Battlelines Drawn

Battlelines Drawn

In our first two newsletters of 2016 we covered some areas around personal well-being – planning for the year ahead and how we should reinforce this by \”rooting the routine\” as our quote from Gustave Flaubert (19th Century French novelist) advised us: \”Be regular and orderly in your life, so that you may be violent and original in your work.\”

Sadly we\’ve seen little evidence of this sound advice in our country\’s
government, parliament or students this year where very little has been regular
and orderly, and the violence and originality have certainly not been related to
work; except, and this a big except, Pravin Gordhan.

Dissecting the Budget Speech on the 24th of February

So much has happened since the Budget, it is almost forgotten, but I believe it is the key to what is happening at the moment, and a clear indicator of
things to come.

I listened to the Budget Speech on the 24th February, and have to say my initial reaction was somewhat depressed as I did not think it went anywhere near enough to solving our problems. My thinking was that the next morning\’s budget analysis and comment was going to be largely about what should have been, and what wasn\’t, in the Budget. To add to this the accountants and financial planners I spoke to were much of the same opinion.

How wrong we were!

There were two panels analysing the budget – a political panel and an economic panel.The political panel included Mmusi Maimane (DA), Dr. Pieter
Mulder (FF) and Floyd Shivambu (EFF), Ndabakayise Gcwabaza (ANC – Acting Chairperson: National Assembly Appropriations Committee) and Nqabayomzi Kwankwa (UDM – Chief Whip).

The economic panel comprised economists – Iraj Abedian, and Dawie Roodt, members of the Davis commission -Thabo Legwala and Tania Ajam and from a rating agency – Konrad Reuss (MD of Standard and Poor in SA).

And the highlights of the interactions:

  • Floyd Shivambu provided the most lucid and entertaining comments. \”The EFF accepted the budget, although don\’t think for one moment that we\’re on the same ideological page as the ANC, but we\’re on board to save the country from a downgrade and will start fighting once the ship has changed course.\” And then he proceeded, very animatedly, to outline how Zupta was taking \”state capture\” to new levels. Riveting stuff!
  • Iraj Abedian wins the economic panel prize. He called Gordhan \”a genius\” for presenting this budget given the time he had, the power struggles going on in the ANC, and the state of the economy. And why \”genius\”?
  • We need to remember his constituency – it is not primarily business, it is the people on the street. Where will we be with civil unrest? His budget acknowledges that by not reducing income grants.
  • We thought a VAT increase was on the table. That\’s too unpopular politically, so what did Gordhan do? He does it stealthily with a sugar tax, a tyre tax and an additional petrol tax.
  • And most importantly says Iraj, is that Gordhan spoke about public private partnerships as being fundamental to growing the economy. That\’s a serious change of direction the right way.
  • And that\’s not all! Consider these statements: \”But I know you will all join me in acknowledging that the real champions of our development are activists (read civil society!) and entrepreneurs, officials and facilitators who get on with the job…\” He put forward steps to increase accountability; he instituted a transparent public procurement officer in the treasury and made clear reference to the serious problems in state enterprises.
  • To cap it all at the end panellists were asked to rate the budget. Konrad Streuss of the rating agency Standard & Poor gave it an 8!

The Budget has drawn a line in the sand. On the one side we have the \”Constitutionalists\” and the other the \”Tenderpreneurs\”. Commentators
speculate as to who is in which camp, and who is going to win. Barclays seems to be betting on the Tenderpreneurs – they\’re leaving town;

Old Mutual \’s recent announcement seems to be putting them on the side of the Constitutionalists – they\’re coming back!

The outcome is uncertain, the stakes are very high, and the tension levels are being ratcheted up. It seems the battle lines are being drawn up between the Hawks and Mr. Gordhan. History tells us we are unlikely to fall over that precipice, but it\’s Frans Cronje\’s rocky road looming ahead.

From a financial planning point of view – you need to weigh up the outcomes, and allocate your resources accordingly. I believe a minimum of 30% in offshore related assets – preferably quality equities.

Ronnie van\’t Hof