Thought Leadership

BLSA CEO Letter – 22 August 2022

22/08/2022 | By Busiswe Mavuso

Last week National Treasury’s acting director-general, Ismail Momoniat, and head of the budget office, Edgar Sishi, presented to Nedlac on their process leading to the medium-term budget expenditure speech due in October. I always think this is an important element of National Treasury’s proactive and transparent approach to budget setting. It is not for nothing that South Africa’s budget consistently ranks among the best in the world for its transparency.

But it got me thinking about the interest business has in seeing an effective budget process. Obviously, the budget has to do two things: enable the government to work effectively, and deliver appropriate fiscal policy. These are not necessarily the same thing – effective government means both spending oversight and allocating budgets to those parts of the public sector that can best spend it to achieve our desired outcomes. Fiscal policy, on the other hand, is tied into wider economic objectives, particularly how we grow the economy.

We have been through a period of slippage – the state capture years put immense pressure on National Treasury and led to a period of spiralling debt and extremely poor expenditure that delivered low value for money. Numerous bailouts of corrupt and inefficient state-owned enterprises were the most obvious pit into which public resources were poured, but there was just as much wasteful expenditure in the rest of government where everything from local municipalities to entire provinces were failing to get audits signed off or follow legal procurement procedures.

Poor value for money from public expenditure is a serious problem for all South Africans, but for business, fiscal policy can seem the overriding concern. Just a few years ago there was growing alarm at the rate at which our debt burden was growing. We lost our investment grade rating by the last of the “big 3” credit rating agencies at the beginning of the Covid epidemic, which meant the cost of capital for all of South Africa, including all businesses, increased. As debt levels continued growing, concern mounted that a fiscal crisis was approaching, one in which the state would collapse under the weight of its debts, leaving it with few options other than a bailout from the International Monetary Fund, effectively ceding sovereignty.

It is a great testament to National Treasury that it has managed over the last two years to shift the probabilities on this outcome. It promised it would get expenditure under control, and it has largely delivered, helping to build trust. Thanks to a temporary spike in key commodity prices like platinum, Treasury also received a windfall in revenue collection that has helped it deliver faster on promises to start chipping away at the overall debt burden. This helps business confidence – businesses no longer must factor in the risk of systemic collapse when making investment decisions.

A critical part of fiscal policy, though, is how to maximise the impact on economic growth of the state’s spending. It may seem the case that all spending is positive for the economy – but that is not true. At the worst points of the state’s debt spiral, business becomes so worried that for each additional rand spent by government, more than a rand was not spent by business. So increased state spending was harming the economy.

What really matters is what the money is spent on – we need government to ensure infrastructure works. Spending on infrastructure expands economic capacity, making it possible to grow employment and production. I, like many other business leaders, have been frustrated that during a period of high commodity prices, we have been exporting less from our ports simply because there is not the rail and port capacity to support it. The revenue windfall to the state could have been much larger had we invested appropriately at the right time.

The balance of spending shifted towards consumption rather than investment throughout state capture. That is now moving the other way and I was pleased to see Finance Minister Enoch Godongwana saying last week that infrastructure spending is set to grow 30%. That is an appropriate fiscal policy objective: it is what enables growth in the economy that can deliver sustainable revenue to the government to support its social spending programmes. We need then to line up other policy behind this: industrial policies that ensure we are manufacturing the goods that benefit from expanded infrastructure investment and so on. We would be better off if Treasury could coordinate these other elements of economic policy alongside its fiscal objectives, rather than the splintering of economic policy into different departments that we’ve seen over the last several years.

We will continue to engage with Treasury through the forums it makes itself available on to support its efforts as a custodian of our national purse. Business is strongly aligned with its efforts.


Restoring SA’s SOEs so that they become efficient and financially self-sustainable is important for developing an economy and a society that are well run, I write in Fin24. If government believes an enterprise can be turned around with a capital injection, that capital should come from the private sector rather than taking a high-risk bet with taxpayers’ money on a low probability of success. SA cannot afford to take on more debt.

Eskom's tariff win

With the new energy plan, SA is finally doing everything it can to tackle the energy crisis, providing hope that other dysfunctional areas of the economy can be successfully addressed, I write in Business Day. The energy plan takes aim at the bureaucratic procedures required for plant approvals with a one-stop shop set up to streamline procedures. A similar approach is needed for the dysfunctionality in the transport system. An attack on red tape nationally and at local level has the potential to boost economic activity and job creation.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.