Business welcomes pragmatic MTBPS but maintains public service should be downsized

Business, academia and industry associations have welcomed the reforms highlighted in the 2024 Medium Term Budget Policy Statement (MTBPS) delivered by Finance Minister Enoch Godongwana on October 30, particularly those related to infrastructure development and greater private-sector participation.

There are, however, also concerns about the fiscal constraints facing the country, as highlighted by Consulting Engineers South Africa CEO Chris Campbell, who says that, without adequate funding for infrastructure, government risks stagnating economic growth and further decline.

“Government must strategically target expenditure gaps to maximise impact and ensure infrastructure investments lead to tangible economic benefits,” he notes.

Another industry body the Steel and Engineering Industries Federation of Southern Africa (Seifsa) emphasises the importance of reforms in network industries, since the quality of infrastructure in these industries, including logistics, has been an albatross on economic growth and the metals and engineering sector in particular.

Seifsa has consistently maintained that an aggressive industrialisation project can be driven through the repair and rebuild of existing infrastructure.

It commends the commitment by the National Treasury to publish Regulation 16, which administers public-private partnerships (PPPs), by the end of November for implementation in the 2025/26 financial year.

With Godongwana having said that government will record a primary budget surplus of 1.8% excluding debt service costs, the Free Market Foundation (FMF) is worried that South Africa’s national debt burden remains unsustainably high with a projected rise to 75.5% of GDP, or R6.05-trillion, in the 2025/26 financial year.

“While the Minister acknowledged the importance of macroeconomic stability, the fact remains that the government is still too large and South African taxpayers are footing the bill,” comments FMF CEO David Ansara, citing a finding by the Fraser Institute in Canada that the South African government’s size is too large by international standards.

Trade union Uasa, meanwhile, says Godongwana did not adequately address South Africa’s high unemployment rate, especially as his proposal of implementing an early retirement initiative to introduce younger talent to the public service is “risky”, owing to most households in the country depending on a single income and the lack of guarantee that the public service will absorb a sizeable percentage of young people.

On the debt matter, Uasa echoes the FMF’s concern that there is a lack of detail about introducing a fiscal rule to legislate a ceiling above which government debt cannot rise.

Uasa welcomes, however, the introduction of infrastructure investment trusts and government’s intentions to increase investment in bulk water and sanitation infrastructure and a new water pricing strategy.

“We welcome Godongwana’s ‘tough love’ approach to State-owned enterprises (SOEs) and government departments, including education and health, which have often benefitted from budget top-ups.

“These departments are essential to domestic operations; however, the fact that they managed to survive under the initial budgets without receiving additional funds should open doors for the government to tend to other avenues needing financial boosts like infrastructure and reformation,” Uasa states.

Further, the Banking Association of South Africa (BASA) says the MTBPS continues to strengthen responsible fiscal management in South Africa, particularly as it focuses on reducing debt to a sustainable level and achieving a primary budget surplus – which both boost investor confidence.

“The lack of big-ticket spending and bailouts for SOEs shows that government has the political will to get its finances in order. Rather than spend inefficiently, it has committed to deliver on policy reforms that are necessary to attract private-sector investment and skills into vital economic infrastructure.

“This opens the way for partnerships with business to repair and replace water and transport infrastructure, and to improve local government operations and services – which have rapidly emerged as immediate threats to South Africa’s economic recovery,” the BASA states.

The association hopes for the timely removal of South Africa from the Financial Action Task Force grey list as it will reduce compliance costs and complications of doing business in South Africa. While BASA welcomes the fact that 16 of the 22 action items in a plan to exit the grey list have been largely addressed, the most challenging outstanding item is the sustainable successful prosecution of financial crimes.

“The creation of a capable, ethical and developmental government under the Government of National Unity (GNU) must include the further bolstering of the criminal justice system,” BASA emphasises.

Asset manager Stanlib agrees that it is critical that the GNU remains stable and that government policy implementation demonstrates a high degree of urgency.

The company says the efficiency of government spending has deteriorated significantly over the past 15 years, with the Auditor-General reporting significant wasteful and unauthorised expenditure in recent years.

This, coupled with high levels of corruption, has massively undermined the effectiveness of government services, negatively affecting confidence.

“It is encouraging that Godongwana is clearly endeavouring to adhere to fiscal discipline, deploying technical work on finding permanent fiscal anchors; higher levels of investment spending; and controlling growth in the public sector wage bill.

“The risks to government finances are, unfortunately, firmly to the downside until the various initiatives to embed fiscal discipline and lift economic growth have been more fully achieved,” Stanlib states.

Business Unity South Africa (Busa) says the MTBPS is a stark reminder of the depths of the fiscal problems that Treasury is seeking to recover from, which are symptoms of structurally low growth, a historic lack of prioritisation in expenditure by Cabinet, previously delayed reforms and high costs of borrowing.

“Business welcomes various reviews of budget processes and spending announced in this MTBPS, including those related to employment and social support. However, we also note that wide prioritisation decisions by Cabinet appear to be limited.

“Redirecting spending away from debt servicing costs towards high investment in capital projects will guide South Africa towards a path of recovery and sustainable growth. Reforms to rules around investment funds to promote the holding of infrastructure assets are also important and welcome,” Busa says.

The organisation stresses the importance of monitoring and reforming municipal trading entities to ensure their adherence to financial recovery plans. It adds that business will continue to hold government accountable for maintaining a solid fiscal stabilisation policy to ensure that surplus resources are deployed effectively, as well as to provide partnership and support on key reforms that can ease fiscal problems through growth in the medium term.

Similarly, fellow industry body Business Leadership South Africa (BLSA) believes Treasury has prioritised the most important areas to address the deficiencies in the economy, particularly in network industries.

BLSA advocates for more PPPs to accelerate the important infrastructure development needed to establish a strong foundation for future economic growth.

The Road Freight Association (RFA) agrees that South Africa is emerging out of an era of very poor fiscal control and waning economic growth, but says the opportunities to turn around the status quo and pursue fresh approaches to resolve challenges far outweigh the recent events and poor showing.

The association is optimistic about government's intention to invest in infrastructure and create an environment where business can thrive, however, RFA emphasises its concern about the public sector wage bill having ballooned by 220% since 2008, which is unsustainable.

The RFA welcomes the “realistic and soberly considered” MTBPS, but remains concerned about the lack of targeted allocations in ports and rail. The association hopes the private sector will be enabled to play a larger and more efficient role in getting the logistics network “back on track”.

North West University Business School's Professor Raymond Parsons summarises most stakeholders’ sentiment in saying that the MTBPS comes across as a pragmatic, realistic and credible strategy to tackle South Africa’s challenges of low economic growth and high public debt.

However, he agrees with the other organisations that risks to the fiscal outlook remain elevated.

For him, the public sector wage bill remains the single-biggest risk to public finances, but more investment-led growth on the back of increased private-sector participation should bode well the country’s growth prospects.