Sakeliga regards Thursday’s mid-year budget update from National Treasury as another confirmation of the need for businesses and communities to state-proof themselves as much as possible. Finance minister Enoch Gondongwana’s mini-budget confirmed that the government does not take seriously enough the fiscal crisis it has created since 2009.
The government has committed to incur 350 to 400 billion rand – around 6% of GDP – worth of new debt every year into the foreseeable future on top of an already giant debt-pile. This is around 2000 rand of new debt for every South African household every month.
State-proofing includes businesses reducing exposure to state contracts, adopting appropriate currency hedging strategies, operating as tax-efficiently as possible, seeking foreign markets and revenue streams, and building trade networks that too are aiming to de-risk in similar ways.
South Africa’s enormous national debt should be seen as a moral failure on the part of the government and a structural risk to social stability and commercial order. It leaves the banking system more susceptible to major domestic or foreign economic events and shocks. Furthermore, it moves the government closer to a scenario in which it must cut off highly dependent networks of patronage and welfare or resort to printing the money it needs and generating destructive inflation.
The finance minister tabled some possible future reforms, most notably to energy production and Eskom, but these will have to be seen to be believed and in their current form by no means solve the policy malaise and fiscal hole the government has created.
Sakeliga stresses the need for urgent government budget surpluses and to fast-track paying off the national debt. Only such a rapid and firm course of action can avoid an eventual fiscal disaster.
In the meantime, while the government remains on such an unwise path, Sakeliga continues to stress the importance of a business strategy of state-proofing, de-risking exposure to the state, and building resilient trade networks. This is an important time to join Sakeliga and support the building of a resilient and independent business community.
Russell Lamberti
Chief Economist
Sakeliga