Category Archives: development

September 13, 2011

Pushing up VAT ‘the least damaging way to fund NHI’

By *media update*

(this article got quite a few comments – please click here to link directly to the Mail & Guardian website to read the original article…)

An increase in Value Added Tax (VAT) would go a long way in helping to meet the government’s goal of funding an effective National Health Insurance (NHI) within 14 years, experts say. 

Several economists who spoke to the Mail & Guardian on Monday feel that raising the tax on all purchased goods would be the most effective way of financing the NHI.

“It is the least damaging way of funding the NHI as our income and company tax is already too high,” says Dawie Roodt, chief economist at the Efficient Group.

These thoughts are echoed by Stanlib chief economist Kevin Lings, who feels the cost burden of a comprehensive health scheme should be borne by the whole population.

“There is no doubt that the government needs to increase its coffers to pay for this and it’s not an unreasonable suggestion, seeing as though all will benefit from NHI — this way everyone will pay,” Lings says.

Consumption drives consumption
Chris Hart, chief economist at Investment Solutions, says the cost of NHI would be significantly offset by raising VAT: it would tie funding to the nation’s ability to spend.

“VAT is driven by consumption, which is exactly what the NHI is. The costs can be offset to a certain extent within the consumptive chain,” Hart tells the M&G.

The comments follow a report in the Times on Monday that the treasury’s is apparently warming to the idea of an increase in VAT.

The department’s chief director of economic tax analysis and tax policy, Cecil Morden is quoted as saying that “a higher VAT rate could be justified on efficiency grounds” and that at 14%, South Africa’s VAT rate is “relatively low when compared to the worldwide average of 16.4%”.

This is the first sign that government is seriously considering the idea of a higher VAT rate. Finance Minister Pravin Gordhan has so far remained mum as to how the scheme will be funded.

It is expected that NHI could cost in the region of R125-billion in 2012 and R214-billion by 2020, according to a government’s green policy paper on the issue released in August.

Based on recent financial data, this would equate to 6% of the country’s Gross Domestic Product (GDP) in 2012.

An NHI pilot project is expected to be launched across the country in 2012, following the conclusion of an audit currently being undertaken at the country’s about 4 200 health facilities. If VAT were to be increased, it would be the first time the tax has risen since 1993 after it was first introduced in 1990, at a rate of 10%, as a substitute to General Sales Tax (GST).

Don’t target the poor
The Congress of South African Trade Unions (Cosatu) is strongly against the idea of raising VAT, as this would put those who are most economically vulnerable at risk.

“It’s something we will continue to have an issue with. The NHI aims at accessibility and affordability but if you rely on VAT, it defeats the purpose by placing pressure on those with the least money. Those who are supposed to benefit will suffer the most,” Cosatu president Sdumo Dlamini tells the M&G.

Dlamini believes that although the NHI has become a non-negotiable goal for government, its cost must never “fall on the shoulders of the poor”.

Hart counters this argument with a suggestion that VAT should only be increased substantially on luxury or non-essential items.

“I don’t see anybody who buys a flat-screen TV having a problem with a portion of the VAT included on the item being increased to fund NHI — so the poor won’t be affected,” Hart says.

Article courtesy of Mail & Guardian – please click here to see original article

 

Leave a comment | posted in development, economic growth, fiscal policy, media update, taxation

June 9, 2011

Manufacturing production dismal in April

By *media update*

South African factory output grew 0,4% year-on-year in April which was far below analyst expectations

ALISTAIR ANDERSON & NICKOLAUS BAUER

Manufacturing production was shocking in April this year. It grew at 0,4% year-on-year and fell 3,7% month-on-month from March.

 

 

 

 

There was deep concern that the economic crises in Japan and Europe would seriously erode demand for local exports in the coming months. Europe buys about a third of SA’s exports, and is the biggest purchaser of its manufactured exports

 

 

 

 

Strength in the rand was expected to have a negative effect too, damaging the competitiveness of goods manufactured in SA.

 

 

 

 

“We expect a slight moderation in growth to 4% year on year but it is likely to be temporary,” Rand Merchant Bank economist Carmen Nel said last week when commenting on her forecast for the data.

 

 

 

 

Manufacturing was slow to recover relative from the recession to other sectors of the economy. Economists are also concerned about the lack of jobs created by the sector.

 

 

 

 

SA has a 25% official unemployment rate. It is trying to create 5-million jobs in 10 years.

 

 

 

 

 

 

 

 

 

 

The current figures are worrying to economists who believe in the current economic circumstances, various economic sectors – especially manufacturing should be performing better.

 

 

 

 

 

 

“Manufacturing was a bright spark in early GDp figures this year and the current figures don’t paint a good picture,” Chris Hart, cheif economist at Investment Solutions told Business Day.

 

 

 

 

“At this stage of the recovery we shoudl eb seeing overheating instead of contractions and the economy should be in an upward space,” Hart added.

 

 

 

 

 

 

 

 

Senior ABSA Capital economist Gina Schoeman also told Business Day the data signifies a possible change in thinking that interest rates will change in latter 2011.

 

 

 

 

 

 

 

 

“This doesn’t paint the picture of an economy that could handle a normalisation cycle in 2011,” Schoeman said.

Article via Business Day – click here for original article

Leave a comment | posted in development, economic growth, manufacturing

May 20, 2011

Gautrain is a catalyst for development: economist

By *media update*

Gautrain, the rapid transit rail commuter service that goes into full operation in just over a month, provides an economic backbone for Gauteng, SA’s wealthiest province, according to Chris Hart, economist at Investment Solutions.

Gautrain, which links Johannesburg, Pretoria and OR Tambo International Airport, will officially start to run its full operation from June 28.

Already, the multibillion-rand rapid rail commuter service is drawing interest from businesses, underscoring its potential for galvanising Gauteng’s economic activities.

Hart says Gautrain’s 10 stations would prove to be developmental hubs and add a new dimension to how cities are developed and designed.

Stations, he says, have increasingly become central points of urban planning, highlighting the Gautrain’s role as the “backbone of economic development”.

There are office and residential nodes around stations, which will ultimately create work opportunities.

Presently, the Gautrain commercially operates on the route linking Sandton and Oliver Tambo International Airport. Some feeder bus services are available.

It is clear that Gautrain’s ticketing has been priced to attract regular commuters, Hart says, adding that the rapid transit system will help speed up the movement of people around and between the major cities of Johannesburg and Pretoria.

The Bombela Concession Company, which will operate the Gautrain for the next 15 years, says there is interest in the Gautrain from businesses in Gauteng, some of whom are already utilising the current operational service to and from the airport.

Although Bombela does not have figures, it is keen to engage with businesses on Gautrain service offerings, it says.

The Gautrain has made its mark, in particular, when it comes to socioeconomic advancement, such as empowerment and job creation.

Black-owned businesses hold 25% shares in Bombela.

During construction, more than 5.08 billion rand was spent on procurement from, and sub-contracting to, black entities.

The Gauteng Management Agency, which is overseeing construction of the Gautrain on behalf of the provincial government, says 34,837 jobs were created for South African-based workers.

Unskilled staff and semi-skilled staff attended more than 15,080 courses to improve their skills levels, Gauteng Management Agency says.

But Hart poses a question, asking whether the Gautrain model would inspire the rejuvenation of Metrorail to also catalyse further development.

Metrorail is a national passenger rail service that is part of the Passenger Rail Agency of South Africa (Prasa).

Article via Business Live – click here to see original article

Leave a comment | posted in development, economic growth, media update

April 20, 2011

Zuma urges improved service delivery

By *media update*

Zuma tells delegates to jobs summit government needs to be at the centre of the growth drive in line with its vision of a developmental state.

SAM MKOKELI

POOR service delivery needed to be improved to place the government at the centre of SA’s economic development, President Jacob Zuma told a jobs summit in Pretoria yesterday.

The summit with labour federation leaders follows one held last month with business leaders, as the government tries to create consensus for its job-creation agenda. Its new growth path strategy has set a target of creating 5- million new jobs in a decade .

Mr Zuma’s emphasis on the state’s role in the economy was criticised yesterday in comment on his remarks by Chris Hart, chief strategist at Investment Solutions. He said it was crowding out private sector space to operate.

Mr Zuma told the labour summit that the government needed to be at the centre of the growth drive in line with its vision of a developmental state, which his administration was relying on to drive economic development in SA. He said the government’s plans were boosted by the turn of the economic tide since the 2009 recession. The economy expanded 4,4% in the last quarter of last year, compared to 2,7% in the third quarter.

The government’s focus in the coming years would be to stimulate SA’s productive capacity to boost job creation, Mr Zuma told the summit.

The developmental state would be built on the ethos of service delivery, of providing quality services to communities in urban and rural areas.

“It means teachers, nurses, policemen and women, municipal employees and all public servants must work diligently to provide services,” Mr Zuma said.

Mr Hart said he was worried because the government — which was failing in its core competence — was now venturing into the private sector.

“The activists who brought us freedom in 1994 deserve a lot of credit, but they are trying to drive jobs now, which is not their area of expertise,” he said.

The private sector was increasingly being cut out of the process of creating growth and jobs through legislation and policies that were hostile to business.

“Unfortunately, business and enterprise activity are the only sources of all wealth in a society. There are no exceptions,” said Mr Hart.

Congress of South African Trade Unions president Sdumo Dlamini said the summit was helpful in providing the opportunity for unions to influence government thinking.

Leave a comment | posted in development, economic growth, household

February 24, 2011

Mixed reaction to Gordhan’s Budget

By *media update*

There was mixed reaction to Finance Minister Pravin Gordhan’s Budget Speech on Wednesday afternoon.

Gordhan announced increases in spending on health, education and policing when he delivered his speech in Cape Town.

Around R150 billion will be spent on job creation over three years.

He said it is important for South Africa to improve the education sector in order to create jobs.

“Over R20 billion goes to what we call the Setas (Sector Education and Training Authorities) and R5 billion to the national skills fund, which have key responsibility for training work seekers.”

Housing also received a bigger slice of the budget pie.

Gordhan said, “Government aims to upgrade 400,000 homes in informal settlements by 2014. A new urban settlements development grant contributes R21.8 billion over the next three years for these projects.”

The head of Deneys Reitz’s Tax Division Ernest Lai King however said,  “My first preference would have been more emphasis on performance monitoring and evaluation of service delivery.

He added that not enough was said about curbing of spending, while Investment Solutions economist Chris Hart said the actual budget did very little for job creation.

However, Stanlib’s Kevin Lings gave Gordhan’s speech the thumbs up.

“I think that if you look at the economic circumstances, the minister has got a lot of constraints that he is facing, in other words the tax base is incredibly small.”

Article courtesy of EyeWitnessNews.co.za

Leave a comment | posted in development, economic growth, fiscal policy, media update

January 8, 2011

Eskom under massive power pressure

By *media update*

by James-Brent Styan

Johannesburg – It’s going to take a massive team effort from all parties concerned to avoid load shedding this year.

The lack of new power stations in South Africa will finally catch up with the country this year and could lead to a repetition of the dark days of 2008.

Eskom CEO Brian Dames says that Eskom has repeatedly warned that the SA power network will be under massive pressure in 2011 and 2012, because of this lack of new generating capacity.

“Now 2011 is here, and we can confirm that the power network is under pressure,” Dames told the media yesterday.

Eskom’s new power stations that are being built will only start producing power in 2013, and Dames said it’s going to demand a team effort like never before to manage the network until then.

“If adequate steps aren’t taken to manage the gap between the demand for power and the available power, the deficit this year will be as much as 6 terawatt hours. That’s equal to the amount of power that a city like Cape Town uses in one year.”

Eskom’s total power capacity at present is 41 500MW, of which 1 500MW are imported from Cahora Bassa.

“The total demand for power at the moment is 30 000MW at peak times. That’s expected to increase to 32 000MW in the next two weeks,” Dames said.

However, he said, Eskom expects the demand during this year’s winter months to rise further to 38 000MW.

That leaves a reserve of only 3 500MW for unforeseen power problems.

This reserve should normally be 15% of the total power network. But, in the winter this figure will therefore fall to just over 8%.

“Our power stations are old, between 30 and 40 years old, and unexpected short circuits and unavailability of power stations occur frequently,” Dames said.

The amount of power that was unavailable yesterday, for example, was 4 521MW. If this were to be repeated in the winter months, load shedding would be unavoidable again.

Investment Solutions economist Chris Hart said that what makes Eskom’s job particularly difficult is that the economy is recovering again.

“As the economy gets going after the recession, the demand for power will simply continue. The recession helped us in 2009 and 2010, because the demand wasn’t as high as it would’ve been without the impact of the recession. This helped Eskom in particular.”

Hart said that factories want to start returning to production, and consequently they need more electricity.

“Is load shedding coming again? No one knows for certain, but the warning signs are definitely there.”

Hart said that the present crisis can’t be compared with the situation in 2008, because now the situation is rather that of a lack of forward planning.

“Eskom should’ve started building new power stations long ago. They started too late. Now we are running short of power. In 2008, the problem was rather one of poor management and operational errors, which resulted in a crisis.”

Dames said that Eskom is looking at various ways of managing the situation. This includes the use of diesel-driven power generators.

“This option is very expensive, but at peak times when demand is at its highest, that would be an essential expenditure. Another option is to negotiate contracts with independent power suppliers as soon as possible. We have already signed contracts with four parties to provide up to 287MW of power in the future. Finally, we are appealing to all South Africans to save as much power as possible.”

- Sake24

For business news in Afrikaans, go to Sake24.com.

Leave a comment | posted in development, economic growth, household

December 26, 2010

Foreigners switch focus

By *media update*

By Ethel Hazelhurst

Foreign investors are switching their focus from local bonds and shares to direct stakes in local companies. And Chris Hart, the economist at Investment Solutions, predicted yesterday that local firms, with a strong footprint in Africa, could become targets in the year ahead.

He cited retailer Shoprite Checkers and construction company Murray & Roberts as examples because both have operations in countries across the borders.

Hart said that the planned $2.3 billion (R15.6bn) acquisition of a controlling stake in Massmart, by US-based Wal-Mart Stores, had boosted the rand in recent months. Though the Massmart deal is still a work in progress, Hart said that the giant multinational would not wait for approval before arranging the currency transfers needed to compensate local holders of Massmart shares.

There is also a knock-on effect, as the high-profile deal attracts attention to the growth opportunities in South Africa and the continent.

Another major deal this year was the $3.1bn acquisition by Japanese telecoms service provider Nippon Telegraph & Telephone of local information technology company Dimension Data, in October.

Boosted by these transactions, the rand has strengthened in the face of net bond sales by foreigners and only modest inflows into JSE-listed shares in recent months.

According to Reserve Bank figures, foreign investors have bought a net R92.4bn in local securities so far this year – down from R94.8bn by the end of September this year and just a little ahead of a net R90.9bn inflow last year.

Despite this, the rand has strengthened from about R7 to the dollar at the end of September to trade yesterday at about R6.77; and from about R9.50 to the euro to R8.84.

Hart said Africa represented significant opportunities because it remained resilient despite the global recession of 2007/08 and the financial crisis.

He said the relatively strong growth was now off a far higher base than in the past. “Angola, for instance, has gross domestic product worth $60bn to $70bn, compared with about $5bn to $10bn 10 years ago.”

But net flows into shares listed on the JSE were worth only R35.7bn this year, compared with R75.4bn last year.

Claude van Cuyck, the head of equities at Sanlam Investment Management, said there were several factors: shares were cheaper 12 months ago than they are now; investor interest may have switched to other emerging markets; and investors may fear the rand’s strength is not sustainable.

The pace of net bond outflows has accelerated: from R989 million in October, to R6.8bn in November and nearly R11bn this month.

Ilke Smit, an economic analyst at Metropolitan Asset Managers, said bond inflows were driven by foreigners’ expectations that local bond yields would fall and prices would rise because the Reserve Bank had more space to cut interest rates than other emerging markets.

Article courtesy of IOL online – click here to see original article

Leave a comment | posted in currency, development, economic growth, investment

November 29, 2010

Little joy over Patel’s NGP

By *media update*

Commentators damn mixture of mutually exclusive ideas

The New Growth Path (NGP) released by Economic Development Minister Ebrahim Patel this week is a “mix of contradictions with mutually exclusive and competing ideas”.

By RENÉ VOLLGRAAFF

The plan, aimed at creating five million jobs in 10 years, among other things, got little positive reaction from analysts.

“You can’t have a weak currency and low inflation and loose monetary policy. One of them will give,” said Investment Solutions economist Chris Hart.

“You can’t have less regulation and price and wage controls – they just do not go together.”

Hart said the impression was that business did not have much input in the compilation of the NGP document.

This impression was strengthened at a press briefing on Thursday after Patel and business leaders met. Business Leadership SA chairman Bobby Godsell called the NGP an “idea-rich document”.

But Godsell said companies were not going to give up the right to decide their own salary levels or accept a cap on what people might earn.

“If that is what the government is intending, then there is very little chance of that happening,” he said.

Godsell also said that capping pay was not likely to happen, echoing concern voiced by trade unions about the possibility of having to give up their right to collective bargaining.

Hart said business people were, in a sense, to blame for the lack of input as they tended not to be activists.

There were also questions about consultation with other government departments.

Speculation about differences in approach between Patel and Trevor Manuel, the Minister in the Presidency responsible for the National Planning Commission, has been rife since their appointments last year – and it flared up again this week.

Patel assured the media that his document was endorsed by the cabinet through the cabinet system.

“In the process, National Treasury and the National Planning Commission and other economic ministers all had a number of moments to contribute to this,” he said.

Manuel appointed his planning commission, on which Godsell also serves, in April, but it has not yet produced any plans.

Hart said he feared the country would end up with “lovely think-tanks and an acrimonious limbo where nothing actually happens” because of differences between competing departments.

“They are not complementary, they are competing,” he said of Patel’s and Manuel’s departments.

But Piet Croucamp, a lecturer in politics at the University of Johannesburg, said he believed the planning commission would complement the NGP.

“I think the planning commission’s task will be to sort out the practical problems of implementing the plan as the plan does not spell out how the targets will be reached.

“I think Manuel will become involved at a certain point, but I am not worried about the fact that he does not seem to be involved with the development of this master plan. His role will ultimately be to give effect to the master plan.”

Much has been made of an apparent shift to left in the plans formulated in the NGP.

Investec economist Annabel Bishop said the NGP increased state control to the point of socialism.

She said that while the goal of social upliftment of the majority of South Africans was laudable and necessary, the implementation of the plan was likely to prove faulty and unattractive to the private sector.

Dawie Roodt, an economist at Efficient, agreed that the NGP represented a clear shift in policy direction.

“This is a clear move from a demand economy to a command economy,” he said.

“It comes straight from the book of the Soviet Union.”

The problem with increased government involvement in the economy, said Croucamp, lay with government’s bad management systems.

“Government involvement, where government determines the value of the currency or controls capital flows, like it is insinuated in the document, has a very bad history worldwide, even in places where the state is much stronger and more efficient,” he said.

“We have a government which is not managed efficiently.”

Croucamp said he did not believe the NGP represented a shift to the left, but rather an increased effort by the government to be more involved and take more responsibility for economic growth and job creation.

“The big debate now is how it is going to be done with ideological and practical differences in opinion between Cosatu and the ANC.”

So what is the plan?

Create five million jobs over the next 10 years, especially in the green economy, agriculture, mining, manufacturing and tourism.

Infrastructure investment will focus on energy, transport, communication and housing.

An African development fund will be established to invest in African infrastructure.

State agencies, including the Reserve Bank, will be reoriented to ensure the state “is not hostage to market forces and vested interests”.

Monetary policy will be looser to support a more competitive exchange rate.

A state mining company and state bank must be established.

Wage settlements will be moderate to save jobs, create jobs and address inequality. This includes a “modest increase above inflation” for employees earning between R3000 and R20000 a month, increases pegged to inflation for those earning between R20000 and R45000 and pay caps or increases below inflation for those earning over R45000.

article courtesy of Times Live – please click here to see the original article

Leave a comment | posted in currency, development, inflation, monetary policy

November 23, 2010

SA faces R32bn backlog in power distribution infrastructure

By *media update*

By Chanel de Bruyn

South Africa would require about R32,4-billion by the end of this year to deal with the backlog in its electricity distribution infrastructure, Department of Public Enterprises chief director Simphiwe Makhathini said on Tuesday.

Speaking at a reliability and maintenance conference on behalf of Public Enterprise Minister Malusi Gigaba, Makhathini also stressed that investment in maintenance was critical to ensure the reliability of electricity generation, transmission and distribution in South Africa.

A reliable electricity generation and supply system was needed to foster higher economic growth, to improve service delivery, to create jobs and to ensure the best use of the country’s resources.

However, several municipalities, as well as Eskom’s distribution unit, were under financial strain, said Makhathini.

He stated that the distribution industry in South Africa was in a dilapidated state, with one-third of municipalities that were not financially sustainable.

Makhathini urged all electricity users, including businesses and industries, to pay their electricity bills, noting that nonpayment added to the financial strain of municipalities, which added to their inability to do proper maintenance.

He further indicated that the country loses about R4,4-billion a year in equipment and electricity theft.

Meanwhile, he said that a decision with regard to the feasibility of restructuring the country’s distribution assets into regional electricity distributors (Reds) would be made before the end of 2010.

If the Reds were not considered feasible, the Reds system might have to be reviewed, said Makhathini.

In 2003, government established EDI Holdings to oversee the restructuring of the country’s electricity distribution industry. However, the implementation of the Reds system has seen repeated delays.

Meanwhile, Investment Solutions chief economist Chris Hart told delegates at the conference that the strong rand was not necessarily a negative thing for South Africa.

This would provide the country with buying power to acquire additional infrastructure, equipment and technology that it could use to improve its maintenance performance and the productivity of some sectors within the economy.

CHANGE IN ATTITUDE

Thomas Ålund, senior consultant at Swedish maintenance consultancy firm Idhammar, emphasised that businesses should change their attitudes to maintenance from one where maintenance is just done when repairs to equipment are required to preventative maintenance where equipment is continuously maintained to keep it running.

By adopting better maintenance systems, organisations, and particularly those in the manufacturing sector, could reduce their production losses, reduce time and quality losses, improve their competitiveness, reduce costs and reduce the impact of their operations on the environment.

This would lead to better profits and improved economic stability for companies, said Alund.

Article courtesy of Engineering News – please click here to see the original article

Leave a comment | posted in currency, development, economic growth

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