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FELLOW South Africans, it is my singular honour and privilege to table the 22nd Medium Term Budget Policy Statement (MTBPS) for consideration of the House and of all South Africans.
In A Tale of Two Cities, Charles Dickens opens with: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity… we were all going direct to Heaven, we were all going direct the other way…” So, too, is the present time. As a country, we stand at a crossroads. We can choose a path of hope; or a path of despair. We can go directly to Heaven, or as Dickens so politely puts it, we can go the other way.
For ordinary South Africans, it has become a difficult time. Administered prices, such as electricity and fuel, have risen. Unemployment is unacceptably high. Poor services and corruption have hit the poor the hardest. Under the leadership of our president, and much like the central character in A Tale of Two
Cities, we have, as a country, chosen the difficult path of redemption.
The MTBPS is a central part of our planning as a country. It is designed to outline how we spend scarce resources for the benefit of all South Africans.
This MTBPS provides us with an opportunity to take stock of the strides we have taken in the year. We do this in a data driven way, providing credible evidence to judge our collective performance as a society.
However, it is more than a set of numbers, reams of data, charts, graphs or words. Our performance should be measured by whether people are gainfully employed, whether our children are learning in decent schools, and whether we have health-care facilities that are up to standard.
The MTBPS is an opportunity to restore trust between government and society. South Africans correctly expect more from their government.
They are right to expect that their money is spent wisely and productively, and goes to meeting their basic needs.
The 2018 Policy Statement is built on a strong conviction that South Africa can be renewed. It reinforces our commitment to the National Development Plan. It articulates the president’s vision of Thuma Mina. Together, as a country, we can rebuild and recast our future.
We are at a crossroads. This MTBPS highlights the difficult economic and fiscal choices confronting us over the medium term. We must choose a path that takes us to faster and more inclusive economic growth and strengthens private and public sector investment.
We must choose a path that stabilises and reduces the national debt. We cannot continue to borrow at this rate. We must choose to reduce the structural deficit, especially the consistently high growth in the real public sector wage bill. New fiscal anchors may be required to ensure sustainability, in addition to the expenditure ceiling. We must choose public sector investment over consumption.
Reconfiguring our state-owned companies requires us to take a hard look at how they operate. Our current challenges with state-owned companies present an opportunity to demolish the walls that exist between the private and public sectors.
Along with other key economic institutions, we will urgently fix the SA Revenue Service (Sars). It is a matter of public record that the capacity of Sars has been weakened. It is in this context that the Sars leadership team must be strengthened.
The organisation has many talented and committed employees who want the organisation to succeed and who are working tirelessly to re-build trust.
THE GLOBAL AND DOMESTIC ECONOMIC OUTLOOK
I present the MTBPS against the backdrop of a technical recession in South Africa. The economic expectations at the time of the Budget in February 2018 have not materialised. Since then, the risks to the global growth outlook have become more pronounced.
Rising interest rates in the US and a stronger dollar reflect a strong US economy. In the medium term, strong US growth will support export growth.
But monetary policy normalisation has created turmoil in financial markets.
With large twin deficits and high levels of external debt, notably Turkey and Argentina have experienced sharp currency depreciation, rising credit spreads and large capital outflows. In some cases, inappropriate policy responses have exacerbated market volatility.
Developing countries are now expected to grow by 4.7 percent in 2018 and 2019. For 2018, South Africa’s growth forecast has been revised down from 1.5 percent to 0.7 percent. Growth is expected to recover gradually to more than 2 percent in 2021, as confidence returns and investment gathers pace.
That said, any forecast is based on a set of current assumptions. In the documentation tabled today, we outline different scenarios including macro-economic and fiscal risks.
IMPLEMENTING MEASURES TO STIMULATE THE ECONOMY
The National Development Plan outlines our long-term vision. A core element of this vision is a commitment to strong, sustained and inclusive economic growth to sharply reduce unemployment, poverty and inequality.
During the first decade of our democracy, economic growth was closely linked with that of the rest of the world. Over the past decade, however, our growth has been significantly slower than our peers.
With the right initiatives, we can once again recouple our growth performance with that of the global economy. Our growth agenda must raise potential output by boosting productivity, increasing competition and reducing the cost of doing business.
As a start, the president has announced five measures to stimulate the economy:
1. Implementation of growth-enhancing economic reforms.
2. Reprioritisation of public spending to support growth and job creation.
3. Enhancing infrastructure investment and establishing an Infrastructure Fund.
4. Addressing urgent and pressing matters in education and health.
5. Investing in municipal social infrastructure improvement.
GROWTH-ENHANCING ECONOMIC REFORMS
The first element of the president’s plan is to implement growth-enhancing economic reforms. Rebuilding confidence will unlock private sector investment. Investors are in it for the long run. They want to know that our policies are clear and consistent.
We must stop talking in contradictory terms.
The president has already taken the lead in rebuilding confidence by appointing a team of investment envoys. We look forward to the upcoming Investment Conference.
Already, in the mining sector, we have finalised the Mining Charter and we are withdrawing the Mineral and Petroleum Resources Development Amendment Bill.
Visa requirements will be eased to boost tourism. We will make it easier for people with skills to work in South Africa. Ten-year multiple-entry visas will be extended to several countries.
In telecommunications, the proposed policy for the licensing of high-demand spectrum has been gazetted. Frequencies to enable high speed internet will be auctioned early next year. Steps will be taken to reduce data costs and improve data quality. Recently concluded power-purchase agreements will create an estimated 61 000 jobs and enable investment of R56 billion.
Through the renewable energy IPPs, we have secured equity for local communities, who will receive about R29.3bn in net dividend income over the life of the projects. For recently signed projects, 53 percent is owned by South African shareholders, while black shareholders own 34 percent of the equity.
Restructuring of the electricity sector is under way. This must include a longterm plan to restructure Eskom and deal with its debt obligations. A review of the current Electricity Pricing Policy will form a part of this process.
We are building partnerships to find solutions to the development challenges faced by South Africa and the region. Partnerships are essential.
1. The recent Jobs Summit brought together business, labour, community and government to leverage our collective strength towards the urgent need to protect and create jobs.
2. South Africa offers a strong investment value proposition. We have a highly diversified, open economy with an abundance of natural resources, an extensive and modern infrastructure network, and sophisticated and deep financial markets. The upcoming investor conference will showcase these strengths to local and international investors.
3. We are upgrading the economic planning and co-ordinating capacity of the state.
Southern Africa – Towards Inclusive Economic Development (SA-Tied) is a programme with other government departments and international agencies to produce high-quality evidence-based policy research.
The programme will train young scholars and give government officials the opportunity to obtain their PhDs in economics and related fields. Our ultimate aim is to improve the interface between cutting-edge research and policy formulation.
REPRIORITISING PUBLIC SPENDING FOR GROWTH AND JOB CREATION
The second element of the president’s plan is about reprioritisation and more effective spending. Spending is projected to be R5.9 trillion over the medium term. Spending will still grow faster than inflation. This is a lot of money. We can do more with it.
We are proposing a combination of reprioritisation, changes to grant structures and in-year allocations amounting to more than R50bn. Of this amount, reprioritisation of R15.9bn goes towards infrastructure programmes, supporting industrialisation, and the Expanded Public Works Programme. An additional R16.5bn of reprioritisation will be allocated to various programmes, including funding to restore capacity at the Sars.
Agriculture will be an important driver of our economic recovery. The Land Bank will continue to support emerging farmers. Our reprioritisation efforts will support the bank to conclude transactions worth R16.2bn over the next three to five years that will create jobs in agriculture. A significant portion of the funding will go towards export-orientated crops that are highly labour-intensive.
Housing subsidies amounting to R1bn will be centralised to help lowto middle-income households access affordable home loans, which will result in more South Africans acquiring their own homes.
We are determined to support greater economic development within our townships and countryside communities. Our spending on infrastructure aims to promote industrialisation across the country. We are spending R668 million over the medium term to revitalise government-owned industrial parks in township areas. So far, the government has upgraded infrastructure at Vulindlela and Komani, both in the Eastern Cape, Botshabelo in the Free State, Seshego in Limpopo and Isithebe in KwaZulu-Natal.
Since 2011, municipalities have completed more than 270 projects to the value of R3.7bn, funded through the Neighbourhood Development Partnership Grant. This has attracted more than R8.7bn of private investment in the township. In Tembisa in Ekurhuleni, public investment to the value of R125m in roads and transport infrastructure has enabled access to social and economic facilities. The investment will attract an estimated R3.5bn of additional public and private investment in commercial, retail and residential developments.
In Msunduzi Municipality, more than R77m in public investment in the Edendale Urban Hub has already attracted private and public sector investment in excess of R1bn. We will continue to roll these out in other parts of the country.
The Giyani Water Project is plagued by malfeasance. It is a cesspool of corruption. The challenges range from a complete disregard for supply chain rules to poor contract management, resulting in irregular expenditure. It is clear that a new delivery and financing model is required to provide water services to communities. A key element of the new approach will be a stronger focus on project management and contract governance to ensure that projects are fit for purpose and maximise value for money in the water sector.
I have asked the director-general of the National Treasury to work with the Department of Water and Sanitation to ensure that appropriate action is taken against all guilty officials implicated in the auditor-general’s report. The president has informed me that he will go to Giyani to see exactly what has happened and what needs to be done. We are dealing decisively and urgently with the water crisis in the Vaal River System.
Our immediate focus is to mobilise short-term financing by reprioritising funds and increasing capacity. I have asked the President and the Minister of Defence for the military to assist with engineering and other expertise to resolve the crisis in the Vaal River System. I am happy to report that approval has been granted. The generals in charge have started working on solutions.
Water is critical. Current water delivery models are not working in many cases and we need to consider new ideas and models.
Given the land transport intensity of our economy, it is vital that our road network supports growth and development.
In A Tale of Two Cities, Charles Dickens opens with: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity… we were all going direct to Heaven, we were all going direct the other way...”
For those with some knowledge of the Bible, you will recall the words of Isaiah in chapter 58 verse 12: “Your people will rebuild the ancient ruins and will raise up the age-old foundations; you will be called Repairer of Broken Walls, Restorer of Streets with Dwellings.”