South Africa: Making SA The Investment Destination Of Choice, Again

Last Updated: 30 May 2013
Article by Lullu Krugel and Frank Blackmore

President Jacob Zuma is delivering his State of the Nation Address (SoNA) today, 14 February 2013.

This year's SoNA is of critical importance for both South African citizens and the foreign investment community. Moses Kgosana, Chief Executive Officer of KPMG in South Africa, shares his views on the SoNA ahead of the Budget Speech next week.

The SoNA is the first opportunity in the new calendar year in which Government can officially interact with South African citizens. It is also the most important indicator of the country's current international, political, social and economic situation, as well as Government's policy response in the coming year. It sets the scene for the Minister of Finance's budget speech, which takes place on Wednesday, 27 February 2013. How President Zuma approaches this year's SoNA will send key messages to citizens, business and foreign investors about Government's approach to addressing the country's challenges.

Lagging behind

South Africa's economic growth is lagging somewhat behind the growth of our peers in the developing world. The IMF forecasts for 2013 indicate that emerging market and developing economies will grow by 5.5 percent. SA's GDP is expected to grow by 2.5 to 3 percent, well below this expected average. While one of the most important reasons for this slower growth is our foreign trade structure and reliance on Europe, action is needed to step up growth and expand our trade and investment relationships with the high growth regions of the world.

According to Moses Kgosana, Chief Executive Officer of KPMG in South Africa, "The President used the opportunity at the World Economic Forum in Davos earlier this year to ensure foreign investors that South Africa is on the right track. The upcoming State of the Nation Address and the BRICS summit to be hosted in Durban next month, are further opportunities for Government to let the world know that they are willing and ready to act."

Stimulating growth vs tax pressures

On a local front, one of the key challenges is doing more with a revenue pool that is not growing fast enough. SARS has made significant inroads into improving tax  compliance, administration and other means of boosting revenue. However, the economic pressures of the past few years have meant that Government got less money in and that the pressures on the fiscus are increasing. Company taxes have been under severe pressure and slower job growth has also allowed for less growth in personal income tax revenue than would have been the case in a higher economic growth scenario.

The National Treasury has done a great deal to try to balance stimulating the economy and cushioning South Africans against the worst of the economic downturn with its slower revenue growth while trying to keep the budget deficit under control. However, now is the time to find ways of growing the revenue pool through creating an enabling environment for businesses to invest and employ, rather than increasing revenue through increasing tax rates. It is also important for Government to ensure that South Africa's Sovereign Risk Ratings improve as soon as possible, as the recent downgrades are actually costing us money by making our lending more expensive.

Now is also the time to implement policy and strategy such as the National Development Plan , the Industrial Policy Action Plan, the rollout of the Special Economic Zones and the Youth Wage Subsidy. Successful implementation of these strategies will send a clear message to foreign investors and citizens alike – not only are we able to write great policy, we can also implement it.

Furthermore, it is important to show that Government has the capacity and the will to react to citizen concerns such as unemployment, poverty, income instability and periods of social instability in a way that is decisive, honest and solution driven.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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