Transcript business unity south africa

BUSINESS UNITY SOUTH AFRICA
PRESENTATION TO THE
PARLIAMENTARY STANDING COMMITTEE ON FINANCE
2013 MEDIUM TERM BUDGET POLICY STATEMENT
PROFESSOR RAYMOND PARSONS
SPECIAL POLICY ADVISER, BUSINESS UNITY SA
CAPE TOWN
TUESDAY 29 OCTOBER 2013
‘IN FAST-GROWING ECONOMIES, POLICYMAKERS UNDERSTOOD THAT SUCCESSFUL
DEVELOPMENT ENTAIL DECADES-LONG COMMITMENT, AND A FUNDAMENTAL
BARGAIN BETWEEN THE PRESENT AND THE FUTURE. EVEN AT VERY HIGH GROWTH
RATES OF 7% TO 8% IT TAKES DECADES TO MAKE THE LEAP FROM LOW TO RELATIVE
HIGH INCOMES … THIS BARGAIN WILL ONLY BE ACCEPTED IF THE COUNTRY’S
POLICYMAKERS COMMUNICATE A CREDIBLE VISION OF THE FUTURE AND A
STRATEGY FOR GETTING THERE. THEY MUST BE TRUSTED AS STEWARDS OF THE
ECONOMY AND THEIR PROMISE OF FUTURE REWARDS MUST BE BELIEVED’
GROWTH REPORT: STRATEGIES FOR SUSTAINED GROWTH AND
DEVELOPMENT (2008)
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Global Economic Outlook (1)
• Global economic outlook slightly more positive
• Developed world looking a little better, but downside risks still
exist
o US looking more economically sustainable, despite fiscal uncertainties
o Japan's 'Abenomics' experiment successful so far
o EU also improving, but still vulnerable with long term structural questions
• Developing world is more subdued but with challenges
o Possible end of quantitative easing in due course has implications for
capital flows and cost of capital
o China's growth is holding at 7% plus, but economy fuelled by massive
and possibly unsustainable credit creation
o Vulnerable economies with twin fiscal and current account deficits...
o Morgan Stanley lists five 'fragile currencies': India, Brazil, Indonesia, SA
and Turkey
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Global Economic Outlook (2)
IMF OUTLOOK FOR GDP IN 2013/2014
REGION
World Economy
Advanced
Economies
US
Euro Area
China
Sub Saharan Africa
Nigeria
Angola
South Africa
2013
%
2.9
1.2
2014
%
3.6
2.0
1.6
- 0.4
7.6
5.0
2.6
1.0
7.3
6.0
7.0
6.7
2.0
7.2
6.2
3.3
• The global economic outlook has
improved moderately in developed
economies and growth continues in
emerging markets, but at a slower
rate than in 2012.
• SA must look internally to alleviate
domestic growth and employment
constraints if it wants to raise its
growth rate above the current 2%
expected in 2013.
• The weak global economic outlook
is not helping but SA must
concentrate on the domestic
factors over which it has control to
move forward with planned
structural reforms to boost growth
and create jobs.
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Domestic Economic Outlook
FORECAST
2014
Real GDP %
Gross Fixed Inv.
Household Spending
MTBPS
3.0.
5.0
2.9
as % of GDP
CPI inflation
-6.4
5.6
2015
BUSA
MTBPS
2.9
3.2.
4.0
5.5
2.9
3.2
Current A/C Balance
-6.7
-6.2
5.9
5.4
BUSA
3.1
5.2
3.3
-6.0
5.8
• There is a close convergence between the economic forecasts of the
MTBPS, BUSA and other estimates of future key economic indices and
prospects.
• The assessment of SA economic prospects by the MTBPS is seen by
BUSA as realistic and balanced, as well as the challenges which arise out
of these trajectories in addressing unemployment, poverty and inequality.
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IN A NUTSHELL, WHAT HAS HAPPENED SO FAR?
•
Aside from a few short wind-fall episodes, SA has remained a modest 3.0%
to 3.5% growth performer. It has not yet discovered within itself the magic to
transform itself towards 5% or 6%, or even higher average growth performances,
as some other emerging economies have done. There has been slippage in SA’s
global competitiveness in recent years. SA is even beginning to lose economic
ground in Africa.
•
And thus, after a short, speculatively driven consumption-dominated boom
during 2004-2007, and after a short sharp recession following the global
economic crisis in 2008/2009, we now find ourselves once again
constrained in a 2.5% to 3% growth trajectory, with a significant loss of
growth drivers and focused purpose. Labour relations and collective
bargaining are under unprecedented strain.
•
Many analysts believe that SA's long run growth performance could not
exceed 3.5% at best, unless the present constraints and bottlenecks are
progressively lifted.
•
The good news is that we now have the National Development Plan (NDP).
While it claims to be neither perfect not complete, it sets out a clear roadmap and
firm proposals to tackle SA 's socio-economic challenges. It also injects a strong
degree of urgency into efforts 'to fix the future, starting now‘.
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THE NDP AS A ROADMAP
TO AN ECONOMY THAT WILL BE BIGGER, STRONGER AND BETTER BY 2030
•
BUSA supports the point of departure in the MTBPS that the NDP is now the
framework within which policies and projects will be increasingly aligned
•
SA's economic performance is well below its potential, given that the NDP wishes to
see an average of 5.4% growth pa in due course, which could almost triple the size
of SA’s economy by 2030.
•
Several red lights are flashing about SA 's present sluggish economic performance
•
SA needs 'long-termism' in its economic planning and decision-making in both the
public and private sectors
•
Business needs a more certain and predictable policy environment through the
NDP, which then underpins investor confidence
•
Key stakeholders need to collaborate and cooperative on a much bigger scale to
address the socio-economic challenges facing SA and make the NDP work
•
The NDP provides such a platform for collaboration and partnership to achieve
faster job-rich growth
•
SA needs to carve out a bigger share of global trade and investment to support its
growth and development goals, at a time when SA's share of world exports is
declining
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BUSA WELCOMES SEVERAL ASPECTS OF THE 2013 MTBPS (1)
•
•
•
•
BUSA sees the MTBPS as a frank and transparent process. The MTBPS will
apparently meet the 2013/14 fiscal deficit target of 4.2%, as newly
defined, and continue to strike an appropriate balance between the
consolidation of debt and support for the economy. Spending restraint is the
key theme in the MTBPS.
The MTBPS plans to consolidate the deficit so as to level off the public debt
trajectory and sees SA's debt-to-GDP ratio as sustainable. It is positive that tax
revenue receipts have shown resilience, even though it may be the result of
special factors.
The intention to manage the risks to safeguard fiscal sustainability, recognizing
that the public sector wage bill has exceeded the rate of inflation over the past
several years and the need to improve the monitoring of wage-bill trends.
Personnel costs are now nearly 40% of government non-interest spending.
The introduction of cost-containment measures in the public sector by
imposing restrictions on the use or purchase of items such as motor vehicles,
credit cards and catering. While these steps will not in themselves necessarily
make a big difference to SA's public finances, BUSA believes they send a
powerful message that wasteful expenditure in the public sector needs to be
curbed and it will help to reinforce a culture of financial discipline.
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BUSA WELCOMES SEVERAL ASPECTS OF THE 2013 MTBPS (2)
•
The commitment to improve planning and decision-making to speed up
delivery of infrastructural projects, as these remain important drivers of growth,
competitiveness and jobs.
•
The introduction of tax legislation to incentivize business to employ youth
and to facilitate the introduction of youth to the world of work, given the
tremendous challenge presented by the level of youth unemployment in SA.
Measures to reduce the costs of hiring younger workers are supported by
BUSA.
•
Continued emphasis on improving access to finance and support services
for small businesses, which are expected by the NDP to create the bulk of
the jobs required by 2030. The creation of business incubators needs to be
accelerated.
•
Although the fastest-growing expenditure item in the budget remains interest
payments, it is reassuring to know that capital spending is now the most
rapidly-growing component of non-interest spending, since this emphasis
reflects the potential to add to productive investment and hence to growth.
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SOME RISKS AND VULNERABILITIES IN THE MTBPS (1)
•
The projected growth rate of 3.5% by 2016 is woefully inadequate to meet SA's
socio-economic challenges. Growth estimates have again been revised downward in the MTBPS
on both international and local factors. In recent years SA's growth has been lower than in peer
emerging markets and commodity exporters. In BUSA’s view this reinforces why the NDP should be
implemented sooner, rather than later, if more positive outcomes are sought. Remember that the NDP is
already a compromise plan.
•
The NDP, New Growth Path (NGP), and IPAP need to be aligned. Although it is said that
the NDP trumps all other plans, these differing perceptions among businesspeople needs to be
reconciled and uncertainty removed. While the three documents agree that employment growth is SA's
top priority, they offer conflicting assessments of what is obstructing employment growth, what sort of
new jobs should be created, and at what pace.
•
There are several key quantitative targets in both the MTBPS and the NDP which are
essential to the successful implementation of both. Yet although both documents and other
policies emphasise the importance of SMMES and emerging business, no targets exist. BUSA believes
that the macro-targets should include a clear commitment to create, say, 2 million new enterprises by
2030, which will be needed if 11 million jobs are to be created by then. The ultimate test for the success
of both the MTBPS and the NDP will hinge on effective implementation, in collaboration with the private
sector.
•
The fiscal outlook in the medium-term is less favourable than that presented in
February 2013. Interest payments continue to leave less space for socio-economic priorities. For
BUSA this highlights again that eventually all roads lead to the need for much higher job-rich growth and
for effective implementation of what has been decided.
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SOME RISKS AND VULNERABILITIES IN THE MTBPS (2)
•
The possible positive impact of the draft tax legislation to encourage youth
employment needs to be weighed against the job losses that are expected when the
latest labour law amendments come into operation. The latter are not viewed by business as
being particularly employment- friendly. The growth in private-sector employment is far below the rate
required to absorb new entrants into the labour market
•
Excessive reliance on capital inflows exposes SA to swings in investor sentiment.
Capital flow reversal is a risk which could be triggered by external developments but also by domestic
factors such as spikes in labour unrest. A policy of higher SARB foreign exchange reserves would help to
lower balance-of-payments risks and provide more of a shock-absorber. Inflation is projected over the
next few years to be above the world average. The margin for error in policy has shrunk.
•
Although many analysts have acknowledged the MTBPS forecast that net public debt
will stabilize at 44 % of GDP by 2017/18, the fact remains that this plateau will be
reached later than previously anticipated and at a higher level relative to GDP. If the
guarantees to state owned enterprises are included, the ratios may be higher. Therefore careful risk
management will be needed given that two of the main credit rating agencies have put SA’s sovereignrisk rating on negative watch. BUSA sees the 2013 MTBPS as creating a ‘breathing space’. In the
meantime, the weak current account situation and the increasing debt-to GDP ratio underscore the need
to continue with fiscal consolidation
•
The MTBPS says that the main budget deficit is offset by surpluses by provincial
governments, public entities and social security funds. This could be a temporary situation.
As provincial surpluses for example are apparently the result of underspending, this offset will cease if
provincial governments are to be encouraged to spend their budgets in ways which promote
implementation of worthwhile projects
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CONCLUDING COMMENTS