Treasury: A blueprint for OUTperformance

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29 August 2019
While government has long been criticized for its ability to generate economic plans - but fail to act on them - investors seem cautiously optimistic about the latest paper from National Treasury setting out an economic strategy for South Africa.
Entitled: “Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa”, the paper is being touted by economists and business executives as a step in the right direction for providing a blueprint for economic growth in South Africa.

While it is important to note that this paper is a discussion document and not formal government policy, here are some key takeaways from the paper and some potential spin-offs for the local economy:  

Making it easier and cheaper to move goods around the country:

Consumers and businesses alike are under sustained strain due to the high-cost of transport.

Treasury has identified this as a key area for review proposing a number of structural changes including reducing the petrol price by de-regulating the sector. There are also proposals for introducing new competitors to Transnet, particularly in the road and rail infrastructure and to modernise port infrastructure to improve import and export of goods.  

If transport costs can be reduced, this will have a positive impact on inflation, something which could encourage lower interest rates from the South African Reserve Bank.

Making it easier to communicate:

Treasury points out that the cost of communicating is excessively high in South Africa.

We rank 126th in terms of prepaid mobile cellular tariffs and 69th in terms of fixed broadband internet tariffs and our internet is 119th fastest in the world for download speeds. Out of 17 African states, South Africa is the fourth most expensive in terms of broadband costs. 

It is impossible for government to attain its goal of preparing the South African economy for the 4th Industrial Revolution with statistics like this. With enforcement of local loop unbundling, new competitors and service providers could come onboard, improving access to high-quality internet.

Various studies have highlighted the multiplier effect of access to internet on business activity and Gross Domestic Product (GDP). Improved access will drive new frontiers of innovation in South Africa.   

Making it easier for Eskom:

It is accepted that Eskom represents the single biggest economic risk to South African business. If it is not the debt burden which might cripple the government, it is the simple act of keeping the lights on.

National Treasury has proposed a number of key measures including the establishment of an independent transmission company which will buy power from independent power producers. Another key opportunity is the sale of coal-fired power stations to the private sector, something which Treasury believes could raise as much as R450bn.  

Making it easier to run a small business:

With the South African economy turning to Small and Medium Sized Enterprises (SMEs) to create new jobs, one of the key recommendations in this paper is the focus on small businesses. With 55 mentions of the word “Small business” in the paper, the focus is on making more development finance available for SMEs and more incentives for business owners – including exemption from industry wage agreements and allowing for interest to be charged on late payments from government to SMEs.

Government also wants to reduce Red Tape by 25% over the next 5 years.  

Making it easier to be a South African consumer:

The word “Competition” appears 84 times in the document and should many of these proposed changes come into effect, the South African consumer and business sectors will be net winners.  

Industries such as retail, banking, energy, transport and telecommunications could all receive a shakeup through the proposed structural changes and South African banking consumers are already enjoying a more diverse range of choices and products as new players enter the market.  

Making it easier to be in agriculture and tourism:

The agriculture and tourism sectors have long been identified as key sectors for employment creation in South Africa. Both sectors face fewer challenges from automation and have relatively low barriers to entry when it comes to staffing.

Government has identified the damage yielded by draconian Visa requirements and has already put steps in place to make it easier to visit South Africa for either business or pleasure. Improved police visibility in tourism hotspots will also assist in attracting new tourists.  

A number of key incentives have been proposed for the agriculture sectors including improving access to finance and access to market solutions.  

Making it attractive to own SA property:

Policy uncertainty around South African land remains a key issue for investors across the board. They will be pleased to see that National Treasury emphasises the importance of “Tenure Security” for farmers and agricultural land.  

Government also wants to improve the secondary market in social housing and fast-track the provision of title deeds. With property ownership being a key consideration for those looking to lend money for expansion, these could be critical catalysts for re-building the South African middle-class.  

A plan to make it easier on your investments:

While South Africans have become somewhat cynical about government “plans” - it’s less about the plans and more about the execution of them – there is a quiet sense of optimism from the private sector after the release of this document from National Treasury.  

What has been particularly encouraging is that Treasury has recognised that while government policy – which has often had more of a socialist slant - and the “free market” are unlikely to fully align, there are some practical ways for stimulating the South African economy and in turn driving positive investment returns.

 The focus is on “Inclusive Growth” – something which could drive growth of the tax base.   

If these kinds of proposed changes, make you feel a bit more optimistic about the South African economy and you can see a bit of growth on the horizon, make sure you check out our OUTvest portfolios and find one that fits your risk profile.  

It is often in tough and uncertain economic times that good long-term investment opportunities are present.


Marc Ashton
 This article does not represent the views and opinions of OUTvest but rather those of the author.
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