Mboweni: SA has ‘mind-set’ issue; needs to attract private investors #MTBPS

Written on 10/29/2020
Denise Mhlanga

National Treasury is convinced the budget and economic recovery plan will prevent SA plunging into a financial crisis.

Government says the reduction of debt and shifting the composition of spending from consumption towards investment are key to the economic recovery plan. This was revealed in the Medium Term Budget Policy Statement (MTBPS).

“We are addressing our debt, and know what should be done to stimulate economic growth.”

Failure to address the deterioration in the fiscal position could lead to a sovereign debt default, which would result in a reversal of many gains of the democratic era.

The Medium Term Budget Policy proposes a five-year fiscal consolidation to narrow the budget deficit and stabilise government debt.

Read also Gross loan debt set to rise to 92.9% of GDP as SA plugs holes #MTBPS

“Economic growth is key, and the structural reforms outlined in the economic recovery plan could markedly improve the effect of public spending on GDP.”

Minister of Finance Tito Mboweni says the key issue facing South Africa is the mindset. “We used to boast that we are the best economy in Africa. The situation has changed – our debt-to-GDP ratio and debt servicing costs are rising, and not enough investments into the economy.”

He says a mindset change is needed, and taking into account technology penetration and how this impacts the way we do business.

Read also: 10 key points from budget speech: R40bn for SOEs, regulation 28 – and more #MTBPS

Urgent need to attract investments

“Much of the investments into the economy will come from the private sector. We need to attract investors back into the economy.”

National Treasury notes that the decline in gross fixed-capital formation across the public and private sectors deepened in the second quarter.  SA is on course for its fourth consecutive year of contracting investment, with investment as a percentage of GDP down to an average of 17% in 2020 from 23% in 2008.

Apart from a credible fiscal framework, the economic recovery plan will address electricity supply constraints which is crucial in boosting investment.

To do this, government has committed to improving business efficiency levels.  South Africa’s Business efficiency dropped to 56 in 2020 from 44 in 2019, according to the World Competitiveness Yearbook (WCY).

Some of the reasons impacting SA’s competitiveness include  increased public debt amid a shrinking fiscal environment, according to the WCY.  Declining headline and youth unemployment, electricity supply shortages and lack of decisive plans to revive the ailing economy. Addressing corruption in state-owned enterprises was another factor impacting on the ranking.

National Treasury reiterated that improving business efficiency is an important element in improving South Africa’s competitiveness as an investment location.

The Department of Trade and Industry is working closely with the World Bank to ensure SA improves its ranking. Focus is on improving the ease of doing business, issuing of permits and time it takes to start a business. National Treasury says good progress has been through BizPortal. Developed by the Companies and Intellectual Property Commission, the platform offers a seamless digital company registration and related services.

“We remain committed to reducing our debt and making it easier to do business as this will attract much-needed investments.”