Analysis of the economy & budgetary events in the context of the construction sector AfriSam
By: Dr Azar Jammine Director and Chief Economist Econometrix Pty Ltd.
Hopes for improved growth
- Cessation of load-shedding
- Confidence from the formation of GNU
- Improved oversight of corrupt practices
- More cooperation between government & private sector
- Fast tracking by some ministries
- Adherence to fiscal rectitude
- Rand strengthens moderately
- Lower inflation than expected
- Interest rates falling
- Institutions revise SA growth upwards by about 0.5%
- Stimulus from two-pot retirement scheme
Domestic Risks
Risks
- Logistical bottlenecks continue
- Fallout from Mozambique unrest
- Opposition to private/public partnerships
- Breakup of GNU, a possible risk
- Opposition to GNU from within the ANC
- Disarray and incompetence at municipal level
- Failure to address more deep-seated structural impediments
- Negative fallout from Trump administration:
- Vis-á-vis SA
- Vis-á-vis Global economy
- Global long-term interest rates to remain elevated
Thus, far little sign of significant growth pickup
Positives & Negatives from Budget Postponement
Positives:
- Reflection of vibrant democracy at work
- Message to ANC that it has to consult GNU partners
- Budget impasses common in coalition governments
- Problem has arisen from attempts at fiscal austerity, not populism
- Credit rating agencies might be impressed by this
- Spat assists in recognition of dilemma of overspending
- Hiking of VAT rate would have withdrawn R50bn from consumers
- No reference to NHI
Negatives:
- It appears as if the ANC failed to consult GNU partners until late
- Challenge of finding alternative revenue sources
- VAT exclusions and no fuel levy increase neutralised effective 2% hike
- Problem is inability to control spending
- Public sector wage budget hiked by R23.4bn over three years
- SRD grant retained for another year
- Child Support and other grants increased by more than inflation
Conclusion:
- Sustainable growth will remain elusive until higher growth generated
- Dealing with structural impediments critical long-term
- Translation of infrastructural investment into reality critical
Infrastructural Intentions in the Budget Speech
• Capital payments, which is money allocated for the purchase or upgrade of long term assets like buildings, machinery and equipment are the fastest growing area of spending by economic classification
• Over the next three years, public infrastructure spending amounts to more than R1tn
• R402bn for transport and logistics
• R219bn for energy infrastructure
• R156bn for water and sanitation
• SANRAL to spend R100bn “over the medium-term”:
• Roads kept in active resurfacing contracts from 950 km in 2024/25 to 2000 km in 2025/26
• SANRAL will increase strengthening and improvement of network from 200 km in 2024/25 to 400 km in
2026/27
• Provincial roads departments will reseal over 16,000 Lane-kilometres of roads
• Every R1m spent on construction creates more than three jobs for individuals with no more than Matric
• Construction of Mkhomazi Project to commence Nov 2026, transferring water to Mngeni Water Supply System, supplying 5m households
• Credit guarantee vehicle to be launched in H1 2026
Fears over Trump’s Impact on SA
- Aid withdrawal
- Pushback on SA foreign policy stances
- Pushback on expropriation and BEE – note that Rand weakened in response to the strong Dollar due to Mexico & Canada tariff announcement rather than Trump’s SA tirade
- Retaliation for SA’s reporting of Isreal to ICJ
- Impact on AGOA would affect motor & wine industries and some fruit exporters – but not huge relative to total
- AGOA impact more than 3% of SA exports
- Far bigger impact is on desire of Americans to invest in SA
- However, trade relations with other countries to open up
- Ironically, Rand strengthened by 2% last week
Conclusion
- Much of the impact of the deteriorating US/SA relations had already been discounted in Rand’s depreciation in 2022 & 2023
- Budget has important role in highlighting fiscal rectitude or not
