MCSA Welcomes Mboweni’s 2019 Budget

The Minerals Council South Africa (MCSA) has welcomed finance minister, Tito Mboweni’s recently delivered budget speech, despite the extremely difficult financial challenges that South Africa faces.

As expected, the central piece comprises the steps taken to rescue local power utility -Eskom – from insolvency, providing a R23 billion-a-year subsidy for at least the next three years. It is a measure that avoids various technical complications that may have arisen from a takeover of a large chunk of Eskom’s huge debt while effectively assisting the electricity provider to fund the interest payments on that debt, the council said.

Particularly welcome is the additional layer of governance being installed at Eskom and the other State Owned Enterprises (SOEs) requiring government bailouts, in the form of the envisaged Chief Reorganisation Officer and other restrictive rules. These are wise steps, though care will need to be taken not to create a dual governance structure that impedes rather than enhances operational and financial efficiencies, the council said in a statement.

The MCSA trusts that a further consequence of the taxpayer-funded subsidy will see Eskom withdrawing its demand to the National Electricity Regulator of SA for the 15.5% annual tariff increase.

The council indicated that the stated intention to shift a greater proportion of state spending towards investment and away from current spending is one the industry will support.

Minister Mboweni highlighted the importance of fixing the education system as a first step towards further modernising the economy.  The decision to freeze the pay of legislators and SOE executives this year is a helpful gesture, the minister had said.

With limited tax increases, relying mostly on bracket creep, the council sees the budget deficit reaching an uncomfortable high of 4.5% and debt servicing budgeted to increase by more than 10% a year for the foreseeable future. In addition, it could be worse if the ratings agencies don’t see all these efforts as constructive ones with a good chance of success. “We believe that the government of the day does deserve that recognition.”

For the mining industry in particular, the Minerals Council notes the passage of the Carbon Tax Bill and the minister’s recognition of the critical importance of the awaited trade exposure and benchmarking regulations. The industry will hope that these mitigate the generally negative impacts that the tax will have on the sustainability of many mining operations.

“We applaud the increased allocation to human settlements development in mining regions.”

Minerals Council CEO, Roger Baxter said that “South Africa is reaping the fruit of the decade of reckless governance that ended a year ago”. We are grateful that the economy is now in hands that can be trusted. But we don’t have any illusions about the difficult years that lie ahead, he added.

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