Here’s what investors REALLY care about: land reform – budget analysis

EDINBURGH — The mid-term budget made for depressing reading for investors, with the negativity reflected in a decline in the rand. But, much more important than the mid-term news delivered by finance minister Tito Mboweni this week are the details on land reform. That’s the message from analysts, who note that long-term investors – such as delegates to the country’s first investment summit – will be paying closer attention to ANC policy discussions on the prickly issue of land expropriation and the capacity of the Constitution to cope with all-important changes in ownership to finally right apartheid’s wrongs. Also critical is for the government to demonstrate decisive action against corruption in the post-Zuma era. – Jackie Cameron 

By Rene Vollgraaff and Ana Monteiro

(Bloomberg) – South Africa is hoping investors will look past Finance Minister Tito Mboweni’s bleak mid-term budget as the country seeks to woo $100 billion into its economy.

The nation’s first investment summit will kick off Thursday after Mboweni’s plans showed government debt peaking later and at higher levels, the fiscal shortfall widening and state revenue continuing to undershoot.

Tito Mboweni, mini-budget
Dondo Mogajane, director general of the South African National Treasury, left, walks with Tito Mboweni, South Africa’s finance minister, center, as he heads to parliament to present his mid-term budget. Photographer: Waldo Swiegers/Bloomberg

The three-day event in Johannesburg is part of President Cyril Ramaphosa’s drive to restore confidence and boost an economy that hasn’t expanded at more than 2 percent annually since 2013. Although the rand and bonds plunged on the budget news, issues such as land reform and ongoing inquiries into alleged graft under former President Jacob Zuma are more important to long-term investors than the numbers, according to George Herman, the chief investment officer at Citadel Investment Services.

The deterioration in the numbers is “marginal and should not deter any of those investors” that might attend the summit, Herman said. “The presentation shows that the Treasury wants the country to stick to the expenditure ceiling. Mr. Mboweni carries that respect. I don’t think this detracts from investors for long-term investment.”

The National Treasury more than halved its economic growth forecast for 2018 to 0.7 percent after the economy plunged into a recession in the first half of the year.

Still, “it will be disappointing for Cyril Ramaphosa to go into this summit after this budget,” said Halen Bothma, an economist at ETM Analytics in Johannesburg.

Mboweni wasn’t overly concerned by the sharp market response.

“Once markets look overall at what’s contained in the statement, they’ll get a sense of balance,” he told reporters in Cape Town. “I suspect they will calm down a bit. It’s a tough world.”

The budget shows that instead of raising spending, the government will rejig expenditure to direct more money to areas that may create jobs such as clothing and textile industries and the state’s public-works program. That’s part of a stimulus plan Ramaphosa announced last month to boost the economy.

“Even in the worst of times, South Africa has successfully and consistently adhered to its expenditure ceiling,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Plc, said in an emailed note. “While the headline of the MTBPS may have disappointed, the underlying story should not be overlooked.”