JSE closes in the green for 2nd consecutive day

JSE closes in the green for the second consecutive day as the formal employment data for the last quarter of 2019 showed improvement bouyed by community services and trade released by STATS SA. The local unit firmed in the intra-day movement as markets remained upbeat about the data from China. The Rand closed 0.71% firmer at R17.10/$, R19.19 and 1.17% stronger to the Euro while each unit of British Pound costs R22.17, 0.44% in the green

In London, FTSE 100 closed 1.95% firmer albeit reports stating Briton stockpiled as coronavirus lockdown looms. In Berlin Dax closed 0.49% in the red and CAC40 also found it hard closing 0.3% weaker elsewhere, Spain banned rental evictions for six months and orders large landlords to cut rents for tenants impacted by the coronavirus

In Asia, Hong Kong February retailers figures showed a staggering plunge of 44% to $2.3 billion highlighting the gloom outlook for sector that had already been battered by anti government protests last year and Japan plans a record stimulus as the ruling proposed a package worth 60 trillion yen to counteract the spreading coronavirus that is already arresting economies across the globe.

China factory outlook rebounds signaling that indeed the second largest economy in the world may come out of Covid19 thunderstorm less unscathed than any other economy. China’s PMI for this month rose to 52.0. Shanghai Composite Index closed 0.11% stronger. Hang Seng was 2.02% stronger while Nikkie closed 0.88% weaker

In America, US prepare fourth stimulus package to help cope with coronavirus. S&P closed 0.49% firmer as the Index heads for the worst quarter since 1938. Nasdaq went up by 1.03% while Dow Jones closed 0.59% in the green.

The JSE All-Share Index closed 2.48% firmer. Financials by strides led the majors indexes with gains, 7.03% up, Industrials gained 2.29%, while resources and Top40 closed 0.49% and 2.47% firmer, respectively.

The Gold was trading at $1604 per ounce, Platinum 11% up, trading at $735/oz while Palladium was trading at $2420/oz a massive surge of 119%. The brent crude continues to sell below $30, trading at $26 per barrel, 1.53% down.  

Botswana, Mauritius and Morocco the only African countries with investment grade status

After South Africa credit ratings was downgraded to junk status, now we examine African countries which still have investment status in accordance with the three major rating agencies: S&P, Fitch and Moody’s.

Botswana

S&P =BBB+   Moody’s =A2  Fitch =Unavailable Central bank rate =4.75%

Botswana has two investment grades with Moody’s keeping them at A2, the highest by any African country rated by the major three rating agency. No African country other than Botswana holds the Upper-medium grade. Botswana spent the first of the last two decades in the Upper Medium grade by S&P before being downgraded to A- from A in August 2009 citing uncertainties surrounding the country’s spending plans at a time of falling revenue. Botswana diamond output accounted 22% for total global diamond output and accounted for half of government revenue. During the financial crisis, they would then halve their output and suspend most of the diamond activities and the 2009 recession started running through tourism industry as arrivals saw a sharp decline. It would then take them another decade in the Upper medium(low) grade before being downgraded into lower medium grade in March 2020 raising a prolonged fiscal and external deficits. Again, at the center of the matter is the perturbed diamond market which could aggravate the weakening fiscal and external balance sheet of the country.

The Country has been in A2 status for the past two decades with only changes seen in outlook over that period. 

Mauritius

S&P= Unavailable      Moody’s =Baa1  Central bank rate =2.85%

Moody’s rated Mauritius at Baa2 between 1996 and 2012. Moodý’s upgraded Mauritius investment status to Baa1 in 2012 citing strengthening of institutional framework allowed the economy to withstand the negative impact of both the financial crisis and euro crisis. Mauritius had also made progress in diversifying the economy by enticing more FDI from multiple sources. The country made strides to broaden its economic cooperation with China & India.

Morocco

S&P =BBB- Moody’s =Ba1 Fitch =BBB- Central bank rate =2.00%

Currently the S&P rates at BBB-, Moody’s at Ba1 and Fitch at BBB-. S&P upgraded Morocco into the investment grade for the time in period reading between 2001 to 2020 in 2010 stating high political stability and the government’s momentum for its programme, including large public works which has raised Morocco’s trend growth prospects and contributed to improve gradually the country’s still weak social indicators. During the same period, Moody’s ratings on the north African country has been constant at Ba1 only outlook had changes. Fitch last updated their ratings on Morocco in 2007 and its been constant since.

Morocco one of the remaining country in the investment grade

Morocco

S&P =BBB- Moody’s =Ba1     Fitch =BBB-

Currently the S&P rates at BBB-, Moody’s at Ba1 and Fitch at BBB-. S&P upgraded Morocco into the investment grade for the time in period reading between 2001 to 2020 in 2010 stating high political stability and the government’s momentum for its programme, including large public works which has raised Morocco’s trend growth prospects and contributed to improve gradually the country’s still weak social indicators. During the same period, Moody’s ratings on the north African country has been constant at Ba1 only outlook had changes. Fitch last updated their ratings on Morocco in 2007 and its been constant since.

In 2019, the public debt constituted 65.11% of GDP, just a pinch of decline of 0.10% from last update of 65.177%. Morocco tax revenue was reported at just under $24 billion in December 2019, an increase from the last update of $23.300 billion in 2018 averaging $7.389 billion between 1980-2019. Contemporary economic ills includes poverty, joblessness and illiteracy particularly in rural areas albeit economic progress. The budget deficit is expected to remain unchanged at 3.6% in 2020 and the world bank reported their GDP to be worth $120 billion, a growth rate of 2.1% year on year with the joblessness advancing to 10.20% in the last Q of 2019. World bank reported that price reformed in Morocco and changes in energy subsidies contributed to improving the business climate in teh country and achieving goals.

In line with the World Bank’s perspective, the IMF cited the Morrocan economy had affirmed the balance despite weak growth of its largest trading partners, high external risks and fluctuations in the cereal sector. The government expects the economy to grow by 3.7%-3.9% in 2020. Morocco had -0.33 of Political Stability Index conducted by theglobaleconomy.com in 2018. The country is actively encouraging and facilitating foreign investment, particularly in export sectors like manufacturing, through macro-economic policies, trade liberalization, investment incentives and structural reforms added the US Report.

After slashing the lending rates to 2% to boost activity earlier this month, the central bank said it would intervene to ensure there is cash for banks through increasing three fold their refinancing capacity in Dirham and hard currency. This effort comes as all central banks across the globe pump funds into the system to counteract the ramifications of the coronavirus which has run through and shook up global markets over the past few months. 

Budget speech 2020

Madam Speaker,

The Aloe ferox survives and thrives when times are tough. It actually prefers less water. It wins even when it seems the odds are against it.

Mr President, in your state of the nation address two weeks ago you reminded us that our capacity to win is not diminished. We have it within ourselves to be the best in the world.

Congratulations to Miss Universe Zozibini Tunzi, the Springboks and the Proteas, who won while we were preparing this budget.

Our economy has won before, and it will win again.

Before democracy our growth was pedestrian. Indeed, from 1990 to 1992 the economy contracted for three consecutive years.

In the fifteen years after democracy, economic growth averaged 3.6% a year. The gross debt-to-GDP ratio declined from 46% to 26%.

In the five years from 2003 to 2008, growth averaged about 5%, and SA was among the fastest-growing major economies. The unemployment rate improved 5 percentage points.

Now, even after a decade of weak economic performance, SA still boasts deep and liquid capital markets, strong institutions, the most diversified economy on the continent, and a young population.

We are part of the most vibrant continent in the world. As Pliny the Elder said: “Ex Africa semper aliquid novi [Always something new out of Africa].”

Winning requires hard work, focus, time, patience and resilience.

Achieving economic growth and higher employment levels requires a plan.

To quote First Corinthians, chapter 9, verse 24: “Do you not know that those who run in a race all run, but only one receives the prize? Run in such a way that you may win.”

Economic context

What are the conditions under which we must implement our plan to win? In 2020, global economic growth is expected to strengthen to 3.3%.

Global inflation remains contained. Global monetary policy is supportive, and we are benefiting from demand for emerging market assets.

Asia (excluding Japan) is expected to grow 5.8% in 2020. The coronavirus is a source of uncertainty to this forecast.

With growth of 3.5%, Sub-Saharan Africa is forecast to be the world’s second-fastest growing region.

Against this backdrop we forecast that the SA economy will grow 0.9% and inflation will average 4.5% in 2020.

Over the next eighteen months, the economy should get a number of jump starts.

These include:

1. The fruits of the reform agenda led by the president;
2. Lower inflation;
3. The interest rate reduction earlier this year;
4. The recent gains in platinum group metals prices;
5. The impending change to the electricity regulatory framework; and
6. The tax proposals we are setting out today.

Persistent electricity problems will however hold back growth. Over the next three years, we expect growth to average just more than 1%.

Therefore, a stable supply of electricity will be our foremost task.

Towards an economic strategy

Last year, the government embraced the ideas contained in the document “Towards an Economic Strategy for SA”. This is our plan, and it contains the following basic and fundamental pillars of our approach:

1. Strengthening the macroeconomic framework to deliver certainty, transparency and lower borrowing costs;
2. Focusing spending on education, health and social development;
3. Modernising “network industries” and restructuring our state-owned enterprises;
4. Opening markets to trade with the rest of the continent;
5. Implementing a reimagined industrial strategy;
6. Lowering the cost of doing business; and
7. Focusing on job-creating sectors, such as agriculture and tourism.

Underpinning all of this is the need for an efficient and capable state. We must also leverage the private sector as far as possible.

Today, we report on our progress. “We are moving forward!”

Prudent fiscal policy

Outline of the budget for 2020-21

A sound macroeconomic framework always lays the foundation for growth. Budgets are complex, but the numbers are simple. The numbers show that we have work to do.

For 2020-21, revenue is projected to be R1.58-trillion, or 29.2% of GDP.

Expenditure is projected at R1.95-trillion, or 36% of GDP.

This means a consolidated budget deficit of R370.5bn, or 6.8% of GDP in 2020-21.

Gross national debt is projected to be R3.56-trillion, or 65.6% of GDP by the end of 2020-21.

Tax adjustments

To support growth, we propose no major tax increases. Indeed, there is some real personal income tax relief.

This budget means that a teacher who earns on average R460,000 a year, will see their taxes reduced by nearly R3,400 a year. Hard-working taxpayers, who earn on average R265,000 a year, will see their income tax reduced by more than R1,500 a year.

Our income tax system is progressive, and the adjustments reflect this. Someone earning R10,000 a month will pay 10% less tax.

Someone earning R100,000 a month will pay about 1.5% less tax.

We are also proposing broadening the corporate income tax base.

This additional revenue will be used to reduce the corporate tax rate in the near future to help our businesses grow.

Start-ups will ignite the economy. The tax system supports them in a number of ways, including the preferential small business tax regime, the VAT registration threshold and the turnover tax.

We will review these to improve their effectiveness while reducing the scope for fraud and abuse.

To support the property market, the threshold for transfer duties is adjusted. Property costing R1m or less will no longer be subject to transfer duty.

There will be a renewed focus on illicit and criminal activity, including non-compliance by some religious public-benefit organisations. Religious bodies must operate within the strict boundaries of the law if they are to enjoy tax exempt status.

The annual tax-free savings account contribution limit rises to R36,000.

We have increased excise duties to keep pace with inflation. From today:

• A 340ml can of beer or cider will cost only an extra 8c;
• A 750ml bottle of wine will cost an extra 14c;
• A 750ml bottle of sparkling wine will cost an extra 61c;
• A bottle of 750ml spirits, including whisky, gin or vodka, will rise by R2.89;
• A packet of 20 cigarettes will be an extra 74c;
• 25g of piped tobacco will cost 40c more; and
• A 23g cigar will cost an extra R6.73.

I am again happy to report that there is no increase in the price of sorghum beer.

In line with department of health policy, we will start taxing heated tobacco products, for example hubbly bubbly. The rate will be set at 75% of the rate of cigarettes.

Electronic cigarettes, or so-called vapes, will be taxed from 2021.

To adjust for inflation, the fuel levy goes up by 25c per litre, of which 16c is for the general fuel levy and 9c is for the Road Accident Fund (RAF) levy.

Despite this increase, the liabilities of the RAF are forecast to exceed R600bn by 2022-23. We need to take urgent steps to reduce this risk to the fiscus and bring about a more equitable way of sharing these costs. One option is to introduce compulsory third-party insurance.

The carbon tax and other measures will help green the economy, and will bring in R1.75bn over the next few months. This will be complemented by more focused spending on climate change mitigation.

We remain extremely concerned about plastic bags throughout the length and breadth of our country. In this regard, we have increased the plastic bag levy to 25c.

Reducing structurally high spending 

Madam Speaker, our measures will support growth.

But fiscal sustainability must be uppermost in our mind.

Our Aloe Ferox can withstand the long dry season because it is unsentimental. It sheds deadweight to direct increasingly scarce resources to what is young and vital.

Total consolidated government spending is expected to grow at an average annual rate of 5.1%, from R1.95-trillion in 2020-21 to R2.14-trillion in 2022-23. This is mainly due to mounting debt-service costs.

Non-interest spending declines on average over the MTEF [medium-term expenditure framework] in real terms.

As a major step towards fiscal sustainability, today we announce a net downward adjustment to main budget non-interest expenditure of R156.1bn over the next three years relative to the 2019 budget projections.

The total reduction is mainly the result of lowering programme baselines and the wage bill by R261bn. These are partially offset by additions and reallocations of R111bn. Of this, more than half, or R60bn, is for Eskom and SAA.

Programme spending adjustments

Let me unpack the R261bn in baseline spending reductions.

The first part is adjustments on programme spending of about R100bn. Some of these were announced in the medium-term budget policy statement.

Adjustments are mainly in conditional grants for provinces and municipalities.

For human settlements, adjustments amount to R14.6bn over the medium-term expenditure framework.

There are also adjustments of R2.8bn to the municipal infrastructure grant.

Over the three years, public transport spending is adjusted by R13.2bn, mainly on allocations to the Passenger Rail Agency of SA and the public transport network grant.

The planning and implementation of integrated public transport networks will consequently be suspended in the Buffalo City, Mbombela and Msunduzi municipalities.

Education infrastructure allocations are adjusted by R5.2bn over the medium term, while health is adjusted by R3.9bn over the same period.

While some of these savings are good for the fiscus, in many cases we are also making difficult and painful sacrifices. It is therefore important that we direct our constrained resources to areas that have a high social impact and have the largest economic multipliers. We shall undertake spending reviews to ensure that we achieve this objective.

The wage bill

The second part is adjustments on the wage bill by about R160bn over the medium term.

Public servants do crucial work for our country, often in trying conditions.

The governing party is a firm believer in the critical role of the state in development. For this reason, we need qualified, motivated and effective staff.

Working with the public sector unions, we have over the past 15 years sought to improve the lot of public servants, and we have committed significant resources for compensating them every year even as we have tried to increase their numbers in recognition of their demanding workloads.

Between 2006-07 and 2011-12, we were able to add about 190,000 employees.

However, at the same time government wages also increased significantly.

To balance the books, we slowed hiring, and since 2011-12 the number of government employees has declined. Madam Speaker, we cannot go on like this. Classroom sizes are growing, hospitals are getting fuller and our communities are becoming increasingly unsafe.

Once we get wage growth, corruption and wasteful expenditure under control, we will focus our attention on hiring in important areas such as education, police, and health care. We can hire strategically, and better match skills with opportunities.

The employer has tabled an agenda item on the management of the public service wage bill at the Public Service Coordinating Bargaining Council. The focus is to discuss containment of costs in the final phase of implementation of the current wage agreement.

We aim to save R37.8bn in the next financial year.

There is more than one way in which this goal can be achieved.

Organised labour understands where we are. They have made constructive proposals on a range of issues.

Wasteful expenditure and corruption

Mr President, you have directed your government to deal with wasteful expenditure. This is a vital step in restoring the confidence of the public in the government. We must get more value for our money.

The president’s instruction requires a dynamic and appropriate mix of quantity, quality, capacity and capability in the administration of the state.

We are moving forward with reforms to the procurement system with a focus on value for money and maximising the quality and quantity of services. [The] cabinet approved the publication of a new Public Procurement Bill.

We will accelerate merging and consolidating public entities.

We will propose a new law to stop excessive salaries in these public entities.

We must also deal decisively with the excessive, high cost of leasing government buildings.

We are already acting on fruitless and wasteful expenditure.

Last year, this House amended the Public Audit Act to empower the auditor-general to:

1. Refer matters to a public body for investigation and prosecution;
2. Take binding remedial actions; and
3. Recover money directly from the responsible culprits.

To show the determination of the executive to deal with runaway costs, we will implement a number of steps.

These include:

1. Abolishing the current wasteful subsidence and travel system;
2. Replacing the cellphone policy; and
3. Requiring economy-class travel for all domestic flights, except for exceptional circumstances.

Minister Pandor, the minister of international relations & co-operation, is providing phenomenal leadership in building a better Africa and a better world. Her work is unlocking enormous value for money from SA’s overseas missions by:

1. Closing and merging some missions;
2. Downgrading the level of representation;
3. Reducing the number of officials; and
4. Establishing a fully-fledged diplomatic academy.

Appropriate monetary policy

The twin of our fiscal framework is appropriate monetary policy.

Regular consultation on fiscal and monetary policy is critical to the sustainability of our fiscal accounts, to the balanced growth of the economy, and to protecting the welfare of our people.

We would like to reiterate the current inflation target band of 6%-3% as the most appropriate monetary policy framework for a country such as ours. In line with that target, the moderate inflation outcomes for 2019 of 4.1% and the forecast for inflation to be about 4.5% over the next few years, has helped to lower the cost of capital to firms, households and the public sector.

The Reserve Bank will continue to undertake its duties in line with section 224 of the constitution which is to perform its functions independently without fear, favour or prejudice in the interest of balanced and sustainable growth in the Republic.

Aligning spending priorities to the economic growth plan

For our Aloe ferox to grow to its full potential, we need to do things that will help it in the medium to long run — for example, augmenting the soil with the right amount of organic manure, providing the right amount of sun and the correct amount of water. For a fast-growing economy we need to make sure our children are well educated, our people are healthy and our money is invested properly.

Learning, health and social development

Consequently, the largest spending areas will be learning and culture, which receives R396bn followed by health (R230bn), and social development with R310bn.

In the education sector, investment goes to new schools, replacing schools constructed with inappropriate materials, and providing them with water, electricity and sanitation.

In 2020-21 the maths, science and technology grant will introduce coding and robotics to learners in grades R to 3 as announced by the president.

Transfers to provinces support schooling for 13-million children and health care for 49.1-million South Africans. It is in this context that taking forward consultation on the NHI [National Health Insurance] is important.

President Ramaphosa has been elected chairperson of the AU.

We shall commence work on the Pan African University for Space Sciences Institute at the Cape Peninsula University of Technology. Funding can come from the Africa Renaissance Fund.

The department of higher education & training will reallocate existing funds to undertake a feasibility study for the establishment of a new university of science and innovation in Ekurhuleni.

Over the next three years, 48.2% of nationally raised funds are allocated to national government, 43% to provincial government and 8.8% to local government.

[A total] R500-million has been provisionally set aside for disaster management to respond to the impact of recent floods and the ongoing drought.

The infrastructure fund

Honourable members, Funanani Sikhwivhilu from Limpopo told us: “Infrastructure development should be a priority for the government” and we agree. In fact, capital spending is the fastest-growing component of non-interest spending. This spending is complemented by the Infrastructure Fund.

Over the next three years the Development Bank of Southern Africa will package blended finance megaprojects of least R200bn. [The] government has committed R10bn over the next three years.

The public can now find information on infrastructure projects on the VulekaMali internet portal.

Youth employment

[A total] 8.2-million young people between the ages of 15 and 34 are not in education, employment or training. [The] government is committed to helping them.

Raising skills and improving the matching of young people and jobs is an important focus of the Presidential Youth Employment Intervention.

To date, Jobs Fund projects have created more than 175,000 permanent jobs, helped 21,000 people into internships and created 59,900 short-term jobs. Of these, 65% went to youth.

As the president announced, we will reprioritize resources to raise spending on this critical area.

We will start work immediately!

I will provide more details in the 2020 medium-term budget policy statement.

We intend to make this intervention a resounding success.

Social grants

We are a caring society. We are a caring government. More than 18-million people receive a grant, which is a lifeline for many.

Grants reduce inequality and protect the most vulnerable in society.

I am happy to announce that grants are adjusted as follows:

1. R80 increase for the old-age, disability and care-dependency grants to R1,860 per month;
2. R80 increase in the war veterans grant to R1,880;
3. R40 increase for the foster care grant to R1,040 per month; and
4. The child support grant will increase by R20 to R445 per month.

Changing the way we provide social grants has generated about R1bn per annum in efficiency savings, which will be partly used to raise the daily subsidy per child.

Modernising network industries and restructuring the SOEs

Madam Speaker, the next component of our plan is to modernise network industries and to restructure the state-owned enterprises.

Electricity

[The] government will do whatever it takes to ensure a stable electricity supply. It is our primary task. We have allocated R230bn over ten years to achieve the restructuring of the electricity sector.

The current electricity shortfall will ease as Eskom finishes critical maintenance. Bid Window 4 of the renewable energy programme is being accelerated. The rapid decline in renewable energy prices will give new momentum to Bid Window 5.

Determinations to implement the Integrated Resource Plan of 2019 are finalised and await the concurrence of the National Energy Regulator.

It will shortly be possible for municipalities in financially good standing to purchase electricity from independent power producers.

SAA

The SAA Sword of Damocles has now fallen on us. SAA has been placed in business rescue, which will lead to a radically restructured airline. Over the medium term, [the] government has allocated R16.4bn to settle guaranteed debt and interest. The associated restructuring costs will be reprioritized within the budget.

It is the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus.

Rail

[The] cabinet approved the Economic Regulation of Transport Bill in November, which takes us towards a fairer process for third-party access to the rail network.

Opening up our markets to trade with the rest of the continent

In 2019, SA signed the African Continental Free-Trade Agreement, which comes into effect on July 1 2020. This agreement will open up new markets, promote regional integration and contribute to economic growth.

Today we announce complementary measures to make it easier to do cross-border financial transactions, which will support trade and investment.

We want to encourage South Africans abroad to keep their ties with the country. We will raise the exempt amount for foreign remuneration to R1.25m.

We will phase out the administratively burdensome process of emigration through the SA Reserve Bank.

Reimagining our industrial strategy

To implement the reimagined industrial strategy:

1. An innovation fund will be capitalised with R1.2bn over the next three years;
2. Industrial business incentives worth R18.5bn will create and retain about 56,500 jobs;
3. An additional R107m is reprioritized for the refurbishment of 27 industrial parks in townships and rural economies; and
4. R6.5bn is allocated for small business incentive programmes of which R2.2bn will be transferred to the Small Enterprise Development Agency. With the Department of Trade, Industry & Competition, we are considering various proposals from Itac [International Trade Administration Commission] related to scrap steel and poultry.

Lowering the cost of doing business

Madam Speaker, steps are being taken to address SA’s lagging productivity growth and reduce the cost of doing business. The BIZPortal for example will provide a streamlined way to register a new business with the CIPC [Companies and Intellectual Property Commission], Sars, the UIF and the Compensation Fund in one day.

The Competition Amendment Act came into force in July 2019, strengthening the Competition Commission’s powers. The commission has conducted inquiries into a number of sectors to strengthen competition.

SA is moving with the fourth industrial revolution. We are determined not to be left behind. We are relaxing regulations to help our flourishing fintech sector.

The spectrum licensing plan was released in November, preparing the way for auctioning high-demand spectrum. Icasa [Independent Communications Authority of SA] will be appropriately capacitated for this.

A voucher system will be introduced to allow households to acquire digital devices.

Supporting agriculture and tourism

Over the medium term we will support agriculture and tourism. [The] government has allocated R495.1m to the department of agriculture, land reform and rural development to improve compliance with biosecurity and support exports.

An additional R500m is reprioritized over the medium term for the department to finalise land claims.

To support tourism, we will engage with the tourism industry on formalising the tourism levy.

Enforcing justice

Madam Speaker, fighting corruption is a priority of this administration.

The NPA [National Prosecuting Authority], Special Investigating Unit and Directorate for Priority Crime Investigation get an additional R2.4bn in this budget.

This will enable the appointment of about 800 investigators and 277 prosecutors who will assist with, among other things, clearing the backlog of cases such as those emanating from the Zondo commission.

The disruptive actions of those who storm construction sites or mines harm growth and lead to job losses. Communities should expose such people to allow ministers [Bheki] Cele and [Ronald] Lamola to ensure that the law takes its course. I hope all South Africans join me in condemning this.

Off-budget initiatives to grow the economy

Supporting lending

Working with the financial sector, a pilot of the Help to Buy scheme has supported more than 2,000 families to buy their own homes. For every R1 subsidy provided by government, the scheme crowds in R8 from the private sector. In a single year, the Help to Buy scheme has supported nearly R1bn in new lending.

State bank

Last year, this House passed legislation that will allow state-owned enterprises to apply for banking licences.

In July 2019, I tasked the deputy minister of finance with the responsibility to undertake the state bank project. Madam Speaker, I am pleased to inform the House that preferred options for the establishment of a bank are now ready. The architecture will be that of a retail bank operating on commercial principles.

The state bank will be subject to the Banks Act, and will have an appropriate capital structure and performance parameters on investments and loan impairments.

It will be regulated by the Prudential Authority on its own merits.

We will also consolidate the currently fragmented system of national and provincial development finance institutions.

Sovereign wealth fund

Mr President, a sovereign wealth fund is an important long-term tool for saving and investment for future generations. It can also contribute to strengthening the fiscal framework.

We must learn to save during the good times, and a fund can play an important role as a countercyclical fiscal tool.

Today we announce the formation of the SA Sovereign Wealth Fund with a target capital amount of about R30bn, which converts to about $2bn.

Given the legal, administrative and procedural issues involved, a relevant bill will be submitted during the course of this parliament.

There are a variety of possible funding sources, such as the proceeds of spectrum allocation, petroleum, gas or minerals rights royalties, the sale of noncore state assets, future fiscal surpluses and money we set aside.

This will ensure that we continue to invest in the future generations of this country in a fiscally prudent manner.

An efficient and capable state

The National Development Plan calls for a capable and efficient state that creates the right environment for the private sector to flourish.

Taxpayers deserve to feel that their money is going to a government that is efficient and capable. We thank all South Africans for paying their taxes.

Sars is an integral part of the capable state. We are focused on reestablishing institutional integrity and fighting criminal activity.

Just this past week two individuals were convicted for up to 168 years’ imprisonment for tax fraud.

Strengthening municipalities

For all South Africans, the state is their municipality.

Allocations to local government help municipalities provide basic services and are a powerful redistribution tool.

Mr President, the National Treasury asked members of the public to provide tips to guide our thinking as we shaped this budget. Today we are joined by Akhona Mgwele from Gauteng who advised us to “support greater local economic development in municipalities”. We agree with her. I am therefore pleased to announce that local government is allocated R426bn from nationally raised funds over the medium-term expenditure framework.

The minister of co-operative governance and traditional affairs and I have agreed that our officials will find ways to use the allocations made through the municipal infrastructure grant to ensure that municipalities not only build new infrastructure but also maintain the infrastructure they already have.

The OR Tambo aerotropolis in Ekurhuleni is at an advanced stage of implementation and King Shaka Airport in eThekwini is progressing in that direction. Cape Town shall join them soon. Meanwhile Lanseria has been identified as a potential smart city.

Strengthening provinces

Provinces provide health care and education and are at the frontline of service delivery.

I wish to thank my colleagues in the provinces, the MECs for finance, for the work they are doing and inputs they have shared with me on fiscal consolidation and economic growth.

All these steps build a capable state.

Strengthening regulatory oversight

Madam Speaker, a number of entities report to the ministry of finance.

The report about the Public Investment Corporation highlights important lessons, including the need to implement and adhere to governance and financial controls, and to reduce risk appetite.

This House has passed legislation to strengthen the Independent Regulatory Board for Auditors, and further legislation is planned. We will shortly appoint an independent panel of experts to review practices in the auditing profession.

The country’s money-laundering system is undergoing a peer review, which will help strengthen the fight against illegitimate and illegal flows.

The Reserve Bank will in future play a more integral part in this fight.

The Financial Sector Conduct Authority has repositioned itself as a market conduct regulator, and we will shortly appoint a new commissioner.

The National Treasury will take steps to strengthen the budget process.

Conclusion

Madam Speaker, winning is not easy. Less than two years before winning the World Cup, the Springboks lost 57-0 to the All Blacks. Miss Universe did not win her first attempt at Miss SA.

Winning takes patience, prudence and perseverance. As St Paul tells us: we must run in such a way that we may win.

To paraphrase Charles Dickens, whom I quoted in my first address as minister of finance: we will make these the best of times.

Mr President and deputy president, thank you for your leadership.

A word of appreciation to the deputy minister of finance, the national treasury director-general and his team.

My thanks to the Sars commissioner, to the governor of the Reserve Bank, to colleagues in the cabinet and in the minister’s committee on the budget.

My gratitude [goes to] the parliamentary committees who work tirelessly to process the legislation accompanying the speech.

I close by reflecting on the words of Comrade Bram Fischer from the dock: “With confidence we lay our case before the whole world. Whether we win or die, freedom will rise in Africa, like the sun from the morning clouds.”

This information was sourced from Business Day

Moody's downgrade SA citing "underlying economic ills" not Covid-19

Earlier in March, the only rating agency to still keep South Africa in the investment grade Moody's, slashed the country's GDP forecast from 0.7% to 0.4% already givin byg analysts a glimpse of what their decision on March 27th would be. Towards the end of 2019, the agency pointed the burden the State-owned entities and debt to GDP ratio pile on the public purse could be the reason for downgrades

Although most analysts in South Africa believed the wield of the effect coronavirus on global economies may swing the Moody's decision in favour of SA, the rating agency Moody's spilt the country's sovereign credit rating to sub-investment grade (junk status) from Baa3 to Ba1 raising factors such as fiscal strength and structurally very weak growth induced by inconsistent electricity supply, persistent business confidence and labour market constraints which continue to perturb economic growth.

The downgrade then shovels South Africa's government bond( worth around $11 billion-outflow) off the FTSE World Government Bond Index. Before downgrade, SA had implied probability of default of 6.63% and with the remaining rating agencies S&P keeping them at BB and Fitch Ratings at BB+ both with negative outlook. The Revenue Receiver missed collections for the financial year 2018/19 penciled a deficit of R14.6 billion after amassing up R1 287.6 billion in tax collections moreover, during the 2020 budget speech delivered by Finance Minister Tito Mboweni, the country budget deficit is set to widen and expand to 6.8% which will the highest since 1992/93 fiscal year. 

The rating agency reasoned the covid19 will perniciously aggravate the country economic situation and further affirm barricades to effectiveness of policies to be implemented to address structural reforms and fiscal stability. Moody's said the "unprecedented deterioration" in the global economic outlook caused by the rapid spread of the coronavirus outbreak will exacerbate the the country's economic and fiscal challenges, and "complicate the emergence of effective policy responses".

Midway 2019, Moody's cited they'd factor the Eskom debt in their next assessment which was scheduled for July and this preceded the Power utility’s downgrade from B3 to B2 and to a negative outlook in November 2019.The business confidence has been persistently lower as the country was confronted with the power cuts in fact gravitating to its lowest in 34 years in 2019. "Unreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural labour market rigidities continue to constrain South Africa's economic growth” The Rating Agency said.

The truth is the government has made some efforts to perk up job creation and economic growth but if not at all, just almost never felt within issues addressed. The economy fell by 1.4% in the fourth quarter of 2019 slipping recession after contracting by 0.6% a quarter earlier. The country is still plagued by youth joblessness albeit extensive efforts to poineer initiatives for youth employment creation. The overall unemployment remained unchanged in the fourth quarter of 2019 from Q3 figures of 29.1%.

"As a result, South Africa is entering a period of much lower global growth in an economically vulnerable position. The government's own capacity to limit the economic deterioration, in the current shock and more durably is constrained," it said.

The rating agency added that progress on structural economic reforms had been "very limited".

"Some initiatives to improve competition and encourage job creation have progressed, but none that constitute a step-change for the economy."

"Structural issues such as labour market rigidities and uncertainty over property rights generated by the planned land reform remain unaddressed. Moreover, a strategy to stabilize electricity production has been slow to emerge and has yet to prove its effectiveness."

As already highlighted, the country has been delaying on land reform issues upon which nobody knows the government stance although there have been some signs of considering a constitutional change to pave a way for expropriation without compensation. The downgrade didn’t come as a result of CoronaVirus, rather the government’s inabilities to address issues given birth to during the last parliament led by President Jacob Zuma. The government has been hobbling to deal with issues such joblessness, mounting debt to GDP ratio, deteriorating fiscal stance, land reform, the ailing parastatals etc. at times leaving them with limited room to raise tax rates and implementations of measures and structural reforms to perk up investors confidence, inclusive growth and macroeconomic stability. Strengthening access to fair labour market and participation in regional market to create a providential space for small business to thrive, was supposed serve as apparatus for poverty and inequality. 

By: Mmamoloko Erasmus Boshomane

Email: eboshomane7@gmail.com

+27 84 847 6895 & +27 79 457 3199 

JSE rebounds after Russia cited a possibility of OPEC talks

After a long haul of trading on what some economists described as black Monday while others labelled PERFECT STORM in Johannesburg (JSE), oil price kick started Tuesday on right foot by retracing some of the yesterday’s losses. On Monday, the Rand traded around R15.97 at noon before closing at R15.94 to the greenback at 5 PM in Johannesburg. On Tuesday, at 14.50 the local unit was just under R15.90/$, 0.96% stronger. These come after it was reported on Reuters that Russia has signaled that talks with OPEC can still materialize. Leaders all over the globe have flashed their intentions of taking steps to deal with spreading coronavirus. U.S President Donald Trump was quoted saying ‘’ We will be taking major steps to gird the U.S economy against the impact of the spreading coronavirus’’,  while Japan will spend more than $4 billion in a second package of steps to cope with the virus.

In New York, The Dow Jones was around 2.75% stronger, S&P 500 was 2.60% up and NASDAQ 100 was 2.55% up. In Asia, Nikkei was 0.85% firmer, Shanghai composite Index and Hang Seng were 1.82% and 1.42% stronger, respectively. European stocks mostly traded in the green, FTSE 100 was 1.66% firmer, DAX was 1.53% firmer and in Paris CAC40 was up by 1.65%.

The Brent crude futures which is a benchmark were 8% up while the Government bond yields also saw their way up. The local bourse rebounded remarkably along with the other exchanges across the globe, at 15.20 PM, JSE All-Share Index was 2.62% in the green while, Financials gained 2.39%, Industrials dragged in 2.91%. Resources and Top 40 were 2.46% and 2.73% stronger, respectively.

In depth 

Naspers climbed 4.41% to close at R2465.95. Topping the list of gainers on the local bourse was Assore which parachuting by 81.86% to close at R314.25 following the announcement of company’s intention to shareholders to repurchase their shares at a price of R320 per share a day earlier. Mining company South32 closed 10.2% stronger at R20.09, coal producers Exxaro Resources went 8.86% up to close at R114.72. 

Sappi rose 9.81% to close at R28.22. Discovery Ltd gained 5.17% to close at R100.31. After releasing their interim Financial Statements, FirstRand closed 4.52% firmer at R52.26.

As expected, after spending the larger part of the day trading positively, Sasol closed the day sharply behind Energy company Vivo Energy which closed the day 46.34% heavily weaker at R11.00 and Hospitality Property Fund shed 12.33% to close at R5.26. 

Reflected on the overall Gold price, Gold producing companies experienced hobbled trading on the day, DRD Gold penned a loss of 10.1% to close at R10.41, AngloGold Ashanti descended by 9.49% to close at R297.78, while Harmony Gold shed 6.88% close at R57.75. 

Commodities saw the Gold trading at $1663.86/oz, down by 1.68%, Platinum was $881.01/oz, 16% up and barrel of Brent Crude was would cost $33.3 down by 10.91%.  

Looking forward to tomorrow:

Below are companies expected to release their final Annual Financial Statements unless state otherwise 

ABSABank

Quilter

PEPKORH- Annual General Meeting

Ascendis

Transcap- Annual General Meeting

ABSA Group

Growthpoint

MTN Group

JSE closes weaker as corona virus continues to prickle balloons on the global stock market

After bleeding 2% at mid-morning trading, the JSE closed 1.88% weaker at close on Friday. This was on the back of renewed fears over coronavirus and the fall in US Treasury yields as investors want Treasury bonds in masses. The US 30-year  and 10-yearTreasury yields both recorded declines with the former having penciled an all-time low. Dow Jones closed 2.14% lower and NYSE Composite index shed 1.91%. In Asia stocks mostly fell as Hang Seng weakened by 2.32%, Shanghai Composite Index closed 1.62% weaker while Nikkie surrendered 2.72%

The Rand weakened further after SA confirmed the 1st case of coronavirus, pulling along the Financials on the JSE. The Firstrand lost 5.46% closing the day at R52.86, ABSA Group slipped 4.45% to close at R126.11, Discovery which bled 3.62% to close at R99.27.

On the heels of the announcement that the company will shut down Anglo Converter Plant, Anglo America Platinum plunged by 14.32% to dwell at R947.64 leaving Anglo American PLC losing 6.27% to close R345.00. SASOL which has been on the headlines the past couple days dropped by 5.9% to close at R159.92 after Moody’s had downgraded its debt rating on Thursday. Impala Platinum, Northam Platinum and Sibanye stillwater closed stronger at 12.8%, 14.26% and 7.6%, respectively. Goldfields led the gainers in the Gold segment with 3.38% and Harmony Gold followed with an increase of 3.03%.

The JSE All-Share index closed 1.88% lower. JSE Top-40 index  surrendered 1.8%, Financials index biggest losers amongst the major indices after retreating 3.11%, Industrials lost 1.3% and Resources shed 2.04%.

The Brent crude was trading 5.46% lower at $47.24/barrel at close, Johannesburg. Platinum was up 4% at $902.26/Oz, while Gold had risen 0.69% to trade at $1683.92/Oz

By: Erasmus Boshomane 

Email: eboshomane7@gmail.com

CELL: 084 847 6895 & 079 457 3199