A long road ahead, but possible if crucial decisions are made
The Business School of the North-West University (NWU) has embarked on a brand-new online initiative in which current affairs in the South African sphere will be discussed via Zoom by a panel of experts during Covid-19, returning to round-table discussions when allowed. Journalists from various media will be invited to join the online panel discussion in which real-time opinions from experts in various fields can be accessed.
On 24 June 2020, Minister of Finance Tito Mboweni delivered his emergency Supplementary Budget, outlining the government’s financial response to the Covid-19 pandemic. The NWU Business School invited Dr Azar Jammine to share his views on this extraordinary Supplementary Budget with us. Dr Jammine is the director and chief economist of Econometrix. He has been in his current position since December 1985 and has established a significant profile in South Africa as an analyst and commentator on domestic and international economic affairs.
Following his presentation, opinion formers Andre Duvenhage, Piet Croukamp, Waldo Krugel, Theo Vorster and Albert van Zyl provided their views. The discussion was facilitated by Theo Venter.
According to the minister, the Covid‐19 crisis has turned the global economy upside down. He noted that in the February Budget, the global economy had been expected to expand by 3,3% in 2020. Now the expectation was that there would be a global contraction of 5,2%.
“This will bring about the broadest collapse in per capita income since 1870. Throughout the world, tens of millions of workers have lost their jobs. South African unemployment increased by one percentage point, reaching 30,1% in the first three months of this year,” Mboweni said.
Dr Azar Jammine provided a comprehensive overview of this Supplementary Budget, indicating that is was in essence a mechanism for parliament to condone financial and monetary decisions made during the emergency and to provide a view on the way forward.
Dr Jammine concluded that:
The Supplementary Budget had been a formal exercise to acquire parliamentary agreement for the R500 billion rescue
- package that, according to him, had increased debt by R142 billion, since the rest of the R500 billion had been acquired by redirecting existing funds or through indirect expenditure.
- The increase in deficits and public debt was in line with expectations.
- He questioned whether the published budgetary parameters were not based on unduly optimistic forecasts of economic growth.
- Only moderate tax increases were envisaged over the next four years.
- For once, the government seemed to be taking the risk of an impending debt crisis very seriously.
- The government had pledged its determination to rein in the public debt trajectory in the longer term.
- Scepticism would remain regarding the ability to rein in expenditure in the face of populism. He also added that this budget was really designed to convince the ruling ANC, and not the public at large, of the debt crisis. Mboweni tried to persuade South Africans to buy into the government and Cabinet.
- Financial markets were dominated by international events rather than a parlous fiscal situation, determining the unstable movement of the rand.
- A debt crisis remained a real possibility in the longer term, as was reflected by the steepening of the yield curve.
- South Africa is very dependent on foreign direct investment (FDI), but the current situation would force investors to look for local direct investment, in other words, money available in the country. It was also shown that it was not the private sector that had stopped investing – the government and SOEs had done very little in capital investment themselves.
During the discussion there was agreement that the South African economy was already in deep trouble before the Covid-19 crisis, and that it magnified the already weak areas of the economy. An example was the very negative statistics on unemployment released this week. This negative situation would increase further during 2020 as more statistics became available.
Apart from the economic impact of Covid-19, the following issues were also mentioned:
1. The world was looking more inward in terms of less dependency on other countries, and this would have a huge impact on China.
2. Globally there was a changing pattern in healthcare management.
3. Food security had become a real issue.
4 The Fourth Industrial Revolution and digitisation of society had taken a huge leap forward.