Pre-Budget Speech 2022: Setting the mood for the private sector

Alpha Holdings CEO and YPO Africa member Kerry Fynn weighs in on what we can expect from this year’s Budget, and the opportunity for business.

Earlier this month – and in what has been widely hailed as the most pro-business State of the Nation Address (SONA) to date – President Cyril Ramaphosa laid out his vision for the future of the South African economy. “We all know that government does not create jobs. Business creates jobs,” he said. Cheers from the private sector could be heard across South Africa. 

Yet the address was somewhat thin on detail. The country now waits for the Minister of Finance’s upcoming Budget Speech to hear where the i’s are dotted, the t’s are crossed and what numbers appear on which cheques. 

How are South African businesses feeling ahead of the Budget, and how does this mood compare globally? Kerry Fynn, Chief Executive Officer (CEO) at Alpha Holdings and a YPO Africa member, believes that there is reason to be cautiously optimistic. “The world is currently experiencing synchronised global growth as it attempts to return to post-pandemic normal.

“This means that production and supply chains are ramping up and with them, so does the demand for commodities – an area where South Africa shines. This has very positive tail winds, with the potential to increase employment numbers, generate foreign revenue, bolster the current account surplus and of course, assist in the recovery of our tax revenue collection.”

Fynn believes that all these factors will contribute to a general confidence in South Africa, which will bolster economic growth. “While we have significant issues to overcome, the global backdrop is currently supportive. On this note, China’s well-telegraphed intention to increase monetary and fiscal easing to stimulate their economy has the potential to be hugely beneficial for us.”

A recent YPO Global Pulse Survey reveals that Fynn’s relative confidence pertaining to the country’s post-pandemic economic recovery appears to be shared by businesses across the globe. The survey states that “many CEOs are optimistic; with 34% of the 1,700 surveyed reporting a very favourable outlook for their businesses, and nearly half (47%) reporting a somewhat favourable outlook, only 1% said their outlook was unfavourable.” 

Fynn is, however, not blind to the significant challenges that lie ahead. “While global growth is likely to continue, it is important to keep in mind that this is off a low base. The result is increased inflation, which concerns central banks.” 

This also has companies across the world concerned, with 71% of YPO Global Pulse Survey respondents admitting that they were very, or somewhat, concerned about the impact of inflation on their businesses. “Interest rates will result in fiscal tightening, likely dampening global growth to an extent.”

However, Fynn suspects that the situation might resolve itself more quickly than expected. “I believe that as soon as inflation moves back toward an acceptable range, the central banks will once again provide stimulus. The last thing any major economy wants to do is strangle this tenuous growth.”

He acknowledges that South Africa’s situation is more complex. “Consider that on the one hand, we should be able to generate reasonable growth from these low-base levels. Moreover, as an exporter of commodities, we also have a lot of what the world wants right now, which will boost our recovery efforts.

“On the other hand, we have sluggish Gross Domestic Product (GDP) growth, corruption and bureaucracy, which hampers business and curtails growth. We also have a financially-pressurised consumer base that will struggle if interest rates increase by any significant margin.”

South Africa is plagued by high unemployment and income inequality, with the highest Gini coefficient globally. This yardstick measures the gap between the incomes of a country’s richest and poorest people.

“However, the silver lining is that within our struggles lie opportunity. Most of the developed world sees an ageing population and this – combined with a more robust savings culture – has the unintended effect of making it more difficult to drive growth. 

“In South Africa, we have a young and expanding population that is upwardly mobile; ambitious young individuals who aspire to elevate their lifestyles. This is why most of the fastest-growing economies in the world are African.”

The President was also clear in his SONA address that tackling bureaucracy was a priority with the appointment of a ‘Chief Red Tape Cutter’ that would clear the path for the private sector to thrive. “Cut this red tape, improve capital markets and access to funding and create an environment that is conducive to business and attractive to foreign investors.

“We await to hear more detail on the measures to support SMEs that were alluded to in the medium-term budget policy statement (MTBPS) and SONA, and we welcome these.

“Most importantly, South Africa needs to have an environment that fosters confidence – which is obviously a key factor for investors. YPO, as a global leadership organisation, is widely regarded for nurturing leaders of impact, and I can confidently state that confidence in any leader is born from trust in their demonstrable competence.”

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