Politicians like to talk, usually to tell you how good things are, but we all know you have to take a lot of what they say with a pinch of salt. If we give them the benefit of the doubt, the medium-term budget delivered by the Minister of Finance last week was a good one. Let’s look at some of the points made:
- The inflation target came down to 3% from 6%. This will be good for any expenditure items like public wage negotiations and service delivery increases due to the lower base rate.
- There is an additional R19.7bn of revenue due to the additional taxes on the mining companies, especially the gold miners who are generating super profits, as well as stronger VAT and fuel levy collections.
- Total spending was revised R36bn lower due to the softer inflation and underspending in some departments.
- More money is going to be spent on fixing Transnet, which will help to bring the cost of transport down.
- Systems are being put in place to eliminate “ghost workers” and to prevent tender fraud.
- We can see our credit rating improve which will translate into a stronger rand, lower borrowing costs and easing funding pressures.
Our debt to GDP is still very high and the interest we pay on that debt is painful. We still have ministers and other government officials in positions they should not be in because they are not there on merit, but at least it seems like the damage done by bad decisions (remember the insane suggestion by the minister to raise VAT) and corruption is slowing down. Weak economic growth is still the biggest hurdle in South Africa. If we can’t grow our economy, unemployment will remain high, which will exacerbate inequality, high crime levels and international investment disinterest.
What the positive elements of this budget might mean for your investments, are further rand strength (we saw the rand dip below R17/$), renewed interest in our bonds and some more juicy returns from our miners. We have been waiting very long for the investment rotation from the USA into emerging markets, and we have seen many false starts. Let’s hope this time is different.