Alec Hogg unpacks Budget 2019 – the full webinar

CAPE TOWN — We appear to have created a new tradition. Two and a half hours after finance minister Tito Mboweni's presentation of the 2019 Budget to Parliament, hundreds of Biznews community members joined in our webinar with editor Alec Hogg. After his short presentation to share what he'd picked up from a day in "lock up", the fun start really started with Hogg fielding questions on a wide range of topics relating to the Budget (and some that were not so closely related…)

This webinar is brought to you by BrightRock, the first ever needs matched life insurance that changes as your life changes.

Hi, I've been up since six o'clock. Whoa! I've been in the lockup since six o'clock this morning, Stuart so I'm not going to show you my pretty face. No, I'd better show you my pretty face. Let's just see if it works. I am in Cape Town. There we go. Can you see that? No cardboard cutouts. Mr Lowman. I am staying in the most incredible place, but that's not the point of this. The point of this is to talk about the budget today and then to pick up questions from our community members on it. So Stu do you want to go through the technicals?

Excellent. Thanks a lot, Alec and always for your hard work. I know it's a very long day but I think it's been quite a good day as you'll show us in a bit, considering the state of play. Just quickly, for those who can hear me: can you please just raise your hands that we know that you can hear us loud and clear? There we go. Perfect. I've got lots of hands Alec, so that's great and as Alec mentioned, we do like to keep it conversational. There's a little question dropdown menu on the right-hand control panel. If you just open that, throw your question there, I'll pass it on to Alec and we sort of can bring that into the conversation as we go through. Alec, over to you and thanks again.

Brilliant. Well, it was a completely different experience to last year. Last year I came down and Malusi Gigaba was in the chair. He is a Zuptoid as we well know now. He certainly is no expert on finance, but he also likes to talk. So, we had this fellow who really didn't have a terribly good grasp of what was going on, giving us an hour and a half's press conference, which by the way was terribly boring because if you've got someone talking on a subject they don't understand, it's best they don't talk. Today it was completely the opposite. Tito Mboweni was in full control. He's a maverick. He said what he wanted to say. He is the kind of person for this age that we are going into where people do need to look at things differently. And I left there feeling a different person to the way that I felt last year.

Very excited about South Africa's future. I have been, well ever since…I suppose you can't say ever since Cyril Ramaphosa took over/won the elective conference – but certainly, when you have a look at it from an economic perspective, you have to say that South Africa is finally getting back on track. And certainly, there was enough in the discussions today to suggest that they want to put more and more people into orange overalls, which is not a bad thing.

Just to have a look at what happened to the South African Rand as a consequence. Suddenly there was a blowout. Somebody somewhere thought that the Budget was bad and as a consequence that you could see the rand took a real knock and then it's come all the way back. So, the punter has got a little bit hurt and you can see there it's pretty much where the Rand was trading (this is against the $) so it went from around R14.05. It went up to as high as R14.38 and then came all the way back to its pre-speech level – around R14.05.

I reckon I'd wager, and I don't wager so perhaps shouldn't take this too seriously, but I think that as people start absorbing exactly what happened here, they will get the understanding that a lot of good things were done and the blow out in the Rand was probably on the basis of somebody believing that South Africa is going to lose its investment grade status. That's the only reason why the Rand would come under a lot of pressure. Certainly, Mboweni, in the way that he crafted the Budget today would suggest that isn't going to happen. But who knows? It's up to Moody's. Remember there are three ratings agencies who really matter. The only one where South Africa still has an investment grade, which is a miracle in itself given the Zuma administration and the mismanagement and corruption that went on there.

We still have investment grade with Moody's and I'll talk about that in a little while.

The budget is all about numbers for most people and there is an outline for you. You'll be able to look through this again, this webinar in a little while and go through. Crunch the numbers if you like. The real numbers to look at though are if you go along the top there…I'm not sure. Stuart, can you see if I put my cursor there? Can you actually see what the cursor is saying?

Medium-term estimates there, Alec. It's come through.

Yeah. So, that's where we are. That's in essence, if you go along the top, those are the years. So that is what we're looking at in this budget. That we will have revenue gain from R1,285trn to R1,403trn and then costs/expenditure going from about one and a half trillion to R1,658trn, leaving the country with – this is the key figure that people get a little bit concerned about – debt to GDP ratio, 4.7%, as against a revised 4.4% for last year. So, 4.7% when you've been running budget deficit ratios as a percentage of the GDP. Okay. Let me just get that absolutely right. That's the budget deficit as a percentage of GDP. In theory, the conservative level, the level you want to be at is 3% but the world has forgotten all of that. That was in the EU at one point in time to be an EU member, you had to be at 3%. Nobody seems to be at 3% anymore, at least of all the EU members and South Africa is now following suit. The country has troubles. It's not in trouble. It has troubles which we'll discuss in a minute and it is allowing the debt to blow out a little bit as it accounts or takes care of those troubles. Rather than jacking up taxes, it's using a little bit of the debt.

It's using a little bit of the debt to GDP ratio and you can see what happened in the Zuma years. Sadly, we went from 26% to 54%. We're going a little bit higher now to about 57% and that is the estimate going forward. As you can see there, by 2021 it'll get to about 60% at which point it will stabilize. Sounds bad. And for a developing country, not great because developing countries need to borrow money, but when you compare it with the developed countries in other parts of the world, well Japan's over 200%. The UK is around 80% as is the United States. So, we aren't talking about being way out of kilter with other parts of the world.

Moving onto that, that's another nice little graph that I put together there just to give you context. Now unfortunately, the numbers at the bottom are very small, depending on how big your computer screen is, but as you can see, interest as a percentage of the total government expenditure: It's now the fifth biggest allocation. I'm just going to move just to let you know what the allocations are. I did all the numbers today, but just to give you an understanding around about 20% of South Africa's budget goes for education. Roundabout 15% goes on health and social development, and then you get 11%, which goes onto interest repayments and what they call community development. So, it is a significant amount, R202bn per annum that is spent on debt servicing. Fortunately, it is not the biggest part of the budget. That, comfortably, is education. So, still big investments into the future for this country. Right, onto the major issues. You can see they're fixing Eskom using debt, laying the foundations for the future.

And the big thing that was all over the budget today was Eskom. In the budget speech itself, a lot was spoken about it in the press conference where Tito Mboweni held fort and did so magnificently, I have to say. He really made it a most pleasurable experience for those of us who take a great interest in these things. And he went on for about an hour and a half, he and his colleagues and it was enthralling and we have recorded that and that is up on BizNews right now so you can go and listen to that. It's embedded. Stu, what story is it embedded in?

Alec, I'll put the link on now. I'll get it onto the chat toolbar, which is just three below the questions. You can just click on it and follow it through there. That will be easier, okay?

Brilliant. Okay. Do you see it on the chat box? We'll have the link there. Just make a note of this link and obviously, not everybody's got an hour and a half to sit there listening to our Finance Minister. If you do get a chance just to listen to some of it, I know my colleague Linda van Tilburg, different topic is in the process of cutting it up into bite size chunks. But if you do get the chance to listen to it, you'll see that it was… It's a little bit like that Zondo Commission that I've been harping on about – the Agrizzi affidavit. Once you start reading it, you just don't want to stop, even though it's very long. And it's a similar thing with this budget press conference today. Tito starts off by saying, 'well, Peter Bruce. Where's Peter Bruce' and then says 'well, you know. Peter Bruce, you sound really tired and you say I'm not interested'.

Well, let me just tell you I've opened my speech to say that I took this oath of office and that's where it began and that's where Tito continuous. It was great. It was really a lot of fun. Not so much fun as Eskom. Eskom is front and centre and if you talk to people around the world and the investors all over, they will tell you that South Africa, you've got to get Eskom right before you think about anything else. And it's right, you have a look at the way that the modern economy works. If you do not have power, you do not have an economy and that reality is very well absorbed within the Ramaphosa administration. So, South Africans are going to be paying the equivalent of one percentage point in VAT to get out of the mess that it's in.

And the way that it's going to get out of the mess that it's in… The plan is this: Eskom is going to be divided into three groupings. The one group in the middle, the distribution group will remain a monopoly. The group of producing, which at the moment is a monopoly will be open to anybody. So, if you want to come into South Africa and you want to produce electricity and sell it into the grid, like the independent power producers are doing at the moment, you will be competing with Eskom there. And as Tito was saying in his budget speech today, that is what makes sense. How can we have ourselves exposed to this one institution, this one organization that has overspent heavily on Kusile and Medupi and as a consequence of that, we've got to pay the price. So that's not sensible in anybody's language.

So, Eskom will compete in the same way as Telkom competes against telcos. Eskom will compete against other providers of electricity. The middle end is transmission and that's going to be a monopoly where Eskom, probably with a shareholding from the public investment commissioners. Now there was nothing said officially on this, but talking to the, or listening carefully to the messages that came out and joining a few of the dots, it looks like the PIC will be converting R10bn of its debt into equity. So, it will own a little bit of Eskom, which in essence is going to be making a lot of money in future – one would hope – through using the national grid. That's what it will own. The National Grid and utilities around the world own that and charge a fee on it but if it isn't the fee that kills you it's a tariff hikes every year. And then the third part of this is the distribution.

Now if you know the UK where I'm currently living, they have many people who are in the distribution game and they compete against each other. And the idea for South Africa is to have a similar situation. At the moment, Eskom controls all three. So, they distribute, they produce and they look after the grid. The future is that Eskom will actually be competing in the distribution side and will be competing in the production side, but they will continue to manage the grid. How are they going to get there? Well, we as taxpayers are going to pay them R23bn this year, next year, and the year thereafter. So, at R69bn that's going to go into Eskom. The reason for this is that Eskom cannot even cover its debt repayments. So, its debt repayment is about R45bn per year. The R23bn is going to be used to give them a little bit of capacity to be able to start maintaining, et cetera. It's a lot of money.

As I said earlier, it's in fact precisely the,equivalent of what Treasury said South Africa would get last year after the 1% increase in Vat. So, every time you pay 15% for vat rather than 14%, blame Eskom for that increase because that's exactly what Eskom is taking out of your pocket. But I don't think you should blame the Eskom guys now. They're trying to fix it. You need to blame the Guptas, McKinsey, Brian Molefe, of course Jacob Zuma, and that whole lot who really messed things up and now we're paying for their sins. But it is a fix and it is something if you are going to have a growing economy, you 've got to have it. So, when you look at this anyway, you want to look at it, you're in a hole. Do you just ignore it or do you try and fix it? Clearly, Ramaphosa and the rest of them have found this as the way to do it.

I put this graph up. Essentially, I just want to show you something. Stu. I hope I'm not going to mess up the presentation, but I just want to show you a couple of things that we look at. Okay, so there's the one thing – now this is pretty small. You see at the side there, the 2019 budget review – it's a document of just over 200 pages. But on top of that, if you ever wondered where your tax money was going, you've got this as well. The estimates of national expenditure. Look at that, and that is nearly 900 pages. So, there is an enormous amount of information. And when you look back at what you see, and I'm wondering if I've gone and messed everything up Stuart.

Yeah, you lost it.

There we go. How's that? Microsoft works. We back. The point about all of this is that South Africa is one of the most transparent, has one of the most transparent budgets in the world. And I've just shown you those documents. So, it's all there. The information's all there if you ever wanted, if you ever need it, it's online as well. And incidentally, this year was the first time that the journalists had to register online and that is Tito Mboweni who said that he learned when he was on the board at Discovery that Adrian Gore has turned Discovery into a paperless organization. So, he's trying to do the same to Treasury. He reckons it might take him a little bit longer than it took Discovery but the point is transparency. There is transparency so South Africa is a country where there is so much information that is publicly available, but so many people don't care to look at it and make up their own minds, and serve their own agendas. So, when you hear the fake news that goes around, all you need to do is just, you can kind of double check. It's really easy to find it. This is a very sophisticated economy, very sophisticated public sector. Anyway, having a look at that, there you can see the exact exposures. Eskom has a government guarantee of R350bn, right? In the last year it went from…It used… It's like an overdraft, if you like. It went up from R244bn to R294bn. So, now our question has to be, "What's going to stop them from going up another R350bn and then the money that the state puts – or that we as taxpayers put in R23bn per year – and that just gets wiped out as well.

Well, we have no guarantees, but we do have this refocusing/restructuring. They called it something else – reconfiguring or something -, which is happening now at Eskom and the R23bn of our money that's going in as taxpayers is going to be looked after by what is going to be known as the CRO (Chief Restructuring Officer), He/she has another name but that's what that person is going to do. So, they're going to be looking after the money that goes in on behalf of taxpayers. As you can see, Eskom has capacity. It's got the ability to go through this process of transforming itself to a point where it won't be sitting there losing money to the degree that it has.

As you can see on the number there, Eskom is virtually 10 times bigger than SANRAL and the Trans-Caledon town is a little bigger than that. The Development Bank down by almost R1bn. They got a special mention in the budget for being really good and interesting to see that the South African Post Office has got no numbers here. I don't know what's going on at that one. We were asking but it seems like there's not entire certainty about that but that gives you an understanding of these government guarantees, which is something that the ratings agencies look at. Something else that's pretty sophisticated in the budget process: it shows you what happens to the debt servicing. In other words, we as taxpayers pay R200bn a year in, in servicing the debt in interest. If inflation goes up one percentage point, we pay an extra amount.

As you can see there – if there's a R1 weakening in the Rand, then that's R2bn. When R1 weakens against the Dollar, it's R2bn and that's why what happened today to the rand blowing up and then coming back again is very important. And then you can see a percentage point increase in long- and short-term rates adds another R5bn. So, just to put that in context: South Africa pays R200bn at the moment in its interest servicing. If interest rates were to go up by one percentage point, it would pay R205bn so that just puts it into a nice context so we understand where we are. We really don't want  interest rates up but we certainly don't want a weaker Rand. And then moving on to the next big issue.

So, Eskom is the one big part. How is Tito going to fund Eskom? Well, the first way he's going to do it is there is going to be no relief on fiscal drag. What does that mean? South Africa has a progressive tax system and that means that the tax rates go up. As you earn more, you pay more tax. So, the tax rates go up as you earn. That's called progressive and it's accepted here. But what happens every year as you get inflationary increases or you get salary increases, which bumps you up into a new level? So, automatically the country or the fiscus gets more money because people get paid more. What usually happens in a good year is that the tax levels are adjusted to take care of this automatic increase. This year, it's not happening.

The taxes: different categories are not being adjusted and that automatically is going to put nearly R13bn into the fiscus. So, that's one part of paying for Eskom. The other part is what you see on the screen there. A reduction in personnel, again, a learning from the private sector. When the private sector is overstaffed, what do they do? They offer packages – early retirement packages. In the public sector. There have been individual early retirement packages, but they haven't been able to make them appealing enough because most people who work for the state like to, part of the reason they work there apart from a calling one hopes, is that they get a good retirement, a good pension when they're pensioned off. Well, for the first time they are going to now be offered early retirement without any penalised session on the pensions benefits and they are sending like 30,000 people between the ages of 55 and 59 treasury expects that they will get 25% of those 30,000 people who will take these packages and over a medium term over three years, that will translate into a saving of about R20bn.

So, when you add the two together, you're now getting to a point where early retirement in the public sector, which will reduce the number of people who have jobs there and as you can see this is now being taken very seriously by the treasury and people (well, by the government), which in the past it was just, there was a different approach. The approach was, 'well we need to create jobs. Let's make more in government', not thinking that it is just sucking in taxes from the taxpayers and eventually the taxpayers won't have any more money to pay for this bloated government. It is a reversal on that and that is going to make a difference in the longer term.

In the short term though, it's to pay for Eskom. Right, before we get into questions. Tito's thrust: he was charming and classic Tito today. He said he wants to open up difficult conversations. For instance, lots of people in South Africa don't yet realize that the Berlin Wall has fallen, that the Soviet Union is no more, and that we now need… We're in a post-Soviet world and we need to look at things differently. He didn't go into the privatization argument and debate, but he did raise the reality of a changed world. If you listen to his speech this afternoon or read through it on BizNews, you'll see he talks a lot about re-allocating resources. So, the Treasury for now is having a look within each of the departments and in deciding on whether the money is being spent in the right way.

He gave an example here about… In fact, there was a fellow from the SABC who, I guess, posed as a journalist but he sounded like he was more from management, who made a plea. He was sitting in Pretoria and as he was talking in the press conference asking this question, the more and more that people in Cape Town where, there must have been 200 people in the auditorium, started laughing and laughing and laughing. I guess the guy in Pretoria couldn't hear it, but he was doing a pitch for the SABC, which wants R6.8bn as a bailout. And what Tito's response was to say, "Don't wish for something that you're not going to like" because the SABC has got many areas where it's competing against itself. It's not operating like a business and it cannot expect the taxpayers to keep bailing it out.

And if taxpayers are to put a cent into the SABC, along will come the Chief Restructuring Officer, the CRO, who will look after taxpayers' money and that would be like he said, it's like when a bank goes bankrupt or goes into curatorship, then the Reserve Bank of which he was governor number eight and Lesetja Kganyago was governor number 10. The Reserve Bank sends along a curator. The curator then checks everything that happens in the back. He says within the state-owned enterprises, that's the new rule… So, there will be a Chief Restructuring Officer for legal reasons at Eskom who is going to be watching where taxpayer money goes. If the SABC is going to be bailed out in any way, they will need this person. And he used the example of the radio stations where Radio 2000 is competing with SAfm, Lotus FM, and Metro… We've got a whole bunch of radio stations at SABC that compete with each other and they all lose money – or most of them lose money anyway.

So, his point was you can't do that and expect the taxpayer to pay for you losing money. Now this is a radical transformation from the past where the SABC was just seen by the ruling party as a mouthpiece. So, we're getting into a normalised world now and reallocation of resources. What I liked about the budget was simplicity. Everything in this, talks to simplicity. Again, when you listen to what Mboweni is saying – and he put it all together. This was a very, if you can imagine, the challenges that were faced this year were far greater than last year. Yet, he was able to do it in about 6,000 words – his total speech. His conversation with the media explaining things lasted for longer than his speech to parliament, which is telling you something about what's going on here. So, it's 'please guys, this is what we are doing, this is why we're doing it.' and these are the ways that you can communicate it to the public. First you understand, then you can get other people to understand as well. Whereas last year's… I use last year's budget, when Gigaba was still there, where he had about 11,500 – so twice as long as the main budget this year of Tito Mboweni. It just gives you an understanding. I mentioned the Chief Restructuring Officers and he really has applied private sector learnings. He used not just the Discovery example, but he also used PPC. When I was at PPC, he was on the board or chairman there, and PPC was in big trouble. The banks came along. he said the banks took the keys like a curator will do in the state-owned enterprises when they're not going to be sorting themselves out.

So, when you listen to this guy, you know we've got the right person there. It's inevitably one of the big questions that goes around on Tito Mboweni. Is he sticking around? He made a bit of a joke of it and then eventually he got quite serious. He said, "I'm here for a long time. I'm not going anywhere. I'm going to be looking, you know, I mean, public sector, public service, and this one." So, he's come back from the private sector and he's the right man with a hand on the tiller. Then you have the experiences, the learnings that he has from both the public and the private sector and he can apply those brilliantly as he is already doing so.

Big question about all of this of course, is Moody's. Moody's is the last of the ratings agencies that still rates South Africa as investment grade. Moody's is going to be re-looking its investment in the near future.

Lesetja Kganyago (the Reserve Bank Governor) first of all, was… Mboweni went to quite great lengths to explain the processes that work here, having himself been a Reserve Bank Governor; he said it is critical that Lesetja Kganyago does have total independence and he mentioned something I didn't realise. He said we cannot talk within 10 days leading up to the mandatory policy committee and four days thereafter. So, why they do that is so that there can be no undue influence from the political side onto the South African Reserve Bank whose independence is guaranteed in the constitution. We do know that Kganyago has been under a lot of pressure in recent times and clearly, now working closely with another former governor – they both know how critical it is for the international community as well as for South Africa that the Reserve Bank is allowed to do its work independently.

Kganyago said that should Moody's downgrade South Africa – and there was no indication that they expect this to happen – indeed, Mboweni was saying that because of the grasping of the mettle that has happened with the Ramaphosa administration, that he expects Moody's will at least continue to hold the investment grade rating but should that happen, South Africa would fall out of the World Government Bond Index. That would mean an outflow of between $8-10bn, which is like an exchange-traded fund that countries or investors around the world invest in sovereign debt, including South Africa's sovereign debt. In the world, a government bond index, you have to be investment grade rated. So, if South Africa fell out there, those people who have invested in that exchange-traded fund or it knows index funds, would have to sell between $8-10bn. That would have an impact on interest rates in South Africa.

It would have an impact on the cost of funding, primarily for the country and for banks but Kganyago says that they've done the stress testing and he is very confident that the South African banking system will not be unduly affected. And he made a little quip that it's great to have conservative bankers in this country. When you see that you have adventurers like you have in the United States and the UK, you see what an impact that can have. And we do recall that in 2008, South African banks required no assistance from the state, whereas those in the United States and the UK, they needed to be bailed out. So, good news there. I say Lesetja's back because last year he was on the… Well, he's the only person of the five who were on the podium this year who returned. Tom Moyane, the former commissioner's gone as we well know. He might be going to jail soon as well.

The former Finance Minister is gone (Malusi Gigaba), The former Director General of Finance did resign last year. He took a little bit too much pressure, I think from the Zuptoids. The former Deputy Finance Minister has gone. But Kganyago last year was the odd man out. He was the one who, he didn't even get a single word in last year. This year he got a few words in. He's a man of few words, but it was good to have the Reserve Bank Governor there.

Also, on the grouping today, there was quite a lot of discussion about taxes, the tax gap, and the fact that South Africans need to render unto Caesar (or render unto Kingon in this case – Mark Kingon, who's the Acting Commissioner.) I did talk to him afterwards. He's not going to take that early retirement package although I think he's entitled to it. He's in his mid-fifties, and he has very much thrown his hat into the ring to become the next commissioner. I've known this man for many years. He's an extraordinary individual. He's been with SARS for a long time. He worked very closely with Pravin Gordhan and he is the right man in the job right now? One doesn't know who the fulltime commissioner will be and there's lots going on around that. But he did say that there is now a good focus on fixing SARS because it has been really badly messed up. And they are now starting to attack the illicit – as it was mentioned in the budget speech, there's now an enlisted economic unit and they've started nailing the guys who make counterfeit cigarettes.

There are many other counterfeit areas as well in the country where people are abusing the tax system and evading tax at a high degree. Kingon knows what it's like when SARS is on point and, when it is feared by tax abusers. He intends taking it back there. There's a big reinvestment in technology. Not surprising. This was something that was highlighted, given that awful performance by the previous head of technology at SARS, if you recall. It was a video that went viral a little while ago. I don't know what that lady's doing now, but she certainly isn't working there anymore. And the repayment of VAT, which at one point outstanding VAT, which SARS owed to taxpayers in South Africa hit R40bn. That's come down to about R20bn, so the money has gone back into the system.

Of course, it didn't help the financing situation for the country in the short term, but it's gone back into a system.

The repayment of VAT, which at one point hit or outstanding VAT, which SARS owed to taxpayers in SA was hit R40bn. That's come down to about R20bn so, the money has gone back into the system.

Of course, it didn't help their financing situation for the country in the short-term but it's gone back in the system, and finally here's a Director General (DG) of Finance who has been in the news recently, Dondo Mogajane, and the reason for that is that the Public Protector (PP) has come out with a statement or with a finding that he should be fired because he did not disclose a criminal record.

Now the real story here is that the criminal record she's referring to is a speeding fine. Can you 'Adam and Eve' it? Anyway, Mboweni says, 'I think the PP is a problem.' When he said that there was like a gasp from the assembled journos, not surprisingly. It's not often one hears this kind of antagonistic approach from a Government Minister, and he's taking her to Court. He's taking the finding to Court on review. He says that Mogajane has got his full backing, and Mogajane from his perspective says that morale is improving at Treasury. They are now, I think they've had something like five Finance Ministers he was saying in the last five-years so, they really have gone through the mill, the people at Treasury.

But from the people I met they haven't been haemorrhaging too badly. There's a lot of talent there and his job, he says, is to start attracting more talent. Mboweni says he's going to be making some appointments of bright young minds who have either worked through the ranks and are being promoted into more senior positions. So, listen to the whole thing. It's a tough time the country is going through but it's almost like we're in a storm and we've got the right people with their hands in the tellers. Or, to put it differently, the naughty kids trashed the place for nine-years, and now the good kids have come into the home and are starting to clean up and to put things in place and make sure that the naughty kids can't come back again. Stu, that's the presentation. Have you got any questions?

Excellent thanks Alec. I was going to say, the Rand actually went to 13.97, just a few minutes ago, so it's a good show of confidence, I think, with Tito's Budget today.

That's really a lovely indication because it is that understanding after a while, you absorb it. Initially, as you can see there the blowout is probably caused by someone who took a view that SA is going to be downgraded but when you listen carefully and you look carefully at the underlying numbers – there's a lot of discipline in this and there's a lot of good sense.

Thanks, Alec. I've got a question from Henry, and I do encourage more questions. He's unfortunately, the only one at the moment. He's concerned, is the Budget not merely a typical pre-election Budget, with the election coming in May?

No, ways. It's exactly the opposite, and it's a very good point, Henry. I've lived through election Budgets. I've lived through being at the IMF one year and an election was called and Barend du Plessis who was the Finance Minister was taken completely by surprise because PW Botha announced a significant – a substantial pay increase for public servants just like that, without even talking to his Finance Minister. That's an election Budget or an election ploy.

This is the opposite. This is a Budget where money is being taken away from us. There's R23bn that's going to Eskom. It's the same as another increase in the VAT rate so, in other words that 1% increase in VAT last year – all of that money now goes to fund Eskom. No, it's the other way around. If he wanted an election Budget, he would have cut taxes or he would have found more money for social welfare. These guys are confident.

The ruling party is very confident that the people who stayed away and allowed the opposition parties to do so well in the local elections are going to come back and vote again because they believe that the bad kids are out and the new kids are in and that the SA citizens will know that. I've talked to a few people, obviously off the record, and the opinion polls that we see, where the ANC will get more than 60% in the election on the 8th May, are aligned with the ANC's own internal opinion polls or readings so, they're confident enough that they are going to win and win well at the election and as a consequence of that, they haven't had to dip into… Well, it's a kind of non-existent cookie jar but you always can, you can always borrow – you can always put the country into deeper debt, I guess.

There's just a question from Saul. He wants to know was there any clarity on the possibility of reintroducing prescribed assets for Pension Funds? I know it made some noise a couple of weeks ago.

I spent yesterday afternoon in the company of some of the people from the Department of Finance in a preview, and this was a conversation that was raised and the way they explained it to me, and I think these are deputy Director Generals (DGs) – they explained it was that SA has got a very liquid borrowing market at the moment. There are, I don't want to get the numbers wrong, but there's something like R8bn that is raised every week from sales of Treasury Bills, and there's another R3bn or R4bn that is raised through the sales of bonds. So, the reason for prescribed asset requirements, and remember we used to have 53% prescribed asset requirements in SA. No one seemed to think that was a big problem back then, but the reason for prescribed asset requirements is that the Government gives tax benefits to retirees, to savers and it wants or it can argue morally that because tax benefits are given – it should actually have some of that money in the country or retained in the country.

But the reason why it's a kind of irrelevant discussion, from a financial point of view. Of course, politically it's a big discussion, but from a financial point of view is that we have a limit on the amount of money that institutions in SA can take abroad. They can only take 25% abroad so, 75% of all retirement money in SA has to stay in the country so, you can't put it all into equities. You've got to put it into bonds, and if you're going to put it into bonds – you're going to put it into RSA, which is Government Stock or into Eskom. So, there's no need to force people, to force retirement funds to own them because they already own them. It's a bit of a misnomer but it is politically sensitive and when you force anybody, when you force retirement funds to own prescribed assets then it does send out a signal. But for all practical purposes there are prescribed asset requirements already. It just isn't' named that way and it's much better when retirement funds are doing voluntary investment than doing it involuntary.

Excellent, Faith wants to know – on the R10bn conversion of PIC debt to equity, is it enough to address the gap in the balance sheet?

Faith, the R23bn that… Let' just step away a little bit. Government is the 100% shareholder of Eskom so, as Tito was saying today the R23bn that taxpayers are putting in, is like having a rights issue. He actually explained it that way. He said, if a company has run out of money, a company on the stock market, and it wants to keep going. It has to go back to its shareholders and shareholders have to put more money in, which is what we call a rights issue. They'll get more shares for the money that they've invested, and there's been many examples of this.

I can remember one not too long ago with Super Group, which was very successful. But there are many instances of companies that need to raise money from shareholders, then they issue new shares. So, Eskom needs more money it 'issues more shares' but the Government has already got 100% so, it's still got a 100%. So, as a consequence of that, that R23bn is helping to fix the balance sheet. Although, it's not being used in that way. It's not being used to repay debt – it's being used to actually service the debt. That's how much trouble that Eskom is in. The money the PIC is owed is R10bn. The thought there, I presume, is that it will become a shareholder in Eskom by converting R10bn debt into equity and in that way, it will certainly help the balance sheet.

Something very interesting came out over the past couple of days as well as far as debt is concerned and that is that foreigners now own 38% of Rand denominated debt issued by the Government. It's about R800bn that foreigners own of South African Sovereign Bonds – Black Rock and other big companies, PIMCO, were the two that were mentioned at the conversation that I had yesterday with the people from Finance, and those are big bond holders around the world. So, it's interesting that this is not debt that is owed in USD terms. In fact, SA's exposure to USD debt is very low, foreign currency debt, which is a huge advantage because it's almost like you have your own Reserve currency.

These international companies of course they can sell SA debt, if they don't like the way SA is going but over the last 10-years they've gone from single digits to 38% investment in SA debt. Now, you might say, 'hang on, that was during the Zuma era.' The reason for that is that although the Zuma era was corrupt and all the matrixes were going in the wrong direction. International investors who were investing for 20, 30, to 40 years, as they do in Bond Market, saw through that and they haven't 'been dumping their debt. It will be very interesting to see how they react in the next year, to their ownership of SA debt.

Chintz just wants to know if there was any mention of nuclear with regards to the energy mix around Eskom?

No, Chintz, not at all but I can refer you back to the National Development Plan, which Cyril Ramaphosa was the Deputy Chairman of and Trevor Manuel was the Commissioner or the Chairman and if you go back to that, they were very strong about gas, or proposing that SA looks at gas before nuclear. So, no, nuclear never really came in and the fact that we've just had this huge gas find off the Southern Cape coast, in the Outeniqua-Basin, and remember, it's one of five prospects that TOTAL have in that area. The technology has only now allowed the drilling. They started drilling in December, and they hit this big gas find in February, and they've got another four just like it and that's only one block in the whole Outeniqua-Basin, which is, I think this Block 11A or something and they've got a whole lot more. So, it's very likely that SA would start betting more on gas as a vehicle than very expensive, and updated nuclear technology.

Just from Dennis, he wants to know was there any mention on the taxation of tax residents working outside of SA?

Not in this Budget specifically but there has been quite a lot of talk about that and I think in another year or two that they have to make a decision on where they're going to be taxed, whether it's in SA or elsewhere, and if it's got citizenships etc.

Look, that's the kind of approach we saw from the Zuma administration, which was very nationalistic and you're either on our side, or you're against us, kind of approach. This administration is very different in the way that it's been looking at things. It understands that you need skills, and if you read through the Budget carefully there's a part there that talks about attracting immigrants to the country and not just because of the hybrid figure that it adds to an economy but because of the skills that are needed.

There's an international war for skills right now. What SA would dearly love to do, all it needs to do really is just to attract back the skills that it's lost, without having to actually try and find new skills. Whereas, an example in the USA where Donald Trump has just changed the rules there. If you have a master's degree or more, in other words a highly skilled person, you go into two lotteries now for your Green Card, and it basically adds another five-and-a-half thousand highly skilled people to the immigration pull on the USA every year.

That's the way that the rest of the world is going and you can be assured that our guys and I've seen them at Davos and I've listened to them talk there – they know exactly what's going on and they certainly won't be trying to alienate the SA expats who hopefully will come all come home one day.

Sticking with energy, Alec. Henley just wants to know – he says there appeared to be little or no interest in renewable energy. I'm not sure if that's the case.

No, that's definitely not the case. If you go back on renewables under the Zuma administration because of the way that they were trying to fix things for the cronies they put the whole renewable program on hold for two-years. It was intensely frustrating for international investors who had come into SA, with hundreds of billions of Rands there. When Ramaphosa took over as President in three-days he appointed his brother-in-law Jeff Radebe who I know has been the subject of really ridiculous speculation, through fake news.

Anyway, Radebe was appointed Energy Minister within three-days he had turned that around and opened the renewable energy sector. It's a very important part for SA. When you read through the speech and you read through the information that's been distributed by Government. Tito himself said, climate change, in the speech, is a real issue – there's no debate about it. It is there and hence, they've brought on a Carbon Tax, which would also… They're expecting this year that the Carbon Tax would generate R1.8bn in revenue for the fiscus, which is significant. That's double what the sin taxes are going to generate, or the additional sin taxes will generate this year. So, it gives you an understanding they're an anti-carbon pro-renewable.

Katherine just on SMMEs. Were there any incentives to stimulate the growth of them?

There was something in the Budget Speech about SMMEs. It was an injection of about R600m into one of the small business institutions. I'm sorry that I don't have it at the top of my mind now but what I suggest is that if you go onto BizNews and you go and read the Executive Summary you'll see that there's a paragraph there, which deals with this.

I have put that on the chat channel if anyone wants to click through there. Andre, just wants to say, were any funds allocated to the National Health System or any mention of it?

Lots of talk about that. National Health is, and go back to Davos where the Health Minister, Dr Aaron Motsoaledi was in attendance and he had quite a bit to say about National Health. He was supported by Cyril Ramaphosa. The philosophy really that you have in this Government is that there is enough money now that is being spent on health, R222bn a year that's spent there – it's our third biggest allocation, behind education and social grants. There's enough there for it to be reallocated.

So, the work from this team at Treasury, from Mboweni and those around him is that it can't be business as usual in the public sector. It can't be a retention of the status quo, where there's massive wastage. Where everybody knows that if you've got a budget you spend it on anything that you can, otherwise you lose it next year. He said that they have to look at things differently and health is one of the areas. Dondo Mogajane, the DG of Finance was very specific on this. That there is a lot of misallocation at the moment in this area and it is a place where great attention is being paid.

Mboweni was of opinion that the job will only really be done for National Health when you would prefer to go to a public hospital than to a private hospital because at least you're going to be getting the same service but the starting point for National Health is just the basics. Just to make sure the patients get three meals a day, they get their breakfast, and lunch, and their supper, as he was saying. The doctors arrive at the time they should so, it's simplicity – get the basics right. Once you get the basics right you can start building from there.

The sense that one gets listening to these guys now, particularly in contrast to last year, is that they're practical. They've got a feel of it. They're looking at the execution rather than just throwing money at a problem at that means that there's a lot of reallocation of Budget. Just on that side, I did talk to Adrian Gore of Discovery in Davos about this and the reason I did that was because in a recent event in London the British equivalent of the Health Minister was in attendance and it was a Discovery function and he was full of praise for Discovery and saying how closely the British Government was working with Discovery on prevention.

Because they obviously have a very admired National Health System, but it's also creaking. So, they're trying to find ways to help people to prevent them getting sick and so I asked Adrian, "You're doing this with the Brits. What about us?" He said, 'absolutely, they are working very closely together with the SA Health Department to assist in making or getting better value for money for taxpayers, and that's really what it's all about.

A lot of the stuff that came through here, the Chief Restructuring Officers for instance, is reminiscent of what Pravin Gordhan was saying, going back awhile. Another point here was no Member of Parliament or Provincial Legislators are getting a salary increase this year, as a sign of goodwill as they've put it. It's getting back to basics. Public service, put the public first. You're not there to plunder and to live at the expense of the public. You're there actually, because it's a calling and that was made quite clear a few times.

Alec, I know there was some mention on land, not quite the land expropriation debate but there was a budget for development but Theuns wants to know if anything else was mentioned around land?

Yes, there was quite a lot of money that's being allocated to developing farmers. You can see that again, it's in the Executive Summary that we have on BizNews. There was no specific mention of anything more than that, which is about right. That's the way you want to play it. It's an incredibly emotive subject and if you allow it to start taking the headlines then you will be causing yourself problems that the country doesn't really need. So, rather than that, address it at source. Help the people who are looking to become farmers.

Just on that subject there's been a very big shift when it comes to commercial farmers. Perhaps that's just a consequence of being scared that your land is going to be taken away from you. So, I'd like to believe it's because there's more of a generosity of human spirit there but there've been a lot more engagements of participation and partnerships between those who don't have land and those who do. So, there's a lot of progress there but I guess, from where we stand, as long as it is happening behind the scenes and going in the right direction. That's probably the most one can hope for on such an emotive subject.

Mark was saying, there was not much said about getting the economy back on a growth path. I'm not sure if you agree with that.

Yes, when you are in a hole and there's crocodiles biting your bum, you don't think about strategy too much. You just think about getting out of that hole, and that's the sense I got here. SA is in a hole. Eskom has been plundered. The likes of the Guptas, McKinsey, Brian Molefe, these fellows they were just ripping the place off. You've seen that the number of employees at Eskom in the last 10-years has gone up by a factor of about 50%, or perhaps even more. The numbers I remember were from 32k to 48k and the electricity generation has not moved. So, you're sitting with an overstaffed situation. And worse than that you aren't even supplying, you aren't delivering the supply that the economy needs and the economy isn't even growing. So, before you can grow an economy just get the basics right, and you've got to get the power right so, the focus has all been on Eskom.

If you look at that from a removed position, which we are, I wasn't sitting in the Budget Meetings and neither were you but if you look at it from the outside, we should be grateful that the focus and the attention is being put onto the priority, and the priority of this Budget – this is the Eskom Budget, it's all about Eskom. Last year was the VAT Budget and Fees Must Fall. This one is about Eskom and it is the priority of the moment and once you get out of that hole then you can start thinking about other things. But you can't have growth if you don't have electricity – the two are just mutually compatible.

Just a question from Pamela, but this is more on the local level. She wants to know if there was any mention of e-Tolls, I know that's a big Gauteng issue?

No, there wasn't. There was however mention of the user-pay principle and SANRAL was given R1.5bn to fix the non-toll roads or to invest R1.5bn a year in non-toll roads in the rural areas. But as far as toll-roads are concerned – nothing on that.

Tess said could BizNews setup a portal for experienced entrepreneurs to pitch suggestions to Tito's team. She said there's a lot of 'wrinklies' who can contribute a great deal. I think that's a beautiful thought there, Alec for us.

I love it. You know, it's an interesting point you make there because when I go back to my experience in Davos this year, at the Brand SA Dinner and it really is a wonderful speech. Ramaphosa is a class act. When somebody like Trump speaks, or Bolsonaro or a lot of these politicians, they'll sit there with their auto-cues and the auto-cues can't be picked up by the television cameras. It's like perspex so, when they're looking at the camera it looks like they're looking at you but they're actually reading. They have auto-cues now on two sides so it looks like these guys are good communicators. They're reading from a script.

When you hear Ramaphosa, it comes out of the heart. He's got no script with him. He's just naturally intelligent. He's a naturally good communicator and naturally intelligent. But if you go and listen to the 'off piste' as I called it, the speech he made or the talk he gave us at the Brand SA Dinner this year, it was about a 20-minute talk. In it he speaks a lot about being a listening Government. About being a Government that wants to hear, it wants to debate, it wants to embrace ideas. It wants to apply new ideas and this comes from the fact that he has an extremely good grasp of where the world is, with 4IR and the transformation and how that's going to change economies and how SA needs to play to its strength, as being the gateway to Africa.

So, I like that idea very much and I see that as something, Stu, that you and the production guys can maybe… Or get the production guys to put their heads around it and we talk to Mark in Atlanta and see if he can't put a little portal together for us and encourage people to just raise ideas and suggestions. In the absence of that, send them to us and we'll publish them. I can assure Tito actually… Stuart, you'd like this. He said he reads BizNews every morning and he gets his email newsletter so, sometimes when we have these late nights of putting them together and it doesn't seem worthwhile. Just know that at least we've got the Finance Minister who opens it up at 6am and has a read. He said that in front of everybody else in the press conference, which was delightful. It also shows that this is a Finance Minister who is listening and let's give him some ideas.

Yes, I like that a lot, Alec. I'll definitely put heads together for that. This is from Kenneth. He says gold looks like it's on the way up and could this turn SA around? I think Palladium broke $1,500 – I think good times for metals but I'm not sure if we're on the right path for that?

Kenneth, it's a very good question and when metals start becoming more valuable, people start revisiting the old plans that have been gathering dust, and it's not necessarily that SA is going to make a lot of money through higher taxes and royalties immediately. But what it does do, and it's a little bit like the gas find. The gas find itself is going to take eight-years before there's any gas pumped and then the country will earn a royalty and it will earn tax, etc.

That's not the point. The point is that investors who have the whole world to look at, suddenly start looking at SA as an opportunity. So, in the mining sector, when mining or mineral prices rise a lot of those who were sceptical, they might have been sceptical on price reasons in the past and then they got completely turned off by the inconsistent Government Policies. So, what they want is, first of all is better prices. Once the prices are better then they have a look around the world and if they can see consistent policies and they know that Ramaphosa made that one of his three priorities, consistency of policies for investors. And what is Ramaphosa doing out there? He's asking the whole world to bring money here. So, he's not going to change the policies, it's the same thing with the land story. He's not going to shoot himself in the foot when he's spending all of his time, including with his four envoys who are going all over the world to ask people to invest in the country. He knows exactly what will happen if there are land-grabs on the one hand, and he knows exactly what will happen if he starts changing the ground-rules. So, as a consequence, those are things that you must understand. If you have a priority in the one area it is going to be supported.

Minerals, definitely. SA has got a lot of minerals, at the right price, which will be mined, and the right price has to go with policy certainty. What I think is we haven't really kind of got this yet. But the gas find is on top of all the resources that are sitting in the Karoo, which the late Tony Twine, an economist on econometrics, said would, I think he used 1/10th of the supposed reserves there, if that was true – it would generate half-a-million jobs or something ridiculous. It can transform this country as it has done for the USA, so it not anything new.

The USA was transformed by fracking, their energy equation, the same thing can happen here. So, when you look at these things, every time a resource price rises you've got to realise that it is not bad for SA. It will be swaying people's minds, people in the oil and gas industry about the world will now consider SA as a possible destination. Whereas, in the past it wasn't even on the radar. So, those are the issues so, it's a good question and something that is to this country's advantage.

I see we've made up for the late start, and I think it might be a good time to close off, if you're happy with that?

Indeed. My apologies for the late start. I was just trying to finish off the presentation but we did manage to do that. I hope that you found this worthwhile. It's the first time we've done it. I wasn't sure that we would have enough time to actually get through to achieve this but thankfully, we have managed to do so.

Just to give you a little bit about my day today, and what it was like. I was up at 4:15am, to get ready to go into CT, in the 'lockup' from 6am and then flat-out from 6am onwards. Reading all the material so, I do feel that I know quite a lot more about the information that I knew yesterday, of course, but there is so much. As I showed you all those figures with the documentation earlier. It is so much that each of us, as active citizens can get into, can understand and I think the real message here is that there are really smart people looking after the Government's finances, and looking after us as taxpayers and, at the moment, they are not being abused as they were in the past. They are not going to be knocked around from one side to the other. They're actually being supported and in a Finance Minister, like Mboweni, who we have there – he knows how these things work and he's there to even take on the PP on behalf of his DG, which is not something that you would have found in the past.

So, lots of little things are happening in the right way, in SA. Sometimes we just need to do like, Pravin Gordhan once said, 'just join the dots.'

Thanks, Alec. I just want to say thanks to BrightRock for allowing us to open up the webinar and for their help with the Budget today.

Yes, it's been great to have BrightRock involved and they were fantastic sponsors in Davos, and they came through at the last minute here. We were going to have the webinar only for premium subscribers but it is for everyone and it's been great, and if you're not a premium subscriber, remember, you get for a whole month what it costs you to buy three copies of The Business Day. So, it costs you R90 a month and you get The Wall Street Journal as part of it so, that's my last advertisement. So, please do support yourself – make a good investment.

Until the next time from me, cheers.