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How does business feel ahead of the Budget? Cautiously optimistic as the world is currently experiencing synchronised global growth as it attempts to return to post-pandemic normal. And while business applauded the President Cyril Ramaphosa’s State of the Nation Address (Sona), it is now waiting for Minister of Finance Enoch Godongwana to complete the picture.
Earlier this month, what has been widely hailed as the most pro-business State of the Nation Address (Sona) to date, Ramaphosa laid out his vision for the future of the economy.
“We all know that government does not create jobs. Business creates jobs,” he said.
The business sector cheered, although the speech was somewhat thin on detail. “The country now waits for the minister of finance’s upcoming Budget Speech to hear where the i’s will be dotted, the t’s will be crossed and how much it will cost,” says Kerry Fynn, Alpha Holdings CEO and YPO Africa member.
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He compares the local business mood with the global mood, saying there is reason to be cautiously optimistic, as the world is currently experiencing synchronised global growth as it attempts to return to post-pandemic normal.
“This means that production and supply chains are ramping up and demand for commodities with them and this is an area where South Africa shines. This has very positive tail winds, with the potential to increase employment numbers, generate foreign revenue, bolster the current account surplus and of course assist in the recovery of our tax revenue collection.”
Fynn believes all these factors will contribute to a general confidence in South Africa which will bolster economic growth.
“Although we have significant challenges to overcome, the global backdrop is currently supportive with China intending to increase monetary and fiscal easing to stimulate its economy which can potentially be hugely beneficial for us.”
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He points out that a recent YPO Global Pulse Survey indicated that business across the globe appears to share his relative confidence about the country’s post-pandemic economic recovery. According to the survey, many CEOs are optimistic, with 34% of the 1,700 respondents reporting a very favourable outlook for their businesses.
Nearly half (47%) reported a somewhat favourable outlook, with only 1% saying their outlook was unfavourable.
However, Fynn says he is not blind to the significant challenges that lie ahead.
“While global growth is likely to continue, it is important to keep in mind that this is off a low base. The result is increased inflation, which concerns central banks.”
Companies across the world are also concerned, with 71% of respondents admitting that they are very, or somewhat, concerned about the impact of inflation on their businesses, saying interest rates will result in fiscal tightening which will likely dampen global growth to an extent, although Fynn suspects that the situation might resolve itself more quickly than expected.
“I believe that as soon as inflation moves back toward an acceptable range, the central banks will once again provide stimulus. The last thing any major economy wants to do is strangle this tenuous growth.”
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However, Fynn acknowledges that South Africa’s situation is more complex.
“Consider that on the one hand, we should be able to generate reasonable growth from these low-base levels. In addition, as an exporter of commodities, we also have a lot of what the world wants right now, which will boost our recovery efforts.
“On the other hand, we have sluggish Gross Domestic Product (GDP) growth, corruption and bureaucracy, which hampers business and curtails growth. We also have a consumer base that is under financial pressure that will cause them to struggle if interest rates increase by any significant margin.”
South Africa is also plagued by high unemployment and income inequality and has the highest global Gini coefficient, that measures the gap between the income of a country’s richest and poorest people.
“The silver lining is that opportunity is found within our struggles. Most of the developed world sees an ageing population and this, combined with a more robust savings culture, has the unintended effect of making it more difficult to drive growth.”
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Fynn says South Africa, on the other hand, has a young and expanding population that is upwardly mobile with ambitious young individuals who aspire to elevate their lifestyles, which is why most of the fastest-growing economies in the world are African.
He also liked that the president made it clear that tackling bureaucracy was a priority with the appointment of a ‘Chief Red Tape Cutter’ that would clear the path for the private sector to thrive. He would like to see the minister cut this red tape, improve capital markets, provide access to funding and create an environment that is conducive to business and attractive to foreign investors.
“We wait to hear more detail on the measures to support small business the minister alluded to in the medium-term budget policy statement (MTBPS) and the president in his speech.”
Fynn says the most important thing is for the minister to create an environment that fosters confidence, which is obviously a key factor for investors.
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