Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Ghana and South Africa both delivered budgets this week against
Speaker 2: a backdrop of a struggling global economy.
Speaker 3: The state of our economy is troubling, but we will
Speaker 3: fix it. It will require some sacrifices, truthfulness, transparency and
Speaker 3: discipline to.
Speaker 4: Raise the revel you needed. The government proposes to increase
Speaker 4: evetererate by half a percentage point in twenty five twenty
Speaker 4: six and by another half a percent a point in
Speaker 4: the following year.
Speaker 2: Both countries have big holes in their budgets to fill.
Speaker 2: But will the spending cuts and tax rises be enough
Speaker 2: and will the public accept them?
Speaker 1: So the democratic Allians will not be supporting the budget
Speaker 1: in its current form and therefore the budget being table
Speaker 1: to does not have a parliamentary majority.
Speaker 2: On today podcast, we'll look at what these big economies
Speaker 2: on two sides of the continent tell us about Africa's
Speaker 2: growth story in twenty twenty five. I'm Jennifer Zabasaja and
Speaker 2: this is the Next Africa Podcast, bringing you one story
Speaker 2: each week from the continent driving the future of global
Speaker 2: growth with the context only Bloomberg can provide. Joining us
Speaker 2: today is Bloomberg Economics Africa Economists.
Speaker 5: That's von Mango Evon. Thanks so much for being here.
Speaker 2: We haven't had you on the podcast, so appreciate you
Speaker 2: making the time.
Speaker 5: Let's just start with Ghana.
Speaker 2: This is the first budget for the new Mohamma administration.
Speaker 2: What was Finance Minister Cassio Atto Forsen faced with when
Speaker 2: putting his plans together and did he achieve that?
Speaker 1: So the challenge of the John Muhamma administration which has
Speaker 1: just come into office is that they've inherited a fiscal miss,
Speaker 1: essentially the inherited in economy with high inflation deficits that
Speaker 1: will wider than anticipation and they're going to have to
Speaker 1: correct this. Their plan is quite ambitious. Their plan to
Speaker 1: turn the primary deficit of three point nine percent into
Speaker 1: a surplus of one point five percent of GDP this year.
Speaker 1: That's quite a significant physical adjustment and will require some sacrifices.
Speaker 2: How realistic is that considering the situation that Gama is
Speaker 2: in right now.
Speaker 1: So our primary view is they may all likely miss
Speaker 1: that because as I mentioned, that's quite a significant fiscal adjustment.
Speaker 1: It requires a significant cut in spending, which they have
Speaker 1: pledged to do. As well as a significant increase on
Speaker 1: the revenue front. On the revenue side, they've increased levees
Speaker 1: to the mining sector and taking advantage of the higher
Speaker 1: goal prices, so they'll get income through there. And on
Speaker 1: the spending side, yes, I think about a tenth of
Speaker 1: the budget in terms of cuts will take places here.
Speaker 1: But given that some spending can be and anticipated, you're
Speaker 1: likely to see the mess that particular target.
Speaker 5: So what is the target that economics is expecting.
Speaker 1: We expect there to be a small primary deficit or
Speaker 1: at least close to zero on the primary deficit side,
Speaker 1: would it still be a significant improvement from a deficit
Speaker 1: that was around four percent of GDP? In order to
Speaker 1: arrest that increase in public debt, you need a primary
Speaker 1: surplus and that's what this administration is trying to achieve.
Speaker 1: So the goals are commendable, but it will probably take
Speaker 1: them longer to achieve them than they're currently suggesting.
Speaker 2: How much do you think gold could potentially be a
Speaker 2: contributor to that surplus that the government is trying to achieve.
Speaker 2: We are seeing record prices for gold you mentioned mining.
Speaker 2: How much could that really move the need of for them?
Speaker 1: Well, it's an important contributor, considering it's one of their
Speaker 1: biggest exports, also in this time when prices are quite
Speaker 1: significantly high. However, it is not the only driver of revenue.
Speaker 1: You need revenue to be performing well in other parts
Speaker 1: of the economy. Wouldn't lean too much on the gold
Speaker 1: sector getting them out of this fiscal mess that they're in.
Speaker 2: Everyone what's Bloomberg economics expectation for the CD because a
Speaker 2: lot of focus is being paid to currencies across the
Speaker 2: continent right now.
Speaker 1: So the sceity is likely to continue to come under pressure.
Speaker 1: Keep in mind, though they've been successful at restructuring their
Speaker 1: debt domestically, they're still haven't got complete access to international
Speaker 1: capital marketers yet, so that restrains how much foreign capital
Speaker 1: can flow into the country, which implies the currency will
Speaker 1: likely continue to come under pressure as they go through
Speaker 1: this fiscal consolidation plan.
Speaker 2: So the country is not necessarily out of the woods
Speaker 2: yet this new administration.
Speaker 1: Oh not as yet. Of course, the big hurdle has
Speaker 1: been jumped, which is debt restructuring, which is a big positive.
Speaker 1: But this administration, as they've said themselves, have a big
Speaker 1: job to do in terms of correcting the fiscal challenges
Speaker 1: that they found. We do think that if they remain
Speaker 1: on this path, by the time they reached the end
Speaker 1: of their four year term, we should begin to see
Speaker 1: a turnaround on the fiscal front and that should begin
Speaker 1: to reflect in a much more stable currency and lower inflation.
Speaker 2: Okay, so somewhat positive there for at least this new administration.
Speaker 5: That's only a few months in. Let's turn to South Africa.
Speaker 2: It's also the first budget for this new g and
Speaker 2: U coalition government. A lot of different views on the
Speaker 2: budget that we got on Wednesday. Talk to us about
Speaker 2: your assessment of what was presented.
Speaker 1: Okay, So, as you saw, the budget was delayed by
Speaker 1: three weeks and the main reason is the two big
Speaker 1: parties in the ruling coalition government disagreed on the VAT increase.
Speaker 1: What we did see is a compromise. Instead of a
Speaker 1: two percentage point increase in that to seventeen percent, this
Speaker 1: new budget proposes fifty basis points hike over the course
Speaker 1: of two years, so essentially a percentage point over the
Speaker 1: course of two years. So that's a compromise. However, we
Speaker 1: are noting that this may not be enough for the
Speaker 1: Democratic Alliance to vote for the passage of the budget.
Speaker 1: They'd like to see more, in particular proposals that will
Speaker 1: expedite growth. I think one of the big challenges So
Speaker 1: Africa faces, and we do agree at Bloomberg Economics, is
Speaker 1: that So Africa is a growth problem. It's why the
Speaker 1: budget persistently misses its revenue targets. That's why there's pressure
Speaker 1: on them to use tax policy to increase revenue. However,
Speaker 1: on the spending side, more needs to be done, particular
Speaker 1: cutting inefficient spending, and that's something the Democratic Alliance is
Speaker 1: pushing for. So we are going to see over the
Speaker 1: next coming weeks parties within the coalition meeting to discuss
Speaker 1: concessions that the NC may need to make in order
Speaker 1: to get the likes of the Democratic Alliance to vote
Speaker 1: for a budget.
Speaker 2: I've also been struck evon by a lot of the
Speaker 2: discussion around tax collection here in South Africa and how
Speaker 2: the ideology around that potentially needs to change in the government.
Speaker 2: Do you think it's the inefficient way to collect revenue?
Speaker 2: Is it what South Africa needs right now, this economy needs.
Speaker 1: I think the Soufric Revenue Service has actually done a
Speaker 1: much better job of tax collection in recent years, particularly
Speaker 1: under Edward Kristwitter, who was appointed I think about four
Speaker 1: years ago, so that has improved. Of course, there's more
Speaker 1: that can be done there those that are evading taxes.
Speaker 1: I think one of the positives of this budget is
Speaker 1: that the allocation to the revenue Authority has been increased
Speaker 1: so that they can address the non compliant taxpayers even
Speaker 1: more and try and bring them into the tax base
Speaker 1: so they are compliant and contributing. So I think that's
Speaker 1: less of an issue. I think the big issue in
Speaker 1: Africa is African's over tax. It's just the reality taxed, yes,
Speaker 1: in terms of income tax and the concern and that's
Speaker 1: one of the reasons why you didn't see them, despite
Speaker 1: the pressure to increase revenues, you didn't see them fiddle
Speaker 1: personal income tax and corporate tax because in raising that
Speaker 1: you'd actually get contrary result in that you'd probably get
Speaker 1: less revenue because you'd squeeze growth, and of course you
Speaker 1: find that businesses and households would find ways of evading
Speaker 1: paying that tax, so you actually hurt the tax revenue
Speaker 1: coming through. So back to the main point is the
Speaker 1: point I made earlier. Growth is the issue if the
Speaker 1: economy was growing faster. Revenue in itself will grow and
Speaker 1: would help them achieve their debt stabilization targets.
Speaker 2: Considering that you said that there's a growth problem, are
Speaker 2: there any green shoots though you see positives for the
Speaker 2: economy moving forward?
Speaker 1: Well, yes, so there has been an increase in the
Speaker 1: allocation made to infrastructure. I think the plan is to
Speaker 1: spend about a trillion brands on infrastructure over the medium term.
Speaker 1: That's of course private sector partnering with the government. So yes,
Speaker 1: there is a focus on trying to spend more on
Speaker 1: areas that are growth enhancing, but more could be done
Speaker 1: in terms of easing regulations, easing labor to the tea
Speaker 1: that is a significant issue in South Africa, in addition
Speaker 1: to the ongoing spending reviews, actually acting on the outcomes
Speaker 1: of those reviews to try and cut inefficient spending, improve
Speaker 1: the procurement processes that state owned enterprises. These are all
Speaker 1: areas that would help them bring down debt a lot
Speaker 1: faster than we're seeing today.
Speaker 2: Ivan stick with us when we come back, we'll dig
Speaker 2: into how the markets have reacted and what these budgets
Speaker 2: actually tell us about the state of the African economy.
Speaker 5: We'll be right back. Welcome back today.
Speaker 2: We're digging into Africa's economy after two crucial budgets were
Speaker 2: revealed this week that was in Ghana and South Africa.
Speaker 2: We have our Africa economists Evon and Mango still with us.
Speaker 2: So Ivon, what do you make of the reaction that
Speaker 2: we've seen to the budgets, especially in the markets.
Speaker 1: So in the case of South Africa, they is caution
Speaker 1: and the main way and for that is the second
Speaker 1: biggest party in the coalition. I said they're not going
Speaker 1: to pass the budget in its current form. So while
Speaker 1: a budget has been read, we essentially don't have a
Speaker 1: budget as it is and that will be decided over
Speaker 1: the coming weeks. Also keep in mind this is the
Speaker 1: first time we have a coalition government, so this is
Speaker 1: all new. The minister mentioned to himself he's a new territory,
Speaker 1: so they have to find themselves. We do believe that
Speaker 1: the parties are willing to work together in order to
Speaker 1: find some sort of compromise and put forward a budget.
Speaker 1: So we're not expecting an untoward result at the end
Speaker 1: of these negotiations, but it will take time and the meantime,
Speaker 1: the markets will be cautious. We saw the rand losses
Speaker 1: yesterday yesterday following the reading of the budget, and that's
Speaker 1: just demonstrating investors taking a cautious view.
Speaker 2: And I wonder if we think about what is happening
Speaker 2: in the global economy, there is a lot happening for
Speaker 2: the markets and for investors globally to digest. I mean,
Speaker 2: there are developments in the Middle East, there's developments with Ukraine,
Speaker 2: and there's also, of course the the trade war that
Speaker 2: has been really started by President Trump and igniting over
Speaker 2: the past few weeks. Is that having an impact on
Speaker 2: the African economy yet, based on your research.
Speaker 1: That's a good question. I actually dedicated a bigger section
Speaker 1: of my reaction to the budget to geopolitics than I
Speaker 1: normally do, given that, yes, it is weighing on what's
Speaker 1: happening in our part of the world. So for South
Speaker 1: African particular, even before the budget, we've seen us AID
Speaker 1: cuts that's impacted not just South Africa, but the rest
Speaker 1: of the continent. In terms of what the impact has been,
Speaker 1: it's particularly the health sector that's been affected In a
Speaker 1: country like South Africa. While negative, the impact will be
Speaker 1: small and the gap that's been created can be easily
Speaker 1: filled by the governments, at least on the health care side.
Speaker 1: So we're not overly concerned for South Africa with regard.
Speaker 5: To the aid cuts. The rest of the continent.
Speaker 1: Yes, there are countries which will be hit hardest, particularly
Speaker 1: the lower income countries such as Malawi, and in that
Speaker 1: case they're going to have to scramble for resources from
Speaker 1: other development partners in order to fill that gap. The
Speaker 1: other area of concern, of course, is that it is
Speaker 1: an important source of foreign exchange, particularly for smaller economies,
Speaker 1: so in those countries you could see pressure on currencies.
Speaker 1: The other concern is a GOA. A GOA is the
Speaker 1: trade agreement that gives duty free access for select African
Speaker 1: exports into the US market. In South Africa's case in particular,
Speaker 1: I think that we could say at this point there's
Speaker 1: a high risk that agreement will not be renewed in September,
Speaker 1: given the escalation of tensions between the US and South Africa.
Speaker 1: In that case, yes, it does mean Soufrik this case
Speaker 1: would lose that duty free access and it impacts in
Speaker 1: particular two particular sectors. That is your vehicle or automotive
Speaker 1: sector as well as the citrus sunwine industry that's based
Speaker 1: in the cave. My third point is around the global
Speaker 1: trade or tariff for Ultimately, what that does tend to
Speaker 1: imply is that there's a slow down in global growth,
Speaker 1: and if that is the case, then it means demand
Speaker 1: for commodities or the exports that come out of Africa
Speaker 1: will likely slow, which has implications for these countries' external
Speaker 1: positions and also their currencies.
Speaker 2: Yeah, and there's even talk in the US about a
Speaker 2: potential recession. Now, I mean that wasn't even part of
Speaker 2: a few months ago.
Speaker 1: Von.
Speaker 2: Let's just close out with your outlook for twenty twenty five.
Speaker 2: I recognize that this is a very difficult question, considering
Speaker 2: there is a lot of headwinds that a number of
Speaker 2: these economies on the continent are facing. Do you see
Speaker 2: some of the bigger economies South Africa, Ghana and Nigeria.
Speaker 5: Though, starting to pick up in growth.
Speaker 1: So in South Africa's case, yes, although growth disappointed last year,
Speaker 1: kim in weaker than we'd anticipate it at zero point
Speaker 1: six percent, would I expect to pick up? We're still optimistic.
Speaker 1: We're our growth forecasts at one point nine percent. And
Speaker 1: the reason for that upside is largely due to the
Speaker 1: return to more reliable electricity supply, so certainly in South
Speaker 1: Africa's case, which is the biggest economy on the continent,
Speaker 1: that should help a lift growth for the region. Nigeria,
Speaker 1: we expect growth to remain in the three percent region.
Speaker 1: We are concerned about the lower oil price given what's
Speaker 1: happening globally, so that may be a dampner. But other
Speaker 1: than that, inflation is beginning to moderate that particular economy,
Speaker 1: which means montrepolicy is not as hawkish and that should
Speaker 1: support some sort of recovery in that big economy as well.
Speaker 2: That is Evone Mango Bloomberg Economics Africa Economists, and you
Speaker 2: can find her research on the Bloomberg terminal.
Speaker 5: Now Here are some of the.
Speaker 2: Other stories we've been following across the region this week.
Speaker 2: The Rwanda backed M twenty three rebel group has consolidated
Speaker 2: control over the two largest cities in the Eastern Democratic
Speaker 2: Republic of Congo, effectively setting up a proto state in
Speaker 2: the mineral rich region and forcibly recruiting soldiers and civilians.
Speaker 2: I'm twenty three has added about four thousand Congolese soldiers
Speaker 2: and fighters from local armed groups, with hundreds of civil
Speaker 2: servants sent for indoctrination at remote bases, according to three
Speaker 2: Western officials, three United Nations officials, and one humanitarian worker
Speaker 2: in the region and Xarro Resources appointed Ben Magara as
Speaker 2: chief executive officer a month after the previous leader of
Speaker 2: the South African coal Miner resigned. Nombasa Segua, who had
Speaker 2: been on a precautionary suspension over claims related to workplace conduct,
Speaker 2: resigned last month over the handling of a probe into
Speaker 2: the allegations. You can follow these stories across Bloomberg, including
Speaker 2: the Next African Newsletter. We'll put a link to that
Speaker 2: in the show notes. This program was produced by Adrian Bradley.
Speaker 2: Don't forget to follow and review the show wherever you
Speaker 2: usually get your podcasts. I'm Jennifer's Abasaja. Thanks as always
Speaker 2: for listening.