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2019 National Budget Speech – an opportunity to return to best practice

Agri SA is looking forward to the Minister of Finance, Tito Mboweni’s first National Budget Speech.

The balance between government income (tax revenue) and expenditure is at the heart of the government budget. Rating agencies and financial market role-players will want to see a commitment to fiscal consolidation. The fiscus is under severe strain and a further downgrade from credit rating agencies must be avoided at all cost.

“This is an opportunity to return to best practice - using the right instruments to cut unnecessary expenses without fear or favour,” said Nicol Jansen, Agri SA Chairman of the Centre of Excellence: Economics and Trade. “Although fiscal consolidation is of the utmost importance, the first option should not be tax increases.”

Agriculture has shown that it is a proven sector that, with assistance from government, can build the economy and increase fiscal stability. The National Development Plan (NDP) overwhelmingly recognises the agricultural sector as a sector of growth and its potential to create job opportunities for rural communities. The Minister must take into account the current economic conditions and the possible negative impact of these increases on growth prospects.

“Minister Mboweni has a lot of pressure on him to make sure that South Africa’s books balance,” said Dr Requier Wait, Agri SA Head of Economics and Trade. “If he wants to unlock economic growth, the agriculture sector is the key.”

Agri SA is hoping to hear the following elements in Mboweni’s speech:

• Drought support: Effective and speedy direct assistance to drought-affected farmers. Agribusinesses can act as agents to help distribute drought relief. This can follow a public audit process to ensure transparency and help minimise possible corruption. Drought relief should cater for farmers across the sub-sectors of agronomy, horticulture and animal production.

• Electricity sector reform: Electricity is a key production input for agriculture. Farmers are price-takes and rising electricity costs have a direct impact on our international competitiveness, where farmers must absorb rising input costs. Electricity sector reforms are necessary to resolve the current situation of rising tariffs amidst system supply constraints and load shedding. Reforms should consider the following:

1. Allowing for greater private sector participation in the electricity sector, specifically to generate electricity for local areas via the low voltage distribution networks. This would allow Eskom to continue its generation and transmission function, whilst allowing the private sector to contribute to localised generation that supports Eskom’s electricity supply. This will help to meet electricity demand and avoid load shedding.
2. Reduce Eskom’s capital requirements and to stabilise debt levels, the new build program should be placed on hold. Eskom should cease further capital spending aimed at expanding its own generation capacity. Whilst restarting mothballed generation projects could cost more in the future, it cannot be used as an argument to continue with capital expenditure the utility cannot afford in the current environment.

• Land reform and emerging farmer support: Increased funding for land reform and emerging farmer support is crucial. An outcomes-based funding approach tied to technical and mentoring support should be part of the approach.

• Agri Development Fund: Funding and support for the establishment of an Agri Development Fund that can leverage blended finance to support the development of emerging farmers.

• Bio-security: Funding to support and enhance South Africa’s bio-security measures. The recent Foot and Mouth Disease (FMD) outbreak[2] in the Vhembe District in Limpopo is an example that supports the importance of increased funding to enhance our bio-security measures. Equally important, we need to ensure enough capacity is available in terms of the number of bio-security personnel with adequate training. Funding should also be directed towards a national livestock identification and traceability system.

• Diesel refund system: Feedback on the proposed diesel refund system (separating the diesel refund and VAT systems) to solve the processing and payment delays experienced with the current system.

• Road infrastructure: Allocating funding for effective implementation of road and logistics infrastructure maintenance.

• Plans to deal with corruption and poor service delivery: poorly performing municipalities should be placed under administration to ensure that the available funds are effectively managed.

• Limiting excessive increases to excise duties: Excessive increases to excise duties could have an adverse impact on the wine and tobacco industries.

Agri SA hopes the budget will make positive commitments, that will be effectively implemented, towards limiting the budget deficit and supporting economic growth.

[2] The outbreak occurred in the high surveillance area of the FMD Free Zone, immediately adjacent to the protection zone. The outbreak was reported to the World Organisation for Animal Health (OIE) and, as a result, South Africa lost its FMD free zone without vaccination status. For more information refer to the DAFF update.

Nicol Jansen
Agri SA Chairman: Economics and Trade Centre of Excellence
(C) 082 948 2629

Dr. Requier Wait
Agri SA Head: Economics and Trade Centre of Excellence
(C) 073 304 0932