Looking at inflation rate released by STATSSA

Earlier last week STATSSA announced that the Headline CPI went up to 3.7% hitting the highest record since 4.1% penned in March this year. The monthly increase in October was 0,3%, edging up from 0,2% recorded in both September and August.

The major contributors were categories such as food and non alcoholic beverages which increased by 1.3% on basis and  annual surge of 5.4% all in October, this is the largest annual upsurge since September 2017. 

Let’s now examine how all categories have been pricing their products and services both in October and previous 12 months

Pensioners

Prices for pensioners increased by 0.3% monthly which brought upon 3.4% annual increase in October.

Food and non alcoholic beverages

Prices of Food saw a monthly surge of 1.4% and annual rise of 5.4%. The major contributors to this surge came from Oil & fats (2.8%) and (10.0%) annual, Fruit (2.8%) and (13.5%) annual and vegetables(3.5%).

Prices for Non alcohol beverages went up by 1.2% monthly and 3.4% annually. The change was induced by increases of (1.5%, monthly & 6.3% annually) in hot beverages with main driver behind this upsurge prices being black tea. Black tea prices jumped by 3,9% in October compared with September, resulting in an annual rise of 10,4%. and (1.2%, monthly & 1.9%, annually) in cold beverages  

Alcoholic beverages and tobacco

Bare in mind the change reflected in these prices disregards activities occurring in the informal market thus, the overcharging of alcohol & tobacco on the informal trade market that customers quarrelled about aren’t accounted for.

The prices remained flat for the month of October but annual reading saw 2.7% rise. Wine and beer are the only items to have recorded monthly increases both at 0.1% and annual rise of 5.0% and 1.4%, respectively. The price of spirit fell by 0.5% monthly and rose by 3.2% annually. Tobacco did rise by 1.2% monthly and jumped by 7.5%.

Clothing and footwear

Clothing and footwear had slight increases of 0.1% both monthly and annually. Prices of clothes remained stagnant for a month of October but rose by 0.2% on an annual basis. Footwear rose by 0.2% monthly but fell by 0.1% annually.

Housing and utilities

Monthly figures saw no change in prices but increased of 2.9% annually. Monthly prices for rentals for housing, owners’ equivalent rent and water and other services remained constant but had annual increases of 1.4%(owners’ equivalent rent), 1.3%(rentals for housing) and 6.1%( water and other services). Surprisingly, Electricity and other fuels descended by 0.1% monthly before hitting 5.9% annual increase.

Households contents and services

Monthly and annual prices rose by 0.1% and 1.7%, respectively. Both appliances, tableware and equipment and supplies and services had slight increases and only furnishings, floor covering & textiles recorded decreases(-0.1% monthly and 2.0% annually)

Health

The costs for healthcare services rose by 0.2% monthly and 4.1% annually driven by sharp rises of 0.4% monthly and 2.9% annual medical products. Medical services remained unchanged in October before chalking down annual increase of 5.0%

Transport

Transport services shed 0.2% both monthly and annually. The costs of acquiring vehicle ticked up by 1.0% in October and 4.6% on annual basis. Private transport operation gravitated by 0.2% and 6.5% annually with the main factor behind this turbulence being fuel prices with a decrease of 2.5% and a staggering decrease of 9.1% annually as a result of the local unit remaining valued under $/R15.50 and the brent crude price hovering around $40 per barrel. To nobody’s surprise, the public transport increased by 0.6% monthly and 2.9% annually following an echoing outcry by the taxi operation industry citing the government disregarding the severity of the impact of #Covid19SA in the industry thus, leaving them operating at a deficit with no adequate financial compensation tabled.

Communication

The prices remained steady for the month but shed 0.3% annually and the postal services and telecommunications services dwelled on the segmental average the same figures while telecommunication equipment fell by 0.4% monthly and 1.3% annually.

Recreation and Culture

Prices went up to 0.4% on monthly review and 1.8% annually buoyed by prices of both recreational equipments and books, newspapers and stationery. Recreational equipment ascended by 0.5% monthly and 0.8% annually while books, newspapers and stationery rose by 1.7% monthly to bring a massive annual jump of 9.4%. Packages holidays remained unshaken while recreational and cultural services remained steady monthly and 1.9% rise annually.

Education

The costs of education remained constant on a monthly scale but 5.6% surge was recorded annually. This doesn’t come as a surprise since the costs of education are conventionally reviewed before the end year in preparation for the new and upcoming academic year thus, a change once in year usually at the beginning of the year may be expected as different sectors are laboring to conjure up turn-around strategies to assuage the eye-watering impact of #Covid19SA. 

Restaurants and hotels

Restaurants and hotels prices remained the constant, monthly but increased by 1.9% annually. Restaurant prices remained steady on a monthly review to bring a 2.0% annual increase while for those whose work demands lot of local travels, on average they had to fork out extra 0.5% on hotel prices for only the month of October which is 0.7% less during the same month last year. The restaurant industry has been on the news recently being accused for overlooking the SA citizens when it comes to recruiting staff, the industry is said to be going for cheap foreign labor on the basis that they aren’t affiliated to any trade union leaving them without any choice but rather to accept any wage figure an entity offers. If this matter is taken with a significant amount of seriousness like that of truck industry, then we should glue our eyes on the restaurant prices as high labor costs emanating from employing more local individuals might filter into the customers’ costs.

Miscellaneous goods and services

Other goods and services not accounted in all of the above segments increased by 0.1% monthly taking it to the 6.8% annually. Personal care prices increased by 0.7% monthly and 0.3% annually. Insurance and Financial services remained unchanged during the month in question while costing 7.3% and 7.4% more than the same time last year, respectively.

One can easily understand that the segments in which we experienced significant amounts of changes were operational during lockdowns. Education, communication, restaurants and hotels and recreation and culture had slight changes if not at all or only annual change because they were perniciously affected by lockdowns and their operations were constrained and confined in stillness example, tourism and travels industry remained remained subdued as the country slowly eases its lockdown restrictions. A number of categories in the inflation basket recorded an annual fall in prices in October, most notably fuel (-9,1%), package holidays (-3,7%) and hotels (-3,3%).

Food and beverages, health, clothing and footwear recorded price increases because they were open for businesses during lockdowns under the category classification of essential goods and services and other categories are accommodated through a gradual easing of lockdowns restrictions hence, some had slight changes to their price levels.   

By Erasmus Boshomane

Email: eboshomane7@gmail.com

Cell: 084 847 6895

Earlier last week STATSSA announced that the Headline CPI went up to 3.7% hitting the highest record since 4.1% penned in March this year. The monthly increase in October was 0,3%, edging up from 0,2% recorded in both September and August.

The major contributors were categories such as food and non alcoholic beverages which increased by 1.3% on basis and  annual surge of 5.4% all in October, this is the largest annual upsurge since September 2017. 

Let’s now examine how all categories have been pricing their products and services both in October and previous 12 months

Pensioners

Prices for pensioners increased by 0.3% monthly which brought upon 3.4% annual increase in October.

Food and non alcoholic beverages

Prices of Food saw a monthly surge of 1.4% and annual rise of 5.4%. The major contributors to this surge came from Oil & fats (2.8%) and (10.0%) annual, Fruit (2.8%) and (13.5%) annual and vegetables(3.5%).

Prices for Non alcohol beverages went up by 1.2% monthly and 3.4% annually. The change was induced by increases of (1.5%, monthly & 6.3% annually) in hot beverages with main driver behind this upsurge prices being black tea. Black tea prices jumped by 3,9% in October compared with September, resulting in an annual rise of 10,4%. and (1.2%, monthly & 1.9%, annually) in cold beverages  

Alcoholic beverages and tobacco

Bare in mind the change reflected in these prices disregards activities occurring in the informal market thus, the overcharging of alcohol & tobacco on the informal trade market that customers quarrelled about aren’t accounted for.

The prices remained flat for the month of October but annual reading saw 2.7% rise. Wine and beer are the only items to have recorded monthly increases both at 0.1% and annual rise of 5.0% and 1.4%, respectively. The price of spirit fell by 0.5% monthly and rose by 3.2% annually. Tobacco did rise by 1.2% monthly and jumped by 7.5%.

Clothing and footwear

Clothing and footwear had slight increases of 0.1% both monthly and annually. Prices of clothes remained stagnant for a month of October but rose by 0.2% on an annual basis. Footwear rose by 0.2% monthly but fell by 0.1% annually.

Housing and utilities

Monthly figures saw no change in prices but increased of 2.9% annually. Monthly prices for rentals for housing, owners’ equivalent rent and water and other services remained constant but had annual increases of 1.4%(owners’ equivalent rent), 1.3%(rentals for housing) and 6.1%( water and other services). Surprisingly, Electricity and other fuels descended by 0.1% monthly before hitting 5.9% annual increase.

Households contents and services

Monthly and annual prices rose by 0.1% and 1.7%, respectively. Both appliances, tableware and equipment and supplies and services had slight increases and only furnishings, floor covering & textiles recorded decreases(-0.1% monthly and 2.0% annually)

Health

The costs for healthcare services rose by 0.2% monthly and 4.1% annually driven by sharp rises of 0.4% monthly and 2.9% annual medical products. Medical services remained unchanged in October before chalking down annual increase of 5.0%

Transport

Transport services shed 0.2% both monthly and annually. The costs of acquiring vehicle ticked up by 1.0% in October and 4.6% on annual basis. Private transport operation gravitated by 0.2% and 6.5% annually with the main factor behind this turbulence being fuel prices with a decrease of 2.5% and a staggering decrease of 9.1% annually as a result of the local unit remaining valued under $/R15.50 and the brent crude price hovering around $40 per barrel. To nobody’s surprise, the public transport increased by 0.6% monthly and 2.9% annually following an echoing outcry by the taxi operation industry citing the government disregarding the severity of the impact of #Covid19SA in the industry thus, leaving them operating at a deficit with no adequate financial compensation tabled.

Communication

The prices remained steady for the month but shed 0.3% annually and the postal services and telecommunications services dwelled on the segmental average the same figures while telecommunication equipment fell by 0.4% monthly and 1.3% annually.

Recreation and Culture

Prices went up to 0.4% on monthly review and 1.8% annually buoyed by prices of both recreational equipments and books, newspapers and stationery. Recreational equipment ascended by 0.5% monthly and 0.8% annually while books, newspapers and stationery rose by 1.7% monthly to bring a massive annual jump of 9.4%. Packages holidays remained unshaken while recreational and cultural services remained steady monthly and 1.9% rise annually.

Education

The costs of education remained constant on a monthly scale but 5.6% surge was recorded annually. This doesn’t come as a surprise since the costs of education are conventionally reviewed before the end year in preparation for the new and upcoming academic year thus, a change once in year usually at the beginning of the year may be expected as different sectors are laboring to conjure up turn-around strategies to assuage the eye-watering impact of #Covid19SA. 

Restaurants and hotels

Restaurants and hotels prices remained the constant, monthly but increased by 1.9% annually. Restaurant prices remained steady on a monthly review to bring a 2.0% annual increase while for those whose work demands lot of local travels, on average they had to fork out extra 0.5% on hotel prices for only the month of October which is 0.7% less during the same month last year. The restaurant industry has been on the news recently being accused for overlooking the SA citizens when it comes to recruiting staff, the industry is said to be going for cheap foreign labor on the basis that they aren’t affiliated to any trade union leaving them without any choice but rather to accept any wage figure an entity offers. If this matter is taken with a significant amount of seriousness like that of truck industry, then we should glue our eyes on the restaurant prices as high labor costs emanating from employing more local individuals might filter into the customers’ costs.

Miscellaneous goods and services

Other goods and services not accounted in all of the above segments increased by 0.1% monthly taking it to the 6.8% annually. Personal care prices increased by 0.7% monthly and 0.3% annually. Insurance and Financial services remained unchanged during the month in question while costing 7.3% and 7.4% more than the same time last year, respectively.

One can easily understand that the segments in which we experienced significant amounts of changes were operational during lockdowns. Education, communication, restaurants and hotels and recreation and culture had slight changes if not at all or only annual change because they were perniciously affected by lockdowns and their operations were constrained and confined in stillness example, tourism and travels industry remained remained subdued as the country slowly eases its lockdown restrictions. A number of categories in the inflation basket recorded an annual fall in prices in October, most notably fuel (-9,1%), package holidays (-3,7%) and hotels (-3,3%).

Food and beverages, health, clothing and footwear recorded price increases because they were open for businesses during lockdowns under the category classification of essential goods and services and other categories are accommodated through a gradual easing of lockdowns restrictions hence, some had slight changes to their price levels.   

By Erasmus Boshomane

Email: eboshomane7@gmail.com

Cell: 084 847 6895

 

 

The tourism industry welcomes the opening of borders

Earlier last week the STATSSA monthly statistical release showed how much the #covid19SA lockdown restrictions annihilated the tourism industry. The country had a total of 205 132 travellers of which 66 892 were South African residents and 138 240 were foreign travellers through South African ports of entry/exit in August 2020. A further breakdown of the figures for South African residents indicates that there were 30 547 arrivals, 36 345 departures and no travellers in transit. The corresponding volume for foreign arrivals, departures and travellers in transit was 67 051, 71 148 and 41, respectively. 

The number of South African residents saw a reduction of 93,7% . Departures decreased by 93,0% from 522 927 to 36 345, and transits decreased by 100,0% descending from 976 to nothing.Coming from outside the country’s national borders foreign travellers, arrivals decreased by 95,1% from 1 377 914 to 67 051, departures decreased by 94,1% from 1 215 970 to 71 148 while transits decreased by almost 100,0%, all figures were recorded during the period reading from 482 712 in August 2019 to 30 547 in August 2020.

Due to stringent #covid19SA regulations, road transport was the most easy to use mode of transport as it shaded the chunk of all categories starting with just mode of transport trickling to sub-categories such as mode of transport by regions, gender, age etc. The road transport was used by 180 023 which is 87,8% of the total 205 132 travellers. Only 24 461 (11,9%) made use air transport while just a granule amounting to 648 (0,3%) used sea transport. Further information can be sourced from the STATSA website.

During an additional stimulus announcement, President Cyril Ramaphosa conceded that due to the restrictions the tourism industry lost significant amount of money. “I cannot quantify exactly how much,” said the President. “We can potentially regain some of this loss if we address the architecture of our current system. Arrangements are being finalised for a whole string of countries; the announcement will be made soon. In fact, in just weeks we expect the announcement. This will open doors to various countries.”

Government to amend lockdown restrictions and what lies ahead?

Ramaphosa further highlighted the concerns and complaints they received from travellers who would like to come to SA that they dragging back the industry. The pernicious effect of #Coivid19SA on the tourism industry cornered the government into making what could be a premature decision of assuaging the situation by making amendments on the lockdown restrictions while talks of “Second Wave’’ of infections being on the horizon gains momentum. The send wave of #Covid19 infections has already been seen in countries like China, France, UK while US now have the third wave gawking at their thwacked economy. Amendments would be made to the regulations on the travel of minors; the list of countries requiring visas for South Africa would be reviewed and an e-visa pilot would be implemented. The visa requirements for highly skilled foreigners would be revised.

The decision to amend lockdown regulations has obviously conceived trade-off which will emerge in case of Government having to delist the countries which make up a chunk of if not the biggest contributors to the total travellers through SA port of entry/exit. Another trade-off will be that of granting allowance to countries that still remain epicentre if not amongst the top countries on the infections chart. 

Now let’s look at who are the most popular overseas visitors in SA

10 countries make up 75.5% of all tourists from overseas countries(20

full list of high-risk countries, from which tourists may not visit South Africa, as of 19 October:

United States of America (USA): 35 699 (21.5%)

United Kingdom (UK): 21 834 (13.1%)

India: 13 238 (8.0%)

Germany: 11 827 (7.1%)

France: 11 142 (6.7%)

Australia: 8 825 (5.3%)

China: 7 259 (4.4%)

The Netherlands: 5 782 (3.5%)

Brazil: 5 149 (3.1%)

Canada: 4 771 (2.9%)

In May 2019, the figures show that the number of tourists decreased for four of ten leading countries, France, Germany, The Netherlands and Brazil. Of the top ten countries, only Australia is not listed as banned from travelling to SA thanks to their efficient and effective measures, Furthermore, all the BRICS members are banned despite the President Ramaphosa pointing his BRICS Co-member’s plea ‘I have heard on my own travels that there are people who want to come to South Africa but find it difficult. Chinese President, Xi Jinping, said to me that there are a growing number of Chinese middle-class tourists who want to travel here but find the regime prohibitive.” Ramaphosa said.

With their agape hands, the Tourism Business Council of South Africa (TBCSA) welcomed on of the by-product in the announcement that the list of countries requiring visas for South Africa would be reviewed and an e-visa pilot would be implemented. The visa requirements for highly skilled foreigners would be revised. “We are hoping that the announcements in the following weeks will address all the concerns we have raised with regard to visas and unabridged birth certificates. We have said from the start that unabridged birth certificates have created a large problem for tourism. We want this gone to re-encourage the movement of people into SA.” Interim CEO of the Tourism Business Council of South Africa (TBCSA), Tshifhiwa Tshivhengwa,

Effect

Although the second wave might be on the cards, the effect of this decision of easing regulations to perk up some industries such as tourism will most likely be felt as some parts of the industry, saw operation narrowed while others experienced no activity at all. In addition to that, some of the regular visitors own properties in the country, "Most of them own properties in the country. We appreciate the significant economic contribution that they make through their activities in the country. To this end, we will also allow visitors, in whichever category, who are coming to stay for a three months period or more subject to Covid-19 protocols." The Department of Health Affairs said. Another significant degree of impact will be expected from the revision of Visa regulations after the removal of visa regulation requirements saw the Russia-RSA market expanding by a staggering 47% in the 2nd quarter of 2018.

By: Mmamoloko Boshomane

Email: eboshomane7@gmail.com

Cell: 084 847 6895

Despite leverage Mechanisms, blended finance remains inviable approach for LDCs

Leverage mechanisms play an influential and often decisive role in Blended Finance approaches, but the degree of its influence may decline as the investment risks attached to a country escalate(OECD report of 2019). The Development Bank of Southern Africa announced the establishment of Climate Finance Facility through the principle of Blended Finance two year after the continental financial institution, African Development Bank delegates agreed that the use of blended finance as a tool to address risk perceptions and crowd in private investments to develop Africa and achieve the Sustainable Development Goals at the inaugural Africa Investment Forum in 2018.

                                 Has the approach been viable in Africa or LDCs?    NB!! 31/43 LDCs are from Africa

The report released by the OECD late last year showed that particularly in Least Developed Countries and Low Income Countries, leverage mechanisms plays an influential role in private finance mobilisations although the report pointed how much the LDCs investment risks make it difficult to mobilize private funds specifically for Least Developed Countries in comparison to other categories. Private investments mobilised for LDCs makes up a just pinch of salt if not a granule of the total private investments mobilised for all categories.

Private investors preferred guarantees making the it the most powerful mechanism at 63% of the total volume reported in 2012-2017. Guarantees represent over 55% of all private finance mobilised in every year excluding 2017, when guarantees fell to 44% of private finance mobilise.Total amounts reported as mobilised from direct investments in companies registered a slightly increased over the full time period, from representing 18% of private finance mobilised in 2012, to over 21% in 2017. The number of operations on guarantees declined, after recording 35% of deals in 2012 and a mere 15% in 2017, in favour of direct investment in companies and SPVs and simple co-financing. Guarantees were used in 35 LDCs to mobilise private finance. However, 5 countries, 3 of which in Africa - Angola,Senegal and Zambia -received over half of all private finance mobilised through guarantees, OECD 2019.

Simple co-financing arrangements represent the largest number of deals overall, but mobilised a relatively small share of private capital, 4% over 2012-2017.Acquisition of shares in collective investment vehicles (CIVs) remains a less attractive leveraging mechanism in LDCs, representing 2% of private investment mobilised and total number of deals between 2012-2017.

Annually, Private finance mobilised $17.7 millions through syndicated loans, the largest in LDCs. Guarantees mobilised private funds amounting to $15.5 millions while Credit lines contributed $10.3 millions towards the total mobilised through Private finance. Simple Co-financing amassed the least funds, $0.4 millions while Shares in collective investment vehicles and Direct investment in companies and SPVs mobilised $7.2 millions and $8.3 millions of private finance in LDCs, respectively. 

Despite the influence leveraging mechanisms have on Finance mobilisation, just a mere USD 9.3 billion, or 6% of the total finance investments mobilised went to LDCs, whereas over 70% went to middle-income countries which indicates nothing much changes when it comes to using the Blended Finance to attract investors for the less advantaged countries, amid the leverage mechanisms employed and UNCDF proposing the five-point action agenda to improve the practice of blended finance and support the LDCs to achieve SDGs. Is blended finance really an appropriate apparatus for attracting investments for the most vulnerable and less advantaged? 

Reasons cited for the fruitlessness and inviabilities of the approach is some investors may have a low appetite for risk given the need to preserve their triple-A credit ratings, they may lack awareness of investable projects, institutional incentives may push them to close deals, leading to a focus on “easier” markets or projects, or their mandates may favour commercial returns. 

Another Oil Price War on the cards

The Saudi Energy Minister Abdulaziz bin Saud had threatened OPEC members of Nigeria,Angola and Iran to get their production cuts compliance in order or else the price war would ensue, the reports on oilprice.com said earlier this week. Saudi cited they would throw discounts on these three countries key markets if they keep on producing above their qoutas although  OPECs brent crude production gravitated to its lowest in 30 years at 22.69 millions bpd.

Saudi Arabia vowed to cut their production by a further 1 million bpd making up almost 30% of the 9.7 million bpd of OPEC+cut. The production qouta left most oil producers frustrated as UK, Russia and others have been struggling to cope and comply. Some economies like Russia have their economy heavily reliant on the oil production which makes it stone-hard for them trim off their production to aid in pushing up the oil price back to its conventional levels albeit one of the largest producers Saudi Arabia doing enough for the oil market. 

Since coronavirus stormed into the global economy, the oil price has been struggling to steady as a result of lockdowns imposed worldwide leaving a plummeting oil demand pressing the prices below $20. As per the agreement, the cuts will be relaxed from 9.7 million bpd to 7.7 million bpd post July extension leaving us with a prospect of oil price war on the cards and a question of whether Saudi Arabia will have a further extension because they can produce oil cheaper granting them a space to sell it cheaper

By: Erasmus Boshomane

Email: eboshomane7@gmail.com

Copy of Supplementary Budget Speech by Tito Titus Mboweni, MP Minister of Finance

Madam Speaker 
Mr President 
Mr Deputy President 
Cabinet Colleagues 
Governor of the South African Reserve Bank 
Members of the Executive Committees for Finance 
Honourable Members 
Fellow South Africans 
 Molweni               

 Today, I hereby table for the consideration of the House:

1. The Division of Revenue Amendment Bill
2. Adjustments Appropriation Bill
3. Supplementary Budget Review 
4. Disaster Management Tax Relief Bill
5. Disaster Management Tax Relief Administration Bill
                    

1. Introduction 

Madam Speaker,

We are in the midst of a fast‐evolving pandemic. 

In South Africa and around the world, we have made the decision to protect each other. We have quickly adapted. We all now wear masks. We wash our hands more often. We maintain a safe social distance. As a result, millions have stayed safe. We remain deeply concerned about the path of the virus.  But, in common with several other countries that adopted a stringent, early lockdown, we have “flattened the curve” and saved lives.

As the wise farmer will tell you, when the tempest is raging you must protect your plants from damage. Our Aloe Ferox, like our people, is protected. Mr President, you are the wise farmer, caring for this Aloe Ferox. 

The storm is not over. But, if we follow the health guidelines and make the right decisions to prepare for a new global reality then, soon enough, the days will grow calmer and our national Aloe Ferox shall go into the new day healthy and strong.   

Liduma lidlule!

The storm shall pass!

1.1. The purpose of the supplementary budget

Honourable members,

The Public Finance Management Act, read together with the Money Bills Amendment Procedure and Related

Matters Act, empowers me, as the Minister of Finance, to table an adjustments budget when necessary.  The historic nature of this pandemic and economic downturn has made it necessary to table such an adjustment. we will table a second adjustments budget in October together with the Medium‐Term Budget Policy Statement.  

This Budget does two things. 

First, it brings an Adjustments Appropriation Bill and a Division of Revenue Amendment Bill to the House. It also formalises the two tax bills to give effect to our response. These Bills ask Parliament to approve the response package for COVID‐19.    

Second, Mr President, it lays a path for the direction you gave us on 21 April to: 

“not merely return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality”

This Supplementary Budget sets out a roadmap to stabilise debt, by improving our spending patterns, and creating a foundation for economic revival. 

Most of our energies and resources have been focused on the COVID‐19 pandemic. We have quickly adopted temporary countercyclical fiscal and monetary policy measures. After the storm ends, we must work just as quickly to emerge with a sustainable fiscus.

We have many strengths. These include our young and ambitious people; Our institutions, a robust and vibrant democracy, independent judiciary and our commitment to social justice progress; and our economic strengths: a diverse industrial base, a flexible exchange rate, stable inflation, and deep domestic capital markets that allow us to borrow mainly in rand. 

But debt is our weakness. We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts. 

This indebtedness condemns us to ever higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth. 

So today, with an eye on the future, we set out a strategy to build a bridge to recovery. 

Our Herculean task is to close the mouth of the Hippopotamus!

It is eating our children’s inheritance. We need to stop it now!

Our Herculean task is to stabilise debt. 

2. In‐Year Adjustments

2.1. The Economic Outlook

Let me begin by outlining our updated fiscal and economic forecasts for the current fiscal year. 

COVID‐19 has turned the global economy upside down. In the February Budget, we expected that the global economy would expand by 3.3 per cent in 2020. We now expect a global contraction of 5.2 per cent this year.  This will bring about the broadest collapse in per capita incomes since 1870. Throughout the world, tens of millions of workers have lost their jobs. South African unemployment increased by one percentage point, reaching 30.1 per cent in the first three months of this year.

The South African economy is now expected to contract by 7.2 per cent in 2020. This is the largest contraction in nearly 90 years. Inflation will likely register 3 per cent in 2020, in line with the outcome of this morning. Commodity price increases and a weaker oil price have softened the blow, but as a small open economy reliant on exports we have been hit hard by both the collapse in global demand and the restrictions to economic activity.  

2.2. Fiscal, Monetary and Other Measures

South Africa has responded to this economic shock with an unprecedented set of measures. 

Never before has government worked together so closely with the private sector, labour, community and the central bank. Standing as a united people, it is clear we can achieve anything. Government’s COVID‐19 economic support package directs R500 billion straight at the problem. This is one of the largest economic response packages in the developing world. The South African Reserve Bank has reduced interest rates and made it easier for banks to lend money. The SARB has also supported liquidity in the domestic bond market. The Bank has stated that it stands ready to take additional action, should the need arise. More than 2 million customers have received around R30 billion in relief from their commercial banks. Insurers and medical aid schemes have provided premium holidays. Landlords have provided rental relief. All in 100 days. This is indeed a remarkable achievement.

2.2.1. Revised Fiscal Framework For 2020/21

Turning to the emerging fiscal framework for 2021/22.

Honourable members, projected total consolidated budget spending, including debt service costs, will exceed R2 trillion for the first time ever. 

Gross tax revenue collected during the first two months of 2020/21 was R142 billion, compared to our initial forecast for the same period of R177.3 billion. Put another way – we are already R35.3 billion behind on our  2020/21 target. 

As a consequence, gross tax revenue for the 2020/21 fiscal year is revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by over R300 billion. 

Part of this revision is because the measures announced earlier this year give taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion. These proposals are contained in the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill that I table today. 

Taken together the measures and adjustments we present translate into a consolidated budget deficit of  R761.7 billion, or 15.7 per cent of GDP in 2020/21. This is compared to the deficit of R370.5 billion, or 6.8 per cent of GDP projected in February. This increase is mainly due to the revised revenue projections and pay‐outs from the Unemployment Insurance Fund. The narrower measure, known as the main budget deficit, is projected to be 14.6 per cent of GDP. 

Our early projection is that gross national debt will be close to R4 trillion, or 81.8 per cent of GDP by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6 per cent of GDP projected in February. 

Without external support, these borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else. For this reason, we need to access new sources of funding. Government intends to borrow about US$7 billion from international finance institutions to support the pandemic response. We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back.

2.2.2. Health and frontline services

The Supplementary Budget proposes R21.5 billion for COVID‐19‐related health care spending. It also proposes a further allocation of R12.6 billion to services at the frontline of our response to the pandemic.  Allocations have been informed by epidemiological modelling, a national health sector COVID‐19 cost model and our experiences over the past 100 days. 

This money partly supports increased screening and testing, allowing us to open up more and more of the economy. 

We have successfully increased our COVID‐19 bed capacity to above 27 000; identified 400 quarantine sites with a capacity of around 36 000 beds across the country and deployed nearly 50 000 community health care workers to screen millions of South Africans.  We have tested over 1.3 million people. 

Provinces will add at least R5 billion for the education catch‐up plan, social welfare support for communities and provision of quarantine sites by Public Works departments and responses in other sectors. we salute all the brave health care and essential service workers who are leading this fight. 

Tariffs have been agreed with private hospitals to supplement public sector capacity. 

The Solidarity Fund has augmented government’s efforts to procure medical and personal protective equipment. We thank all those who have made much needed contributions to the Fund. 

These examples show that working together with the private sector with a common purpose we can get stuff done.

We will use these lessons to re‐energise public‐private partnerships.  

2.2.3. Protecting the most vulnerable

Madam Speaker,

Over 18 million South Africans have received a temporary COVID‐19 grant. The roll out of the short‐term Special Relief of Distress grant will temporarily support those without an income. An additional 1.5 million people have received these already. To support vulnerable households an additional allocation of R25.5 billion to the Social Development department is proposed, for a total relief package of R41 billion.

All these measures will come to an end in October.

We have implemented health and hygiene measures in 7 000 early childhood development centres, and appointed about additional 1 800 social workers. 

2.2.4. Driving job creation

The figures from yesterday show that unemployment is our single greatest challenge. The Economic Support Package sets aside R100 billion for a multi‐year, comprehensive response to our jobs emergency. 

The President’s job creation and protection initiative will be rolled out over the medium‐term. It will include a repurposed public employment programme and a Presidential Youth Employment Intervention. In this year, an amount of R6.1bn is already allocated, and a further R19.6 billion has been set aside mainly for this purpose.

2.2.5. Unemployment Insurance

As of mid‐June, the Unemployment Insurance Fund (UIF) has provided R23 billion in COVID‐19 relief to over 4.7 million workers affected by the pandemic. 

This has required a huge upgrade and repurposing of the UIF system to deal with the increase in mostly online applications, and to build in protections against fraud.  We thank all involved for the upgrade, there were many individuals from the private and NGO sector who volunteered their time to assist the UIF. There are still challenges but we are confident that the team is working tirelessly to iron them out. 

2.2.6. Changes to the division of revenue

Honourable members, the division of revenue presented in the 2020 Budget is revised as follows: the national share for 2020/21 increases from R758 billion to R790 billion, the provincial share decreases from R649 billion to R645 billion and the local government share increases from R133 billion to R140 billion. 

Local government is at the heart of our response to the pandemic. Accordingly, an additional R11 billion is allocated to local government through the equitable share. A further R9 billion will be reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport.

Municipalities will adjust their budgets to take into account the sharp decline in revenue as a result of the pandemic. We urge communities to hold councils accountable for the spending of COVID‐19 funds.

National Treasury will also monitor the spending through monthly and quarterly reports. 

2.2.7. COVID‐19 loan guarantee scheme 

Madam Speaker, after a slow start, including all the detailed and technical legal preparations, the loan guarantee scheme is expanding rapidly. In its first month, the scheme lent over R10 billion. Many more applications are being processed, and lending is expected to rise significantly.  

Now that we have moved to an advanced Level 3, most of the economy is “open for business”. We must help businesses to get moving! The loan guarantee scheme also includes a business restart option, for businesses who need support to get up and going after the lockdown. This will apply to all businesses including those with turnover of more than R300 million.

We are also finalising amendments to the repayment holiday and turnover limit, and relaxing terms and conditions to support lending. The South African Reserve Bank and the commercial banks are finalising the revised legal arrangements and will make announcements shortly. Work is also continuing to expand the scheme to non‐bank lenders.

3. Building a bridge to the future 

Madam Speaker, I now turn to the second part of this Supplementary Budget, which is to lay before the House the steps we are taking towards the MTBPS. 

3.1. The Path Forward

The gospel according to the Apostle Matthew, chapter 7 verses 13 and 14, springs to mind:

Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. 14 But small is the gate and narrow the road that leads to life, and only a few find it.

We are faced, as a nation with a choice between these two gates. Even as South Africa responds to the current health and economic crisis, a fiscal reckoning looms. The public finances are dangerously overstretched.

The wide gate is a passive country that lets circumstances overwhelm it. 

If we remain passive, economic growth will stagnate. Our debt will spiral inexorably upwards and debt‐service costs will crowd out public spending on education and other policy priorities. We already spend as much on debt‐service cost as we do on Health in this financial year. Eventually the gains of the democratic era would be lost. 

The wide gate opens to a path of bankruptcy. A sovereign debt crisis1 is when a country can no longer pay back the interest or principal on its borrowings. We are still some way from that. But if we do not act now, we will shortly get there. 

The results are devastating. Interest rates sky‐rocket. Spending has to stop. Inflation takes hold and people grow much poorer. This is what happened to Germany in the 1920s, to Argentina and to Zimbabwe in the early 2000s, and to Greece in the past few years. Argentina had its ships attached. Greek civil servants and pensioners had their salaries and pensions slashed. In short it is doom and despair. We have been there before: in its closing days, the Apartheid government had to declare a debt standstill.

We firmly reject this gate!

The narrow gate on the other hand opens to a path of prosperity. 

Through this gate, we reduce our reliance on borrowing. We feed the hungry. We look after the sick. We educate our people. We build for the future. We spend with wisdom, and we jail those who loot. 

The narrow gate is an active approach – a nation that takes active steps to rapidly stabilise debt and grow the economy. By doing this we will create jobs, reduce the cost of doing business and build a competitive economy.

3.2. Debt stabilisation through zero‐based budgeting

Cabinet, under the leadership and guidance of the President, has found the narrow gate. Government shall go through it. 

Government will narrow the deficit and stabilise debt at 87.4 percent of GDP in 2023/24. Cabinet has also adopted a target of a primary surplus by 2023/24. 

This is about the same time that our Aloe Ferox will flower for the first time. As any farmer will tell you ‐ patience and focus are required! 

The Medium Term Expenditure Framework process will be guided by the principles of zero‐based budgeting which will be applied as a series of overlapping evaluation exercises targeted at large programmes. Our current system of Public Expenditure Reviews is a step towards zero‐based budgeting. This means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were ten years ago. 

The upcoming MTEF will pilot this approach. 

In the review accompanying this budget we set out our initial proposed fiscal path for the period ahead. We need to find spending adjustments of about R230 billion over the next two years.  Tax measures of R40 billion over the next 4 years will also be required. The Government will announce details to these tax proposals in the 2021 Budget. 

Government will also be allocating R3 billion to recapitalise the Land Bank. This Bank holds 29 per cent of South Africa’s agricultural debt. The National Treasury is supporting the Land Bank find a solution to its default and craft a long‐term restructuring plan. Details on this recapitalisation are provided in the Supplementary Budget Review.

3.3. Aligning spending to the structural reform agenda

A firm policy basis has been laid by Towards an Economic Strategy for South Africa, which was considered by Cabinet and accepted last year. While some of the measures have been delayed by the virus, we are now ready. Deputy Minister Masondo will coordinate implementation as the head of the Vulindlela office.

One of these is to shift away from the electricity supply system that was introduced in 1923, when George V, the Queen’s grandfather, was the King of what was known as the Union of South Africa. The last few years have shown the inefficiency of this archaic system. Provisional allocations to Eskom were made on the understanding that Government’s Electricity Roadmap would be implemented.[1] Progress is slow. The principle of zero‐based budgeting is that we must see demonstrable value for money: Eskom will need to show progress in meeting the milestones as laid down in the Roadmap.

This is non‐negotiable. 

Progress on the other reforms will be given in the MTBPS. 

3.4. Fair and fiscally sustainable public sector compensation

This year nearly half of all consolidated revenue will go towards the compensation of workers in the public. We value the important work public servants do. 

Minister Senzo Mchunu is negotiating with our partners in the labour movement to find a balanced solution that sets compensation at an appropriate, affordable and fair level.

We wish him well.

3.5. Putting infrastructure at the centre of growth

Finally, Honourable members, building a bridge to a post‐lockdown future will require that we build high‐quality physical bridges, roads, railways, ports and other infrastructures. 

Infrastructure will be the fly wheel by which we grow the economy. Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs. Our efforts to reduce consumption expenditure will also change the composition of spending in the direction of investment.

Yesterday, the Presidency hosted a successful Sustainable Infrastructure Development Symposium, drawing in sector specialists, technical and financial structuring experts and policy departments that have considered 177 infrastructure projects across public and private sectors.  

In light of these and other important initiatives, the Government has already committed R100 billion over ten years toward the Infrastructure Fund. 

Together with the Development Bank of Southern Africa, we have identified projects that will be funded through the Budget Facility for Infrastructure. We have recently released a paper on Sustainable Finance, and we are working closely with the private sector to green our economy.  

But our enormous investment needs cannot be delivered by government alone. The private sector accounts for most of the investment spending in the economy. We must reduce long‐term interest rates to allow business and households to drive faster economic growth. 

4. Conclusion

This is my presentation to the House and to South Africa, an extraordinary Supplementary Budget that saves lives, protects livelihoods and actively builds a bridge to a prosperous future. 

Madam Speaker, the Gospel tells us:

Small is the gate and narrow the road that leads to life, and only a few find it.

Let me pay tribute to the South Africans who through their actions have protected the health and lives of their fellow citizens. They show resolve to go through the narrow road. Their government is ready to follow their lead.  To quote the President, in his letter to the nation on Monday:

Let us put shoulder to the wheel and turn this adversity into opportunity.

Let us reimagine and repurpose our economy and put it firmly on a solid and sustainable path.  

In conclusion, 

Mr President and Deputy President, thank you for your leadership.

Thank you to the Deputy Minister of Finance, the National Treasury Director General and his team for their insightful contributions! 

My thanks to the Commissioner of the South African Revenue Service, to the Governor of the South African Reserve Bank, to colleagues in the Cabinet, in the Ministers Committee on the Budget and all the MECs that we have worked so closely with. 

My gratitude for the Parliamentary Committees who work tirelessly to process the legislation accompanying the Speech.

Fellow South Africans, Matthew chapter 7 closes as follows:

“Everyone who hears these words of mine and puts them into practice is like a wise person who built their house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did

not fall, because it had its foundation on the rock. Let us listen, let us practice and let us build!

I thank you

Lack of skills and experience to blame for youth unemployment-STATSSA

STATSsa on Tuesday released the South Africa unemployment figures for the first quarter of 2020 as we continue to wait for the Finance Minister to deliver his revised budget. Joblessness flew to its record high showing the weakness in the activity which has been underlying thorn before #Covid19 stormed into the global economy

Quarterly labour force survey shows unemployment rate rifling above 30% mark to 30.1 percent was up from 29.1 percent in the final quarter of last year, 7.1 million people without jobs in the first quarter, up from 6.7 million in the previous quarter

Under the expanded definition of unemployment, which includes people who have stopped looking for work, the rate was 39.7 percent compared with 38.7 percent in the previous quarter.

“This is the first (time) ever that we have hit the 30% mark,” Statistician General Risenga Maluleke said

This does not give the future of the country’s labour force a better picture as both private and public sectors have begun bleeding jobs. The SABC has announced its intentions to retrench over 600 employees while uncertainties surrounding SAA employees continue. #Covid19 does the mining sector no favour as the number of positive #covid19 cases in the industry continues to surge making it unclear as to whether the Health Dept. will continue granting mining activities a green light, indefinitely.

Companies such as steel producer ArcelorMittal South Africa Ltd, food producer Tiger Brands and third-biggest telecommunications operator Cell C already announcing plans to cut jobs.

IN NUMBERS

● Employment decreased by 38 000 to 16.4 million

● Unemployed persons increased by 344 000 to 7.1 million

● There were 20.4 million people aged between 15-34 years and young people accounted for 63.35% of unemployed people

● Youth unemployment rate stands at 43.2% while graduate joblessness of 15-24 years sits at 33.1%

● Discouraged work seekers was at 1.9 million 

On an abstract from the same report, STATSSA highlighted that economy demands skilled and experienced workers which makes it difficult and limits chances for young people to find employment. Many young work seekers aren’t well educated and not in possession of sufficient skills and previous work experience demanded in the employers.

JSE closes in the red

The JSE ALL-Share closed 2.27% lower. Top40 was 2.20 % down, Financial and Resources closed 2.58% and 0.53% down, respectively.