Craig Polkinghorne, Head of Commercial Banking at Standard Bank.
Cape Town – Finance Minister Nhlanhla Nene’s budget speech could have done more to give hope to entrepreneurs in South Africa, says a Standard Bank expert.
In order for the economy to grow, the government really needed entrepreneurs to be able to flourish, said Craig Polkinghorne, head of commercial banking at Standard Bank. “[They need] to be able to be agile and move into and out of opportunities as they see them and that will create for our economy a competitive mindset, which I don't think we have at the moment.”
“If you think about SMEs, which are what we worry about as a bank and which are to some extent the life blood of the economy, they have been hit very hard of late in terms of confidence by both the inability of Eskom to manage the power situation or stick to their schedules in terms of load shedding and the other issue, which is the announcement in the State of the Nation regarding land ownership.”
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Details were missing
“Minister Nene did not have lots to work with,” said Polkinghorne. “On the face of it he will be judged in the media as having a fair budget given what he had to work with.”
“However, if one delves into the detail, I think there are some points that perhaps need to be addressed: What is the money going to used for and where?”
He said that the personal income tax hike and the fuel levy were likely to be the two items that will jump out at the general public.
“We were expecting, from an economic perspective of the country, that the decrease in the fuel price would have added something to the pocket of the consumer, but that has now all been taken away by government by raising the levy,” he said.
“In reality that is hiding something that could have been popular.”
Polkinghorne said the minister did not address where and how government intended to fund Eskom.
Those are two things that hit both internal and external confidence quite hard, explained Polkinghorne. “I am not sure that Nene addresses in this budget how he is going to fix the electricity problem,” he said. “He talks about efficiency rather than Eskom's problem as a whole.”
Good budget vs good policy
There was a difference between a good budget and a good policy, said Polkinghorne.
“In South Africa, we have lots of good policies, but we have an inability to deliver on them,” he said. “We have had very good budgets for the last … 10 years. The inability to stick to it, whether it is inefficiency or corruption, … erode[s] the good intentions of a budget.”
“The measures for small business will be useful and helpful, I think, but we have so much red tape in terms of how to get small businesses up and running that we really need a significant rethink in how we think about small business.
“The proof of the pudding is in the eating, is what I am saying. It is one thing to have a good policy; it is another to execute it properly and timeously.”
The sins might be very nice to enjoy during the year, said Polkinghorne, but they are certainly going to cost you. “I think that is expected, especially at a time … when Nene has a problem,” he said. “He has to try and balance the budget. Revenues are down and he has to try and control expenses.”
“The sin taxes are a no brainer,” he said. “We were expecting that as we do every year. Unfortunately for the whisky drinkers, they are just going to have to savour it and drink a bit slower.”
Public sector wage bill
He said the biggest cost was the public sector wage bill. “That is an enormous cost to have as salaries,” said Polkinghorne. “Again, good intentions: will his colleagues in government help Nene to deliver what he is trying to do and try to become more efficient.”
Polkinghorne noted a tendency of government to centralise things whenever it was losing control.
Nene announced a plan to centralise the tender procurement process to cut out corruption and the bad apples. “I am a sceptic on that,” said Polkinghorne. “I do not think that has worked in the past.”
“We have had any number of shuffles in the government from one type of centralism to the next one,” he said. “The small business and bureaucracy around that is built on central policy and central monitoring.”
Good luck, Mr Nene
“I would hate to have been in Nene's shoes so well done to him for upholding what was before,” concluded Polkinghorne. “The real challenge is going to be how to implement all of that. And I really hope he can and good luck to him and to the economy that could benefit if we can implement it.”
“That is where it is telling.”