Finance Minister, Enoch Godongwana, presented his first budget speech in Parliament this week after taking over the reins from Tito Mboweni.  Amidst the backdrop of the ANC’s bruising in the local government elections, and load-shedding that has brought the economy to its knees, he was not facing an easy task.

Even with government’s windfall of having collected around R120bn more tax revenue than was previously anticipated, and receipts on commodity exports at higher prices that have softened the current account deficit, Mr Godongwana did not have much ‘wiggle room’ to provide further relief.

With the clearest shot across the bow of the socialists he painted a picture of fiscal consolidation, growth-supportive projects and more of what the market was hoping for:

• A budget deficit that has narrowed from the record 10% of 2020, and is expected to narrow to almost half of that in 2024/25.
• Reduced government debt through continued restrained public spending.
• A policy-shift away from bail-outs and support for loss-making state owned entities, government is even looking to sell their stake in certain SOEs entirely.

Following the recent announcement of President Ramaphosa having secured funding to reduce our country’s dependence on fossil fuels and support a shift towards ‘greener’ energy, Mr Godongwana further outlined government’s plans to support private sector investment and job-creation:

• Making it official government policy for South Africa to “diversify energy generation” and the lifting of license-free power generation plants to 100MW is a huge step forward (This, despite Minister of Energy, Gwede “Old King Coal” Matashe’s best efforts).
• Opening “third party access to the freight rail network by the end of 2022” means private players will be able to compete with Transnet as government effectively admits centralized control has been a disaster, while ending Transnet’s monopoly (Another one to make the socialists scream).
• The auction process for the release of broadband spectrum is set to start in March 2022 – the potential this creates for fresh economic growth through unleashing human ingenuity cannot be understated.

Overall it appears to be a good budget that keeps the consolidation targets intact, while shifting spending from consumption to investment. With an improving debt outlook, a commitment to only spending where there is revenue to fund it, and a growth story shaping up, our new FinMin appears to be deserving of the hat he is wearing, and look forward to the proposals taking shape.

Wishing you a safe and relaxing weekend ahead.

Steve Crouse

Chief Investment Officer and Senior Advisor