The ANC is an interesting beast. Over the past 18 months, NEC statements have not always been economically coherent. Six weeks ago, Finance Minister Tito Mboweni released a growth plan for the SA economy that proposed to increase South Africa’s growth rate by 2.3 percentage points per year.
There was nothing groundbreaking in the plan – though it did tread on a lot of previously sacred ground. The most contentious area was the increased private sector participation in the energy, telecoms and transportation sectors.
In the latest NEC statement, the ANC did not directly refer to the finance minister’s plan, but unequivocally supported all the key areas the plan had highlighted. More interesting were the explicit references that “public-private partnerships, especially in aviation and energy and other areas, will be critical”.
It went on to say that “There is a renewed appreciation by the NEC of the roles of the private sector and labour as key partners for growth.” In ANC speak, this is the most private-sector-friendly statement we have seen in some time. A far cry from WMC.
The statement was equally clear on the energy sector, noting that “the restructuring of Eskom and dealing with Eskom’s unsustainable financial position” were priority areas.
In the Q&A, Mboweni emphasised that the Treasury discussion paper had gained the NEC’s support. He also took the opportunity to criticise the culture of non-payment for services, pointedly referencing outstanding payments to Eskom by municipalities. The head of the ANC’s economic transformation committee, Enoch Godongwana, muddied the waters a bit by noting that while the NEC supported the Treasury’s proposals, public comments would be included in the final version and that some areas – notably labour – would be dealt with in other fora.
If we could take this NEC statement as a reliable guide of government’s willingness and likelihood to implement reforms, South African bonds (and arguably domestic equities) are trading at the wrong price. This plan should lower fiscal risks and thus lower borrowing costs in the economy. It should result in higher confidence, higher growth and ultimately higher tax revenues.
Unfortunately, we have seen too many promises of reforms. We need to see this commitment from the ANC translate into tangible action. More than a year ago, the ANC’s growth and recovery plan promised an expedited visa system for tourists to South Africa and the sale of spectrum, among several other measures. There has been little progress on any of these. Until tangible actions are taken, Godongwana’s comments will be taken as an indication that a lot more consultation is needed – and implementation is far away.
The Medium-Term Budget Policy Statement (MTBPS) is due on 30 October. At the current run rate, it looks as if tax collections will be at least R50-billion short of the February 2019 Budget projections in the current fiscal year. There is little room to increase taxes, as the recent tax hikes have resulted in much less extra tax revenue than had been projected. Cutting expenditure involves below-inflation wage increases for public servants or job cuts. Both will be difficult to achieve.
At 1% annual GDP growth, the current revenue and expenditure forecasts lead to an unsustainable debt trajectory over the medium term. Therefore it is critical that growth rises, boosting revenues. Given the historical disappointments on reform implementation, we need to see some tangible progress on reforms ahead of the MTBPS to make it credible. First up is the Eskom White Paper, which is due before the MTBPS. Should it deliver on the NEC’s indication of an upcoming break-up of Eskom and makes room for the private sector, it could be a big spur to SA confidence – and South African asset prices.
Scepticism will remain, and delivery will be key. But it will be a really big step in the right direction. BM