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Business ‘cautiously optimistic’ ahead of budget speech

How does business feel ahead of the budget? Cautiously optimistic as the world is currently experiencing synchronized global growth as it attempts to return to post-pandemic normal. And while the business community cheered President Cyril Ramaphosa’s State of the Nation Address (Sona), it is now waiting for Finance Minister Enoch Godongwana to complete the picture.

Earlier this month, in what was widely hailed as the most pro-business State of the Nation Address (Sona) yet, Ramaphosa set out his vision for the future of the economy.

“We all know that the government does not create jobs. Business creates jobs,” he says.

The business community cheered, though the speech was a little skimpy on details. “The country is now waiting for the Treasury Secretary’s upcoming budget speech to hear where the i’s will be, where the i’s will be, and how much it will cost,” said Kerry Fynn, Alpha Holdings CEO and member from YPO Africa.

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He compares the mood of local business to the global mood and says there is reason to be cautiously optimistic as the world is currently experiencing synchronized global growth as it tries to return to post-pandemic normal.

“This means production and supply chains are increasing and so is the demand for raw materials and this is one area where South Africa excels. This has a very positive tailwind, with the potential to increase employment, generate foreign revenues , bolster the current account surplus and, of course, help restore our tax revenues.”

Fynn believes that all of these factors will contribute to general confidence in South Africa, which will boost economic growth.

“While we have significant challenges to overcome, the global backdrop is currently supportive as China plans to increase monetary and fiscal easing to boost its economy, which could potentially be hugely beneficial to us.”

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Recent research shows relative confidence

He points out that a recent YPO Global Pulse Survey shows that companies around the world seem to share his relative confidence about the country’s post-pandemic economic recovery. According to the survey, many CEOs are optimistic: 34% of the 1,700 respondents say they have very favorable prospects for their company.

Nearly half (47%) reported a somewhat favorable outlook, while only 1% said their outlook was unfavourable.

However, Fynn says he is not blind to the major challenges ahead.

“While global growth is likely to continue, it’s important to keep in mind that this is a low base. The result is increased inflation, which is worrying central banks.”

Businesses around the world are also concerned, with 71% of respondents admitting they are very or somewhat concerned about the impact of inflation on their business, saying that interest rates will lead to budget tightening, which is likely to slow global growth. will dampen to some extent. though Fynn suspects the situation will resolve itself sooner than expected.

“I think that once inflation gets back into an acceptable range, central banks will again provide stimulus. The last thing a major economy wants to do is strangle this weak growth.”

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South Africa’s situation more complex

However, Fynn acknowledges that the situation in South Africa is more complex.

“Remember, on the one hand, we need to be able to achieve reasonable growth from these low levels. In addition, as a commodity exporter, we also have much of what the world wants now, which will fuel our recovery efforts.

“On the other hand, we have slow gross domestic product (GDP) growth, corruption and bureaucracy, which hinders business and stunts growth. We also have a consumer base that is under financial pressure, which will give them a hard time if interest rates rise by a significant margin.”

South Africa is also plagued by high unemployment and income inequality and has the highest Gini coefficient globally, which measures the income gap between a country’s richest and poorest people.

“The silver lining is that the opportunity is found in our struggle. Most of the developed world is experiencing an aging population and this, combined with a more robust savings culture, has the unintended effect of making it harder to drive growth.”

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This counts in favor of South Africa for the budget

Fynn says South Africa, on the other hand, has a young and growing population that is upwardly mobile with ambitious young individuals striving to improve their lifestyles, which is why most of the fastest growing economies in the world are African.

He also liked that the president made it clear that tackling bureaucracy was a priority with the appointment of a “key bureaucracy” that would clear the way for the private sector to thrive. He would like the minister to reduce this red tape, improve capital markets, provide access to finance and create an environment favorable to business and attractive to foreign investors.

“We are waiting for more details on the measures to support small businesses that the minister referred to in the medium-term fiscal policy statement (MTBPS) and the president in his speech.”

Fynn says the most important thing is that the minister creates a climate that creates confidence, which is obviously a key factor for investors.

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