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Johannesburg, 21 February 2018 –  The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the Government’s announced efforts to reduce its ballooning expenditure significantly and stabilise debt levels and considers these to be steps  in the right direction, the Federation’s Chief Economist Dr Michael Ade said today.

“These are welcome developments and targets to meet. If achieved, the 2018 budget may indicate a turning point for the domestic economy. It reflects major new expenditure commitments and corresponding reductions in line with new policy initiatives. However, the challenge is that the spending proposals reflect a trade-off between the country’s vast service-delivery needs and the need to manage Government’s finances sustainably and prudently,” Dr Ade said.

In what is considered to be a clear signal that the government is committed to fiscal consolidation, Finance Minister Malusi Gigaba announced an increase in value-added tax for the first time since 1993, lifting it from 14% to 15% from 1 April 2018. Dr Ade welcomed the initiative as a clear sign of the Government’s commitment to fiscal consolidation and its willingness to reduce the revenue shortfall.  He also welcomed the Government’s intention to increase collaboration with all law enforcement agencies to strengthen efforts to fight fraud, corruption and abuse of supply chain management (SCM) across all spheres of government in order to restore the integrity of SCM.

However, Dr Ade said that despite the Government’s concrete plans to significantly cut expenditure, Minister Gigaba’s speech lacked solid measures to improve domestic demand.

“Notwithstanding efforts aimed at supporting designation and localization, the Minister should have done more for local producers. In consideration of the hugely competitive international trade environment and increased protectionist policies taken by countries to protect their local industries, one of the best stimulatory measures within the Government’s control would have been to channel spending directly to local producers.

“This would directly ensure that there is increased capacity to produce imported inputs, thereby reducing the cost of production and directly boosting production. Once the supply side of the economy is directly taken care of, monetary policy can be used to stimulate the demand side, including consumer spending – and this would  ultimately lead to sustainable benefits for the domestic economy,” Dr Ade said..

He added that the budget was consistent with President Ramaphosa’s promise, during his maiden State-of-the-Nation Address, that tough decisions would be taken to close the fiscal gap, stabilize debt and restore State-owned companies to good health.

He said that it remained to be seen if the budget speech would be enough to satisfy international ratings agencies.

Dr Ade warned that the road ahead is still long and windy before a sustainable turnaround in the economy can be achieved, with public finances restored to good health. He said containing Government expenditure was necessary not only to satisfy ratings agencies or investors, but also to demonstrate Pretoria’s willingness to make the necessary sacrifices.

He said Minister Gigaba’s speech did not provide any clear signs of a shift in economic policy, but contained “the same dose of optimism that characterised President Ramaphosa’s State-of-the-Nation address”.

He expressed hope that the country had done enough to avoid further ratings downgrades.

“That would give us some breathing space to fold our sleeves and take on the arduous task of closing the fiscal gap, stabilize and improve our debt levels and restore State-owned companies to good health,” Dr Ade concluded.

 

Issued by:

Ollie Madlala

Communications Consultant

Tel: (011) 298 9411 / 082 602 1725

Email: ollie@seifsa.co.za

Web: www.seifsa.co.za

 

SEIFSA is a National Federation representing 23 independent employers. Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing few than 50 people.

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