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Financial Planning

All Eyes On MTB: Continued commitment to fiscal consolidation key,

By: Izak Odendaal, Investment Strategist at Old Mutual Wealth

While the President’s speech offered little that was new, the strong focus he is placing on the economy is important. Words need to be matched with deeds, however. The speech was once again peppered with “we will” statements, while “we have done” or “we are doing” statements were in relatively short supply.

The Recovery Plan centres on four areas: a large-scale infrastructure roll-out; security of energy supply; provision of public employment opportunities; and industrial development driven by sector master plans, including through localisation. 

Of the four, expanded public employment opportunities and the extension of the special COVID grant offer the most immediate stimulus to the economy. However, the employment plan is limited to R100 billion over three years, while the grants will only be paid for a further three months.

The other elements of the plan will only impact the economy in the coming years, assuming that implementation goes according to plan (which is a big assumption). The Treasury estimates these interventions could eventually lift the underlying growth rate to around 3%, which would be a substantial improvement compared to the performance of recent years, but still well short of the much-vaunted 5% growth rate the National Development Plan hoped to achieve. 

Importantly for investors, the President reiterated the commitment to fiscal consolidation, though the details will have to wait for the MTBPS in two weeks’ time. He also offered the possibility of eventually listing some of the better performing SOEs, which would certainly attract a lot of attention. 

Potentially game-changing interventions such as privatisation and more flexible labour laws seemingly remain out of reach.

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