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The Citizen
4 days ago
- Business
- The Citizen
Decisive intervention needed for municipal performance — BLSA
The state of financial management in municipalities is mirrored in the level of basic service delivery all over the country. The Auditor General's report on municipalities shows that decisive intervention is needed to improve the performance of local government performance is needed. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), writes in her weekly newsletter that the financial state of our municipalities is shocking and a serious constraint on economic growth. 'Only one of the eight metros, Cape Town, received a clean audit, with Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay getting qualified audits indicating material failures in their financial management. 'Johannesburg, eThekwini and Ekurhuleni received unqualified audits but with findings, indicating that the accounts are reliable but that some matters need attention. The worst opinion of an auditor, a disclaimer, means the auditor has not been able to form an opinion on the financial statements at all. Sixteen municipalities were seriously censure with a disclaimer.' ALSO READ: 'Same story year after year': MPs unhappy as Auditor-General reveals local government audit outcomes She says our metros are the economic hubs of our country, and it is completely unacceptable that most of them cannot get basic financial management right. 'They have budgets in the billions, such as Johannesburg, that will spend almost R90 billion this year but cannot manage that money adequately. Public must vote to make their voice hear about municipal performance 'If management in private companies is unable to produce reliable accounts that auditors are content to sign off, shareholders would revolt. In the case of our local government, the shareholders are the public who must exercise their votes.' Mavuso says what makes it even more galling is that the state of financial management mirrors the level of basic service delivery. She points out that Johannesburg, which most of our biggest companies call home, has been in a state of gradual decline for many years. 'Traffic lights seem to have been abandoned, local roads left to decay into unpassable tracks. President Cyril Ramaphosa, two months ago, decried the state of the city, which is meant to serve as host of the G20 later this year, promising an intervention from national government. 'Intervention is sorely needed. As the Auditor General makes clear in her report for the 2023/2024 year, the challenges are driven by a lack of financial management skills and vacancies. There simply are not enough qualified people working in local government to ensure the accounts are done properly, despite the billions at stake.' ALSO READ: Hlabisa questions abilities of local government leaders as AG report shows no improvement in municipalities There has been some improvement in municipal performance with less disclaimers Mavuso says there has been evidence of improvement in some areas. The number of municipalities getting a disclaimer has fallen to 14 from 28 in the 2020-21 year, when local government elections saw new councils elected. That improvement, the Auditor General says, can be attributed to good support from provincial treasuries to assist municipalities' financial function. However, she says that cannot be said of the metros, which the Auditor General says continued to regress since 2020-21, with three downgraded in the last year. She singled out Johannesburg and Tshwane for not budgeting adequately for infrastructure maintenance. She also bemoaned the culture of municipalities approving unfunded budgets, expenditures that cannot be covered out of the revenue the municipalities receive. Mavuso says it should concern all South Africans that elected councillors can willingly approve spending plans for which there simply is no money. 'That is not budgeting – it is reckless spending. 'Controls over expenditure are also problematic. Johannesburg tops the list in terms of unauthorised expenditure, with R2.76 billion. Tshwane is not far behind at R2.15 billion. Beyond the numbers, the Auditor General also reviews municipalities' performance reports, which municipalities are legally required to produce to show how they are doing against their own targets. 'She says there has been no improvement since 2020-21, with only 26% meeting the Auditor General's quality standards on submission. Thanks to corrections made after submission, 52% ended up meeting standards, but that means almost half still fail to.' ALSO READ: Questions about municipal manager's qualifications after R927 000 spent on 22 laptops – report Auditor General's report highlights failure in municipal performance The Auditor General's report is a very helpful spotlight on one of the drivers of service delivery failure in local government, Mavuso says. 'This is now a national priority and one of the biggest constraints on economic growth. Service delivery failure often means businesses cannot function. 'It has been given national prominence through Operation Vulindlela 2.0, the new phase of the successful unit led by the presidency that has been decisive in tackling the electricity crisis and the logistics crisis, among other reforms. 'The need for decisive intervention in municipal performance is very clear. We have to get people into municipalities who are capable of delivering on action plans that will improve the financial function.' The Auditor General also pointed out that weak information technology, again driven by a lack of skills and controls, is a key reason for the municipal crisis and helps paint the picture of what Operation Vulindlela must contend with. Mavuso says an army of highly capable finance professionals is going to be needed. 'There is also a much-needed review underway of the 1998 white paper on local government that has the potential to overhaul policy and find new ways of supporting local government, ensuring better coordination between local, provincial and national. 'The white paper should elevate the importance of consequence management, especially where there is a lack of performance and continuous service delivery issues.' ALSO READ: Ineffective governance at centre of municipal dysfunction – IoDSA Investec report shows what South Africa could have been Mavuso says she was also struck by a report from Investec last week showing how different the country would be today if we had stuck to the 4.5% growth rate we regularly achieved until 2008. 'In 2024, the economy would have been 40% bigger than it was. 'Government revenue would have been R800 billion higher than it is. Just think about that number and the huge arguments we just had about increasing VAT to raise R75 billion over the next three years. Had our economy maintained its trajectory, the government would have little debt, and there would be ample room to grow spending on public services. 'Unemployment would also be sharply lower, with a third fewer people out of work. It was a helpful reminder of how much we lost through poor policy and poor performance. Of course, there were other factors that played a role, including weaker commodity prices and Covid. 'But other countries managed to recover their growth rates with global growth averaging around 3%, while we have been stuck at 1% or less.' Mavuso says when we think of the cost of poor municipal performance and other structural constraints on our growth, it helps to imagine how different things could be. 'Our people are condemned to live poorer lives, with many more out of jobs. Reports like the Auditor General's show us what must be done. We must be serious about doing it.'
The Citizen
26-05-2025
- Business
- The Citizen
Three budgets later, infrastructure investment amount still the same
Balancing the books in the budget was difficult, but in the end no money was taken away from infrastructure investment. While three budgets in a year are unprecedented, the political mechanisms of the government of national unity have brought South Africa to a positive place, while the amount for infrastructure investment remained the same throughout. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly letter that a lot happened last week, from the third budget being tabled to the meeting of President Cyril Ramaphosa with his United States counterpart. 'With everything going on, little comment was made on one element of the budget that will be very important to our future: the amount to be spent on infrastructure investment. Despite important efforts to contain expenditure, infrastructure is expected to see R1 trillion of investment over the three-year medium-term expenditure framework. 'That figure was protected throughout the budget revisions, despite National Treasury having to cut some expenditure lines to accommodate lower growth and constrained tax revenue. Maintaining infrastructure spending is critical to the key challenge of getting economic growth going, which will lead to sustainable job creation. 'Without that, we cannot generate the revenue that would enable government to increase spending in other areas.' ALSO READ: Budget 3.0 was not a chainsaw budget, economists say Budget provides for infrastructure spending on transport, electricity and water She points out that the budget includes spending on electricity, rail, water and other transport infrastructure. 'A large part of that is about fixing our logistics system, which is currently constraining economic activity significantly and deterring both local and foreign investment. 'Economists have estimated that Transnet costs the country R1 billion per day in economic activity due to its inefficiencies. Our mines and factories cannot get their output efficiently to ports and from there to markets in the rest of the world. Although there have been improvements recently, South Africa still has among the most expensive ports in the world.' Mavuso says that, as president, Ramaphosa's visit to the US made clear, we need dependable and stable trading relationships with major world markets. 'Through its tariff moves, the Trump administration has severely disrupted a global trading system based on equal treatment and rules of conduct. 'South Africa has to deal with this reality. I hope our negotiators can make headway in forming agreements with the US, but like the rest of the world, we must be prepared for a future that sees significantly reduced trade with America.' ALSO READ: Sensible or underwhelming? Economists react to Godongwana's Budget 3.0 Will trade swing from West to East? Many commentators are arguing that trade will swing from West to East due to US isolationism, which means increased trade with China, India and other emerging markets, including across Africa, although Europe will remain a critical market for our output too, she says. 'In that scenario, the global trading system is going to be more competitive, with a smaller market available for our outputs. It will be more important than ever that we are efficient. Currently, our goods are more expensive just because it costs so much to get them from where they are produced to where we need to sell them. 'Countries like China put a great deal of focus into making sure their ports are very efficient, and it is critical to their economy's performance.' One area where Mavuso hopes to see much more infrastructure investment is in local government by crowding in private sector spending through public/private partnerships (PPPs). 'Finalising revisions to PPP regulations last year should enable that, but it will take concerted effort and political will from municipalities to actually use the space that is created. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Municipal performance also targeted in budget 'The Operation Vulindlela 2.0 process will include a special effort for municipal performance. PPPs are a potentially important mechanism to get new infrastructure to happen in a sustainable and cost-effective way.' Mavuso says she was also pleased to see several plans in the budget to rein in expenditure that is not productive. 'With the tax options limited, government has to find ways to contain expenditure. Spending reviews already done by National Treasury identified tens of billions of rands in potential savings from poorly performing or inefficient programmes. 'As it noted in the Budget Review, if government acts on its recommendations of these reviews, it may mitigate the need for additional taxes in the 2026 budget. I hope this year's budget experience has made the trade-offs between tax and spending that much clearer to everyone.' She says we allowed spending to grow for too long and never did the hard work of looking at whether that spending is delivering value for money to our people. 'The budget process must, in future, look at underperforming government programmes and shut them down.' ALSO READ: Godongwana cuts government spending to offset VAT shortfall Also positive progress in budget on SRD grant Mavuso points out that another area where Treasury made positive progress is the social relief from distress (SRD) grant introduced during Covid-19 to support people during lockdowns, when economic activity was sharply curtailed. 'It was a lifeline for people who simply could not find economic opportunities, but it was never meant to be permanent welfare support and has become a large item in the budget, costing R35 billion this year, more than three times the revenue the proposed half percentage point VAT increase would have raised. 'Treasury will now investigate replacing the SRD grant with a job seekers' allowance. This makes a lot of sense. We should be supporting people, specifically our youth, to access the job market. A carefully designed support programme that enables people to access potential jobs would be far more sustainable than the SRD grant.' She says it is also highly positive that this budget appears to have the political support to pass all the parliamentary processes ahead of it. 'While the process of three budgets in a year is unprecedented, the political mechanisms have worked to bring us to a place that is positive for the country. 'That will be good for investor sentiment, which is another important part of the effort to get economic growth going.'
The Citizen
16-05-2025
- Business
- The Citizen
Budget 3.0: will it be third time lucky for Godongwana?
The local and global economic picture looks completely different now compared to February when Budget 2025 should have been finalised. Economists agree that Budget 3.0 will be a tough balancing act for Finance Minister Enoch Godongwana as he tries for the third time on Wednesday to get Budget 2025 passed in parliament. Will it be third time lucky for Godongwana? Godongwana's first try on 19 February failed as the parties in the government of national unity (GNU) were not happy with his plans to hike VAT by 2% and it was postponed to 12 March at the 11th hour. On 12 March Godongwana delivered his Budget 2025 and it was voted in after some political wrangling with a VAT increase of 0.5% for this year and another 0.5% for 2026, but Godongwana withdrew the Budget – again at the 11th hour. He will now try again on Wednesday. ALSO READ: Budget 3.0 should not increase SA's debt, rather cut expenditure — BLSA Hoping for pro-growth, pro-investment budget 3.0 Maarten Ackerman, chief economist at Citadel, notes that the fiscal outlook has deteriorated significantly since February, with growth expectations falling well below the 1.7% forecast earlier this year. 'This means lower tax revenue, wider deficits and growing debt to gross domestic product (GDP) concerns.' He highlights the need for either bold pro-growth reforms or meaningful cost-cutting, especially the public wage bill. 'We must see a budget that supports growth while containing borrowing. If not, long-term yields could climb higher and investor confidence may falter. 'A pro-growth, pro-investment budget could ease pressure over the medium term, but in the short term, everyone will be watching where the National Treasury decides to tighten spending.' ALSO READ: Budget warning: How will we afford basic services? Where will minister cut expenditure in Budget 3.0? Frank Blackmore, lead economist at KPMG South Africa, says we know now that there will be no VAT increase. 'That means that the calculated amount of revenue in budget 2.0 will now be lower because it will exclude that component. 'If the government will also not stick to its goal of fiscal consolidation, it will mean that there is no option to increase debt through borrowing to finance the expenditure at this point. Otherwise, that fiscal consolidation target will slip and they will have to cut expenditure.' Blackmore says the important question is where they will cut expenditure. 'If growth is important in terms of a target of the budget, as we heard in both previous versions of Budget 2025, we know it is vital for the future in terms of employment and GDP. 'They cannot cut infrastructure spending, because infrastructure is a base spend that underpins growth in the future and if the social wage is important and looking after people in general, then there cannot be cuts to public services themselves or grants either. ALSO READ: Budget 2025 hitting consumers where it hurts: in their pockets Will there still be relief for lower-income consumers in Budget 3.0? 'Therefore, we look forward to hear where expenditure will take place and we know there are a lot of opinions out there, such as the size and costs of the state. 'There is some room for changes to be made, because as we heard in Budget 2.0, there were some proposals to lessen the impact of the VAT hike proposed in that budget to help lower-income people, such as low fuel levies and tax increases, more zero-rated items and only partially adjusted personal income tax brackets.' He says the question is whether, without the VAT hike, these will still take place? 'I think we will see an increase in fuel prices. We might see fewer zero-rated items as far as that is concerned and we will probably see no adjustments to tax brackets, which is a stealthy way to increase personal income tax revenue to help government collect enough revenue to cover the expenditure after it is cut.' ALSO READ: Outa tells finance minister how to find an extra R500bn ahead of budget speech Will GDP expectation be cut in Budget 3.0? Roy Havemann, senior economist at the Bureau for Economic Research (BER) and head of the BER's Impumelelo Economic Growth Lab, says the BER estimates nominal GDP growth at 5.5%, while the National Treasury's March estimate was 7% for the 2025/2026 fiscal year. 'Our calculations therefore predict that the Treasury faces a revenue shortfall of R29.2 billion compared to Budget 2.0. On the spending side, we estimate that savings of approximately R10 billion can be achieved, leaving fiscal slippage of around R19 billion.' He says the legal challenge to the VAT Act raises serious process issues as it makes it difficult for the Treasury to take major revenue measures on Budget Day. 'Over time, these will have to be shifted to the Medium Term Budget Policy Statement (MTBPS). 'While this will be disruptive in the short term, in the longer term this will bring about better forward planning as tax increases will have to be negotiated and implemented ahead of time.' ALSO READ: Budget 2025: Will Godongwana take, take, take or cut, cut, cut? Expectation that budget deficit will remain wide in Budget 3.0 Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say their unit forecasts the budget deficit to remain wide as the Treasury has limited room to reduce expenditure. 'Key spending increases for 2025/26 include the 5.5% wage settlement with the public sector unions, while the social protection allocations increased at an annual average of 5.3% between 2025/26 and 2027/28. 'The increases in these spending functions are virtually irreversible, with the reduction of social grants likely to invoke another political storm. A wider budget deficit will increase public debt and debt service costs in subsequent years, adding to the aggregate expenditure bill.' They do not expect any significant tax changes on the revenue side, as the political backlash against the VAT increase suggests that any tax hike would be similarly rejected. They say medical aid tax credits will possibly be reduced, particularly for higher income earners. The fuel levy has not changed since April 2022 and could also be increased. However, Matshego and Nkonki point out that these adjustments will not significantly compensate for the R75 billion tax revenue forgone due to the rejection of the VAT rate increase. 'As a result, we expect the budget deficit to remain wide at 4.8% in 2025/26, at 4.5% in 2026/27 and at 3.9% in 2027/28. The debt-to-GDP ratio will peak at 79.3% in 2026/27, but remain high, marginally easing to 78.7% in 2027/28. Encouragingly, the primary budget (before debt service costs) surplus will likely widen to 1.4% in 2026/27.'
The Citizen
12-05-2025
- Business
- The Citizen
Government-business partnership to accelerate delivery
Senior business leaders met with President Cyril Ramaphosa and ministers under the Government Business Partnership recently. The partners in the government-business partnership to accelerate delivery – the BLSA partnership have agreed to fast-track the implementation of key structural reforms and support performance improvements at Transnet and Eskom through an accelerated delivery plan and an intensified phase of its ongoing efforts to expedite delivery on priority interventions vital to economic growth and job creation. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her latest newsletter that the Government Business Partnership, established in 2023, is focused on accelerating crucial reforms and operational improvements to lift confidence levels and drive economic growth in four priority areas of energy, transport and logistics, crime and corruption and youth employment. Youth employment was added in January 2025. 'The partnership believes that this acceleration is necessary to achieve a step-change in progress in response to difficult economic headwinds. Focus will remain on improving Eskom's Energy Availability Factor (EAF) and unblocking delays in new generation capacity to ensure a continued reprieve from load shedding. 'Work is underway to resolve grid access and allocation bottlenecks that hinder new generation projects. While Transnet's performance is not at the level required, it has stabilised and there is a significant focus on growing volumes, which will increase exports and revenue collected to support economic growth and preserve and grow employment.' ALSO READ: Government must keep momentum in partnership with business Accelerated delivery needed in complex environment She emphasises that expediting reforms and performance improvement is crucial to reduce the possible negative impact of the complex global and domestic environment, which continues to present substantial challenges and uncertainty. Gross Domestic Product (GDP) growth projections for 2025 have been revised down and current forecasts remain far below the minimum of 3% economic growth required to create the level of jobs needed to make an impact on the country's high levels of unemployment, she says. According to Mavuso Ramaphosa said: 'Through the strength of this partnership, we have been able to unlock many constraints that undermine growth and job creation. While there is much to improve, the dedication and commitment from both government and business remains undiminished. The pace of our work must increase to match the scale of the challenge.' She says important progress has been made to lay the groundwork for sustained accelerated action, including the finalisation of the Transnet Network Statement, the launch of a Request for Information (RFI) to attract private investment in port and rail infrastructure and Nersa's approval of electricity wheeling regulations. 'These reforms enable broader private sector participation in energy, transport and logistics. Both the crime and corruption and the youth employment focal areas are largely tracking against their plans which have a longer-term time horizon.' ALSO READ: Housing, local gov and digital transformation at the forefront of Operation Vulindlela phase II Partnership welcomes second phase of Operation Vulindlela In line with the commitment to focused execution, the Partnership welcomed the launch of the second phase of Operation Vulindlela, which has a delivery focus that closely aligns with the Partnership's objective of more rapidly accelerating reforms and operational improvements that will drive growth and job creation, Mavuso says. She says at the meeting Adrian Gore, vice president of Business Unity South Africa (Busa) and business co-convenor of the Partnership, said: 'We are entering this accelerated execution 'sprint' with a real sense of urgency. 'Progress has been made, but it is not enough. This requires a step change in the pace of decision-making and execution. We need to redouble our collective efforts to help shift the country onto a sustained upward trajectory and deliver on our shared ambition of a virtuous cycle of growth, jobs, a more positive narrative and increased investment.'
The Citizen
22-04-2025
- Automotive
- The Citizen
Act now to absorb impact of Trump tariffs on SA vehicle manufacturing sector
The vehicle manufacturing sector is the star of the South African economy and makes up 60% of the country's exports of manufactured goods. Government must act now to absorb the impact of US president Donald Trump's tariffs on South Africa's vehicle manufacturing sector by focusing on the rest of Africa and ensuring that the African Continental Free Trade Agreement is fully implemented for vehicles. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), points out in her weekly newsletter that the US is the fastest-growing region for South Africa's vehicle exports and that the tariffs of the Trump administration will have a significant impact on particular models exported to the US. 'If we want to forestall the impact of tariffs on our industrial base, we must act by trying to engage US leaders to shift course. We must also reassess the South African Automotive Industry Masterplan tabled in 2018.' She says South Africa's automotive industry is the industrial backbone of its economy and is responsible for 60% of its manufactured goods exports, as well as the single largest domestic manufacturing sector. ALSO READ: Trump tariffs' seesaw impact on Southern Africa The vehicle manufacturing sector already in trouble before Trump tariffs 'The automotive industry faced challenges even before the Trump administration's tariff policies, with increased competition from imports and weak domestic demand, but the tariffs are a further blow. 'Vehicle exports to the US benefited from the African Growth and Opportunity Act (AGOA), which allowed duty-free access to the US market. Now the sector is facing a 25% tariff on foreign-made vehicles and components, as well as the 30% tariff on South African imports that was suspended for 90 days.' The US was the destination of 6.5% of vehicles exported from South Africa last year, which was 22% higher than the previous year, making the US the fastest-growing region for South African vehicle exports. Mavuso warns that the tariffs will have a significant impact on particular models exported to the US and deal a major blow to the factories and towns where they are produced, with ripple effects throughout the value chains that are linked to them. ALSO READ: Automotive Business Council concerned about Trump's tariffs Action needed before Trump tariffs affect SA's industrial base Although South Africa is in the same position as many other countries facing US tariffs, it's time to act if we want to mitigate the impact on our industrial base, she says. 'The first step is to engage with US leaders to shift course. US foreign policy, through Agoa, has long reflected an understanding of the strategic importance of growing Africa's economies and building them as source markets for US consumers. 'South African vehicles are only 0.1% of those sold in the US, but it helps to diversify exposure to Chinese manufacturing, which is an increasingly important priority for the US government. In addition, by ensuring the US is an important market for South Africa's products, the US ensures it is a strategic priority for the SA government. 'If the US were closed to our goods, South Africa's wider geopolitical interests would shift to other strategic relationships to the cost of US influence. The Trump administration has said it wants to negotiate. We must take it up and aim to clear trade barriers for the benefit of both our economies.' ALSO READ: Trump's tariffs make no economic sense — economists Time to reassess the South African Automotive Industry Masterplan Mavuso says the second step will be to reassess the South African Automotive Industry Masterplan that provides a roadmap to 2035 for the industry and focuses on building African markets as well as diversifying into electric vehicles. 'It is time to revisit the plan to assess how it can cope with the US tariff shock and ensure it is geared for the world we now find ourselves in. 'The plan has ambitious targets, including growing the industry by 60%, increasing local content and significantly increasing employment. These are fine targets, but the world for which the plan was set up has changed. 'It is now more important than ever, for example, to focus on the rest of Africa. To do so, we must ensure the African Continental Free Trade Agreement is fully implemented for vehicles. The continent buys 1.3-million new vehicles per year, a figure which will grow significantly.' She emphasises that South Africa's manufacturing must focus on brands and vehicle types that are suited for the continent, which has much to gain from lower-cost mobility solutions. 'We must ensure supply chains adapt for these outputs and that our skilling system delivers people with the right skills. 'The plan already envisages South Africa as a manufacturing hub for the continent but such long-term plans must be dynamic and adapt to the changing environment.' ALSO READ: Government still talking to ArcelorMittal while Seifsa identifies challenges Another challenge for the vehicle manufacturing sector besides Trump tariffs In addition to the US tariffs, Mavuso points out that Europe's Carbon Border Adjustment Mechanism poses a further challenge for vehicles manufactured in South Africa, despite already being the biggest market for our vehicle exports. However, she says, the EU must also deal with American trade shocks that could provide new opportunities for local exports, while the markets in the rest of the world will also be looking to forge new deals. 'Business clearly recognises the importance of the vehicle manufacturing sector. It has critical spillover effects into the rest of the economy, supporting industrial capacity that enables many other producers. 'It is a major employer and export revenue earner. It is, within a general theme of deindustrialisation over the last three decades, the one exception. It is also a fine example of how business and government can work together to develop industry.' Mavuso says the first Motor Industry Development Plan, launched in 1995, transformed the vehicle manufacturing industry from a domestic producer to an export-oriented manufacturing powerhouse. She says it stands out as an example of how export-oriented industrial policy can work. 'Industrial policy has certainly not always followed the example, often becoming distracted by import substitution, a sure way to harm international competitiveness. 'The master plan must adjust to the strange new world we find ourselves in, where the world's former champion of free trade and globalisation has become its biggest challenger.'
