opportunity to gauge the response from the speech.
“We are going through probably the most difficult times and there are huge structural factors that impact on the economy negatively,” said Jonas.
“Our message is that we need to grow the economy, manage finances tighter and address issues of inequality. Growth is probably the central message.”
Jonas was asked by facilitator Geoff Rothschild, head of government and international affairs for the JSE, about the challenges around businesses getting tax refunds remaining a significant problem. This, Rothschild said, was resulting in the demise of SMMEs, with Sars not honouring refunds and businesses dying in the process.
“We have heard this and taken it up with Sars. The minister has already had four meetings with them this year,” said Jonas.
“With the people I have met, I have seen that they are really trying to make an effort on the refunds and we are in discussion with them to try and remedy [this] for all the businesses that need it.”
Asked about uncertainty and adversity to private ownership in terms of land reforms, Jonas said that R25-billion has been attributed to land reform in terms of agriculture, explaining that this was an identifiable pillar of growth.
He also said that while there needed to be an economic conversation around the path that they will take, the focus is not on redistribution but rather on areas where there are ways to assist the poor.
“Asset distribution does not always impact on ineqality,” he said. “The right kind of transformation is increasing the numbers of people benefitting. We cannot take a traditional approach to something which is really just land redistribution.”
While saying that questions around poor-quality education should be directed at the department of education, it was said that quality of spending is critical and that there are challenges in infrastructure, the quality of teachers and quality of training of teachers and intervention needs to be made with the best available methods.
The contentious sugar tax was also raised, with questions around which proportion of this revenue will be absorbed into the fiscus versus health care, to which the response was that there will be difficulties with earmarking revenues but that the preference would be an open budget process to target resources in the direction of health-related uses for the tax.
The proposed removal of the zero levy on fuel and an increase in VAT with its impact and effect on poorer communities is being assessed prior to the 2018 budget.
Jonas concluded saying: “Everyone has now accepted that corruption has a very negative effect on growth and it is a focal point going forward.
“South Africans need to be vocal about corruption, which supports the criminal justice system.”