SA looks past gloomy budget in drive for $100bn

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.

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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% 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% 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, said in an emailed note. “While the headline of the MTBPS may have disappointed, the underlying story should not be overlooked.”

� L.P