CEO’s Desk | Reflections of the 2021 budget speech

South Africa, like many other economies, finds itself in a challenging fiscal situation which has been exacerbated by the outbreak of the COVID-19 pandemic. The pandemic has also plunged the economy into recession with an expected 7,2% contraction in the Gross Domestic Production (GDP) for 2020/21 financial year.

The Labour Quarterly Survey released by Statistics SA also indicated that agriculture contributed about 2000 jobs in quarter 4, a positive sign that the sector was still showing some resilience. Yet, the pandemic crisis highlights the need for urgent action to cushion the its health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery.

Should the COVID-19 pandemic persist, should restrictions on movement be extended or reintroduced, or should disruptions to economic activity be prolonged, contraction or recession could be deeper. The government might find itself struggling to service debt which is standing over 81% of GDP, around R4 trillion. These are some of the harsh realities that the country is facing as highlighted by the Minister of Finance in his 2021 budget speech.

During the 2020 budget speech, the Minister of Finance, highlighted the inherent risk of allowing the debt-to-GDP ratio to go above 90%.  This may trigger a sovereign debt crisis and negative sentiments to investors. To address some of the economic challenges the country faces, the Minister suggested a fiscal framework to narrow the debt-to-GDP ratio to 88,9% by 2025/26 financial year and reducing it thereafter.

Above all, a number of priorities were identified to enable the South African economy to rebound and create employment opportunities while fighting the COVID-19 pandemic.  The priorities are centered around stimulation of economic growth and consolidation of the fiscal policy.

NAMC’s reflections on Minister Mboweni’s budget speech on measures affecting the agriculture sector are:

  • While the agricultural sector contribution towards GDP in Q2 and Q3 of 2020 was positive, the effects of the lockdown levels 4 and 5 were profound in relation to availability of labour, procurement of inputs and other mechanical services as well as on the logistics. Therefore, the commitment to the vaccine programme is welcomed as this could prevent or reduce the effects of the subsequent waves of infection.
  • The R7 billion support to the Land Bank coupled with commitment to revive the settlement of outstanding restitution claims and allocation of post-settlement support is a major boost for the sector.
  • The 8% increase in sin tax could have a negative impact on the wine and tobacco industries which have already been hardest hit by the extended restriction even under lockdown level 3. However, the additional tax revenue should come primarily from improved tax collection as enforcement is strengthened to enhance compliance, alongside other revenue measures.
  • The increase in the fuel tax will also put the farmers’ profitability under pressure due to increased production costs. This may in turn affect employment and increase consumer prices as farmers pass their costs to consumers, bearing in mind also the recently approved minimum wage Bill which will take effect from April 2021.
  • Although an increase in tax brackets may not provide the envisaged relief on individuals who are subject to “no salary increases” for the next three years as the government attempts to cut its wage bill, the reduction of corporate tax is a positive development. This will, to some degree, allow for small, micro and medium enterprises (SMMEs) to raise capital thereby expanding the tax base by stimulating economic activity and increasing job opportunities.

In the face of this disquieting outlook, the immediate priority for policymakers will be to address the health crisis and contain the short-term economic damage. Over the longer term, government need to undertake comprehensive reform programs to improve the fundamental drivers of economic growth. On the balance of things, the Minister has given confidence to the South Africans and investors that the country could pull through the fiscal position it finds itself in if the targets were to be achieved.

All hands on deck towards economic recovery

The NAMC continues to partner with public and private players to contribute towards the country’s economic recovery efforts. The Agriculture and Agroprocessing Master Plan (AAMP) that we coordinate, seeks to draw the attention of policymakers and other relevant stakeholders to increase investment in high-potential but underserviced areas and value chains to develop the capabilities needed to improve production to meet local demand as well as increase our export earnings.

There are existing initiatives that could form the basis for the implementation of the AAMP. The AAMP seeks to build on projects that are already bearing fruit and expanding those with additional investment from both public and private sectors. A few of those are highlighted next as they are relevant in the month of February.

In line with our key mandate of ensuring market access for all participants, we facilitated market access for smallholder castor oil producers in Ugu District Municipality in KwaZulu-Natal. These farmers have secured a market for castor oil which they are producing on 80 hectares of land. The NAMC continues to identify opportunities for market access in new value chains such as rabbit. We designed a market access model for a group of rabbit farmers operating on 20 hectares of privately owned land in Boston area in Impendle Local Municipality in KwaZulu-Natal. The design of this model was triggered firstly, by the need to address food insecurities and to assist the smallholders achieve sustainable livelihoods.  Secondly, to promote the local demand and consumption of the rabbit meat, since only 20% consumed domestically whilst the 80% of South Africa’s rabbit meat is destined for export markets.

A Diagnostic Analysis Survey on goat production in King Cetshwayo District Municipality (KCDM), KwaZulu-Natal province was conducted to diagnose the challenges faced by goat farmers. This survey will assist the NAMC to design a suitable Technical Support Plan that will guide the interventions of farmers and key stakeholders in improving goat production in KZN. A total of 15 goat famers participated in the survey owning approximately 10 000 number of goats (each farmer owning between 150 to 400 goats).   Many of the farmers are operating on communal land which is about 400 hectares in total.

Expanding intra-Africa trade

The Africa Continental Free Trade Agreement (AfCFTA), which came into effect on 01 January 2021, presents an opportunity to deepen South African trade and financial linkages within the continent. Although countries are still undergoing negotiations on rules of origin (RoO), schedules of tariff concessions and others, it is a promising time for the continent. Of course, there are still challenges in the way of non-tariff barriers (customs capacity, customs infrastructure, inspection delays, etc.), however, with collaboration among states, the agreement presents great potential for South Africa’s agricultural sector. Better trade governance will be the critical factor. If customs and border administration, trade facilitation and the elimination of non-tariff barriers are not markedly improved, the lower tariffs that may be agreed upon will not guarantee the AfCFTA’s success. Intra-Africa trade needs a comprehensive governance upgrade. If this can happen, trade with continental, as well as global partners stands to benefit. These non-tariff improvements can lower trade transaction costs and increase competitiveness of Africa’s trade, not only on the continent, but globally as well.

The Minister of Finance Tito Mboweni highlighted that six (6) border posts will be upgraded and expanded, to improve access to African markets. He mentioned that the intervention would be through the public-private partnership (PPP) model to harmonise the crossing of borders by people and goods. South Africa already exports a large share in value of our maize (~67%), fresh apples (~28%), food preparations (~80%), cigarettes (~90%) etc. to our neighbouring countries. Apples face relatively high tariffs in the top importing countries in Africa (20% – 25%) and the AfCFTA could present opportunities for those industries which experience high tariffs, to enter new markets and diversify their reach, provided that the trading environment is also smoothed out over time.

Climate change

We have also taken note of Cyclone Eloise and flooding taking place in Limpopo and some parts of Mpumalanga. In the past five years, the NAMC has been contributing to the subject of climate change and the need for policy makers to earnestly consider climate smart agriculture practices. The NAMC has been working with the Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) and the Leeds University on climate smart agriculture scenarios, involving farmers and policy makers. Policy briefs pertaining to this ambit will be released quarterly.

The year ahead 

Collection of relevant data is an important anchor in our effort to monitor the economic situation, and more specifically, the agricultural outlook. The NAMC is the facilitator of the Supply and Demand Estimates Committee. This Committee meets once a month and publishes supply and demand and stock position estimates of grains and oilseeds, by analysing the fundamental conditions of the crops after capturing new information that is available in the market at a specific time. The NAMC and the relevant industry Trusts agreed that 50% of the initiative will be funded by the NAMC and 50% by the Trusts. This is a good example of public-private collaboration in the provision of data and intelligence to guide business decisions in the sector as well as public policy making efforts.

Finally, we would like to thank all our stakeholders for their contributions in this final stretch of the financial year. We will on monthly basis continue to keep you updated on all our activities and programmes.

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