TWINOAKS INVESTMENT MANAGEMENT (PTY) LTD
Volume 17 Issue 2 – March 2019
“There are no necessary evils in government. Its evils exist only in its abuses” – Andrew Jackson
COMMENT AND OUTLOOK – A Tough Budget
Finance Minister Tito Mboweni delivered a sobering 2019/20 budget for South Africa. It highlighted the strain that the country’s finances are experiencing and the fact that there will need to be some tough decisions made in order to get South Africa back onto a sustainable fiscal path. The cost of the excessive and wasteful spending during the Zuma presidency and the dire financial situation that Eskom is in, are key factors that have caused the challenges that are now faced. There are other state owned enterprises that need financial support but none have anywhere near the scale of Eskom’s problems. Minister Mboweni posed the question about hether the State should in fact be the owner of some of the troubled enterprises. This idea was supported by some of the opposition parties but within the ANC Alliance there is strong disagreement about the concept of the state ridding itself of some of the troubled entities it owns. Taxpayers were given no relief in this budget and many will in fact end up paying more as there was very little adjustment to tax brackets. Economic growth is predicted to remain at subdued levels and it is increasingly evident that until there is a significant improvement in economic growth it is going to be very difficult to deal with the financial problems that the country is facing. These problems have not arisen as a result of any specific factor but are rather an accumulation of years of mismanagement of state finances.
The plundering of state resources has been on a scale that is sometimes quite difficult to comprehend.
There has also been further evidence from both the Zondo Commission looking into State Capture and the PIC Inquiry into the extent of the misuse and theft of state resources by individuals placed into senior positions by the ruling party. We just have to hope that at the end of the day there will be accountability. The plundering of state resources has been on a scale that is sometimes quite difficult to comprehend. It is also clear that these corrupt activities were widespread. While Eskom is attracting a lot of attention because the numbers are so big, many state enterprises and government departments were subjected to different forms of corruption to benefit those that were seeking to illegally profit from state spending. It will take time for those responsible to be held to account but when it does happen it will hopefully send the message that being appointed to a position of responsibility in government is about service to the country and not for narrow and illegal self-interest. Markets around the world continued their positive trend during most of February and ended the month with reasonable improvement, extending the gains made since the beginning of the year. There are still concerns about the USA/China trade talks not being resolved but the deadline of 1 March for raising US tariffs on Chinese imports has been extended as talks aimed at reaching acceptable agreements on trade terms continue. The lack of resolution on Britain’s withdrawal from the EU continues to cause concerns and at this stage it does not seem as if the 29 March date for Britain’s departure will be met. However these concerns and weak economic growth in Europe and a manufacturing slowdown in China did not seem to trouble the markets too much. The JSE also had another positive month led by the Resource sector and some of the Rand hedge heavyweights as the Rand weakened from the gains it made in early February. The oil price has risen and is currently USD 65 per barrel and this together with the weaker Rand, has resulted in an unwelcome rise in fuel prices in South Africa.
The key issue is whether the Ramaphosa-led ANC will win the election with a sufficient majority.
The election date of 8 May was announced by President Ramaphosa during his state of the nation address and all political parties have already started gearing up for what will be the most important election in South Africa since the first democratic election in 1994. There are several dynamics at play in this election and all will have an impact on the country in one way or another. The key issue is whether the Ramaphosa-led ANC will win the election with a sufficient majority to continue to govern the country. This outcome is surely the best one for the country as a whole, in spite of the mess the ANC has become. Had he not been elected ANC leader in December 2017 and the ANC had gone into the election with Jacob Zuma still President of the country, there is a real possibility they would have lost their majority support. The EFF will probably gain support but not as much as people fear. The DA will do well to retain their current level of support. The level of support the ANC receives will be more of an indicator of the level of support that President Ramaphosa receives than the party itself as opinion polls suggest that his popularity ranking is significantly higher than the level of support for the ANC itself. The ANC is seen by many urban voters as a damaged party given the situation that it has got the country into. However a governing ANC led by Ramaphosa is at this stage the only realistic chance that there is to undo some of the damage that has been caused. A reduced ANC majority and strong opposition representation is needed to bring accountability into South Africa politics. The outcome of these elections will give an indication of what the future holds for the country. It could be a much better one.
Twinoaks Investment Management (Pty) Ltd (Twinoaks) is a FSB approved Discretionary Financial Service Provider – No 849. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Twinoaks has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. For any further information concerning this publication, please contact Twinoaks.