Johannesburg, 23 February 2022 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the Finance Minister’s budget, which is a well-balanced approach outlining plans on supporting the economic recovery of the country against the backdrop of the Coronavirus pandemic and economic hardships facing both the economy and the M&E sector.
SEIFSA Economist Ms Palesa Molise stated that “The South African economic recovery has succumbed to various challenges such as the COVID-19 pandemic, social unrest, industrial action and the re-introduction of loadshedding which has contributed to a downward revision in economic growth to 4.8 percent in 2021 from 5.1 percent at the time of the Medium-Term Budget Policy Spending (MTBPS).”
It was generally expected that revenue collection would overshoot the budget, however, the important question was how the windfall would be allocated. SEIFSA welcomes the position adopted by treasury that the windfall is not a function of a stronger economy, but rather the consequences of a commodity price boom, and that the country will not fund permanent expenditure from short-term surpluses is welcomed, Ms Molise said.
“In our view the minister has taken a progressive step of using the windfall to improve some of the macroeconomic metrics. Notable is the primary budget surplus which is expected as early as the next fiscal year (2023/24) and the reduction in the consolidated budget deficit from 5.7% of GDP in the 2022/23 to 4.2% of GDP in 2024/25. The fact that the surplus will also contribute to reducing the country’s borrowing requirements is a positive step considering the already high public debt level and associated debt servicing costs of R330 billion a year”, she said
SEIFSA is also encouraged by plans to foster growth by stabilising electricity supply as energy supply is one of the most critical areas of concern for the M&E sector. Addressing this challenge will go a long way in benefiting the sector by ensuring a predictable and stable electricity supply. Ms Molise applauds the Minister for the provisional allocation of R17.5b for infrastructure catalytic projects which will accelerate industrial activities and employment creation. The focus on infrastructure spending is in-line with the commitment to infrastructure spending announced by the President during his State of the Nation Address. This allocation to infrastructure projects will contribute greatly to the broader manufacturing sector’s sub-sectors such as the M&E sector and construction sector. In support of businesses who were severally affected by COVID-19, we welcome the “Bounce-back scheme” which will assist businesses specifically in the ailing Metals and Engineering sector. This coupled with the reduction in corporate tax will boost business confidence and contribute to the competitiveness of companies in the sector, she said
It is however, SEIFSA’s view that not enough attention was given to the structural reforms programs that are necessary to fundamentally lift the country’s economic growth. Ms Molise said, ‘The projected real economic growth rate of 2.1 percent, to average at 1.8 percent over the next three years is far too weak to provide a platform for higher demand for M&E sector products such as steel. A poor growth scenario and the persistent existence of downside risks from erratic electricity supply will regrettably have additional cost implications for producing companies in the M&E cluster”.
The road to economic recovery will be challenging, the Minister has struck the right notes but as always, the devil will be in the detail and on whether pronouncements translate to actions and tangible results, Ms Molise concluded.