The clever shift that South Africa’s economy can make: economist

Finance minister Tito Mboweni’s medium-term budget gave a blunt presentation of the financial issues facing South Africa and it is clear that government has finally come to grips with reality, says Efficient Group economist Francois Stofberg.

Stofberg said that Mboweni repeatedly highlighted the issue of government finances – indicating that ‘we have too many civil servants and we pay them too much’.

This builds on the minister’s decision in February not to increase wages of members of parliament and executives at SOEs, and to push civil servants who are close to retirement to take packages without incurring penalties.

He also cleverly informed South Africans how many civil servants earn more than R1 million a year, said Stofberg.

“These announcements speak to the masses, hopefully turning them against the notion of spending too much on wages.

“In effect, he’s busy convincing the ANC’s supporters that government shouldn’t be employing more people. If this shift is possible, it would be an important ideological shift that will hold profound positive benefits for economic growth,” he said.

“As government continues to shift their focus away from social upliftment (increasing the size of their wage bill) towards economic upliftment (spending on investments and the ease of doing business) the potential for long-term sustainable growth increases.”

Positive sentiment

Following Mbowebni’s presentation, Moody’s decided not to downgrade South Africa’s government debt to junk, but only to revise their current grading down to negative.

From this positive news the rand seems to be gathering momentum towards R14.50, should it break through this critical level it might even recover back to levels around R14.00, said Stofberg.

However, he noted that global sentiment has not shifted back to riskier emerging markets and as a result the JSE is struggling to find similar momentum.

“We are confident that negotiations between the US and China, which have led to a Phase 1 deal, will be globally growth positive and shift the momentum back to emerging markets,” he said

“Also, as the developed world starts to slow down, South Africa’s relative position will improve which will further aid sentiment towards our markets.

“For this reason, we remain confident that the JSE will enter a period of substantial growth within the next 24 months.”

Read: Ramaphosa says South Africa’s investment drive on track

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The clever shift that South Africa’s economy can make: economist