The much-anticipated Budget Speech for 2020 was delivered by finance minister Tito Mboweni on 26 February in Cape Town. In his speech, the minister stated that government will provide medium-term support to both the agricultural and tourism sectors and has allocated R495,1 million to the Department of Agriculture, Land Reform and Rural Development to improve biosecurity compliance and support exports. According to minister Mboweni, an additional R500 million will be reprioritised over the medium term for the department to finalise land claims.
Implementation remains key
Given the extremely difficult economic climate in which this budget speech was delivered, Dawie Maree, head of information and marketing, and Paul Makube, senior agricultural economist at FNB Agriculture, both felt that the immediate feeling was positive. The minister’s focus on wasteful expenditure and cost savings from a government perspective showed the government’s intent. However, implementation will remain key.
FNB Agriculture also felt relatively positive about the R500 million that has been provisionally set aside for disaster management, including floods and the ongoing drought, although implementation will again play a major role. It is also promising that government has allocated funds for land restitution. The R500 million to be set aside for restitution could result in more land claims being resolved over the medium term.
The increase in the fuel levy was expected, but given the current recovery in diesel prices, its impact will be limited. The recovery is due to lower oil prices on the back of the coronavirus and exchange rate. The latter has already reacted positively to the budget speech.
Exports and SMEs boosted
FNB Agriculture further stated that the move to allow third party access into the rail network is also positive, as it may help expedite agricultural exports that currently face bottlenecks and higher costs from trucking due to weak road infrastructure in some provinces. FNB Agriculture concluded that the tax relief for hard-working taxpayers is most welcome and will help consumption growth.
Kenneth Matlhole, FNB Business spokesperson, said the decision by minister Mboweni not to increase VAT is positive for small and medium-sized enterprises (SMEs), as this would have significantly impacted on cash flow and input costs, leaving businesses with no choice but to pass on the costs to consumers.
“Looking at the R6,5 billion allocated for small business incentive programmes, of which R2,2 billion will be transferred to the Small Enterprise Development Agency, this will create vast opportunities for SMEs in light of the tough economic conditions. Conversely, small businesses that are highly dependent on the transportation of goods by road will be financially impacted by the fuel levy increase to 25c per litre,” added Matlhole.
Importance of the agri industry
Agri SA commented that minister Mboweni made sensible choices to manage the government budget and support the economy, and that the budget highlights a renewed focus on the importance of boosting economic growth. The organisation also welcomed the stance of limiting tax increases, which will help to support growth and strengthen taxpayer confidence. According to them, the suggested plans to reign in the public sector wage bill is also in line with a strategy of fiscal consolidation.
While the fiscus is under severe strain, Agri SA hoped to see more support towards agriculture. Spending on agriculture, rural development and land reform remains marginal, and agriculture needs support to implement the potential identified in the National Development Plan. Agri SA maintained that the agricultural sector is the key to unlocking economic growth in South Africa. They hope that within the next year, minister Mboweni will come to realise the potential of agriculture and give the sector and the agricultural community the governmental support it needs and deserves.
Focus on biosecurity encouraging
Craig Polkinghorne, head of commercial banking at the Standard Bank Group, said that they are encouraged by the focus on agriculture given that the sector is a major employer in the economy. “Biosecurity is necessary to prove to our trading partners that South African agricultural production and processing meets international health protocols. Once these standards are met and certified, it is possible to establish trade protocols for agricultural products and expand opportunities for export or entering new markets. The R495,1 million allocated to improve biosecurity and support exports will have a multiplier effect on the amount of exports that will flow from an effective spend of the budgeted amount. This improves both employment and the balance of payments position while providing impetus for growth in the sector,” Polkinghorne added.
Electricity and infrastructure
The Agricultural Business Chamber (Agbiz) recognised that this was yet another challenging budget for South Africa. They added that at the core of reviving South Africa’s economic fortunes is the sustainability of the power supply. While mismanagement of Eskom over the past few years is regrettable, Agbiz is encouraged that the government is committed to “do whatever it takes” to ensure stable electricity supply in South Africa. Agbiz hopes this does not only mean a fixation on Eskom, but acceleration in the already ongoing reforms in the energy sector. They added that rising government debt, related to especially Eskom, remains a major concern.
“Although the budget broadly reflects the compromises between political stability, economic transformation and the need to have private sector-led economic growth, it touched on the right areas by addressing the bloated government wage bill directly, rather than to increase taxes to further counteract it,” said Agbiz CEO Dr John Purchase. It was noted, however, that a great deal of this hinges on the upcoming public sector wage settlement negotiations. Agbiz trusts that their social partners will understand the difficulty that South Africa is in and the need to rebalance.
“What’s more, it is encouraging that the economic policy theme is aligned to the National Treasury’s very own economic policy paper entitled Towards an Economic Strategy for South Africa. There is now a need for various government departments to do their part in implementing the strategies outlined in the paper. Infrastructure investment is one area, if achieved, which would drive economic growth going forward. Government’s commitment to inclusive economic growth is well communicated through various initiatives, such as through the NEDLAC Jobs Summit process. Such commitments are the only way South Africa could realise the much-needed growth that will help us generate the revenue needed for social expenditure,” Dr Purchase added.
“South Africa’s agricultural sector is export-dependent – exporting nearly half of what the country produces a year in value terms. Hence, the emphasis on supporting exports is fitting, along with sentiments minister Mboweni expressed about the African Continental Free Trade Agreement which comes into effect in July 2020. With 40% of South Africa’s agricultural exports currently destined for the African continent, this agreement brings this reality home, albeit that the benefits might take longer to materialise due to infrastructure constraints.”
Effective expenditure important
According to Theo de Jager, Saai’s chairperson of the board of directors, there are significantly more farms listed in the Government Gazette under outstanding land claims than what were bought over the last 20 years. The total budget allocated for this purpose is but half of what government had spent on a single farm, Mala-Mala, as part of a land claim.
“The state’s budget for land claims for the next three years is in fact only 2% of what Roelf Meyer committed to through his newly-founded agricultural development agency for the support of beneficiaries. Outstanding court cases against the department – given its bad track record in the courts – may very well deplete the total budget. The inadequate budget for land reform is simply more proof that government – despite the abuse of the land issue to create unrealistic expectations for the poor rural communities – is neither serious about maintaining a healthy, competitive agricultural sector, nor about creating a class of successful black farmers with profitable farms,” De Jager said.
“The problem is not the value of the allocated funds, but rather how these available funds are appropriated,” said Francois Rossouw, CEO of Saai. According to Saai, minister Mboweni was spot on with his statement that the state will now have to do more with less funds and that corruption, misappropriation and state capture should be eradicated. “The strengthening of the National Prosecuting Authority and special investigation units with R2,4 billion, together with the condemnation of crime such as those arising from the Zondo Commission hearings, are positive signs. However, these gestures can only be viewed as legitimate when there is active prosecution,” Rossouw added. – Claudi Norté, Plaas Media