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Budget speech reaction: some promising noises at the top but we need implementation

Article written by Guy Hosking (CFO Retail Capital)

When finance minister, Tito Mboweni, delivered the medium-term budget policy statement on Wednesday afternoon he was under no illusions about the importance of the moment.

South Africans have been here before, we have experienced the right noises at the top never filtering down through the levels of bureaucracy to implementation. This time we desperately need these promises to be met with execution.

There were glimpses of the type of business-leaning, investor-friendly policies the country needs to implement. Fiscal reform has been top of the agenda for many years, and credit must go to Mboweni and his team for not buckling to populist pressure.

Reminding us of the long road ahead, Mboweni spoke of the country’s first democratically elected president, Nelson Mandela, in 1994.

“His plan for the country’s first democratic administration committed us to fiscal rehabilitation after the devastation wrought to our public finances by the previous regime. Most of us sitting in this House, I amongst them, did not know it then but Madiba was ushering in a period of unmatched social progress in our history.

“Over the next 15 years, the economy began to re-emerge. Real GDP rose by 61% and 5,3-million jobs were created. We are fiscally at a moment not unlike that in 1994. We must rebuild our economy, rehabilitate our public finances and recover from the devastation wrought upon us by COVID-19.

“As we rose to that fiscal challenge, so we will rise to this one.”

One of the biggest challenges has been the decrease in tax collection, however the finance minister did not announce new taxes. There has been a vocal lobby for more tax collection to plug the hole that the pandemic has left in our national coffers.

Increase in taxes would no doubt have a knock-on effect that would inevitably take money out of the hands of consumers and small and medium enterprises (SMEs) would bear the brunt of reduced consumer spending. Instead, the minister committed to putting a lid on government expenditure and controlling the swollen wage bill.

Another example of “the right noise”, was continuing the reformist narrative around Eskom and the procurement of electricity from independent power producers. The minister also spoke about the need for a reduction in red tape – one of the main obstacles to unlocking real potential in our SME sector. In addition, there was talk about the importance of public-private partnerships. Obviously we would welcome all these moves if implemented correctly.

Perhaps the most important moment in the speech for SMEs came in the form of a tacit admission that the government got the COVID-19 bank-guarantee bailout wrong, and will relook at it. As an alternative SME lender, Retail Capital was not confident in the scheme from the start. We saw SMEs unable to access the scheme because of onerous conditions, and we are as convinced as ever that even in its third or fourth incarnation, it still won’t achieve what it set out to do.

For as long as the banks are in control of the process, small businesses needing funding will not be able to access it. In the best of times banks have failed to support small businesses, especially those that make less than R10-million a year.

If banks apply their usual lending criteria, especially in this time of crisis, the scheme will fail. As the old cliché says the definition of insanity is doing the same thing over and over again and expecting a different result.

If the banks are in control bigger businesses will benefit. Until alternative lenders, who are devoted entirely to SME funding, are brought into the mix, small businesses will not get the funds they desperately need from the scheme.

Towards the end of his address Mboweni said: “Today we embrace our higher purpose as citizens and leaders to take forward the vision of nation-building. Together we can shape a new destiny for our great, vibrant, beautiful country.”

All peace loving and proud South Africans would agree with these words. However, we now need the reformist sentiment to turn into measurable returns by narrowing the gap between promise and implementation. Our economy, and indeed our country, depends on it.

Retail Capital is a proud Partner of the NSBC