That handcuff word austerity looms for SA

PRUDENCE, that’s what’s required of the keepers of the national purse. To be anything but cautious with the country’s affairs would send South Africa Inc down a rabbit hole.

The fiscal position we are in requires a word that does not sit too comfortably with the political principal at the helm of Treasury — austerity.

We aren’t quite at European levels of discomfort, nowhere near those of France and even Germany. But for South Africa and most emerging-market economies faced with high inflation, it’s a problem best met with high borrowing costs. While South Africa’s debt position is comparatively better than those in developed climes, further increasing debt would be severely punished by a steep rise in financing costs.

The state has reached its spending ceiling, and spending as seen in this week’s budget has to be reduced. The Treasury faces running battles with most government departments.

Ratings agencies — which have had the country on the brink of “junk” status for more than a year — will applaud its devotion to keeping to fiscal targets. Cabinet peers, in the main, will not.

In a low-growth environment, which has been SA’s story for the past three years, handcuffs on state spend weaken economic growth prospects.

But while that’s necessary in avoiding the dreaded “junk” status and keeping the country on the investment radar, the nuts and bolts of the real economy continue to rust.

Images of street battles between South Africans and foreigners in Atteridgeville and Rosettenville are evidence. An unemployed and mainly young populace, living in a country with the widest social net in Africa, is losing confidence that prospects will improve.

Foreigners, in the main, are from countries that don’t cater for their people, are in a different position and their confidence has more of an entrepreneurial verve.

We’ll all be looking for politicians to show leadership and douse these flames. I’d argue that unless prospects in the real economy improve, and soon, the flare-ups of recent days will come back to haunt us.

The main tool a country has to stimulate its economy and improve the mood is to increase its investment spending.

But the reality is that there’s simply no fiscal room. Expansion plans drawn in the economy’s heyday, before 2008’s electricity and financial crises, are still gathering dust.

As diversified an economy as South Africa’s is, we now find ourselves looking for a sustained improvement in commodity markets. In the short term at least, it would provide a wave that would get the economy out of its funk, on the surface anyway.

So here’s to hoping that markets find fundamental support, outside of a weak dollar, which has seen the rand strengthen below R13/$.

If the rally in commodity

The nuts and bolts of the real economy continue to rust

markets is short-lived, then we are stuck with the reality of an austerity state and a sulking private sector.

It’s a rather depressing prognosis.

I believe a Donald Trump presidency will be a weak-dollar presidency and perhaps that’s by design. If that is the case, commodity producers should have a better run ahead and in our parts we should see an upturn in country revenues and some fiscal room to increase expenditure.

What we do with it will be the most important decision for this country’s political principals.

Will it just boost public employment and fuel consumption, or will it fix the nuts and bolts of this economy?