IMF warns Godongwana may have underestimated risks in medium-term budget.

Finance Minister Enoch Godongwana did the right thing in his Medium-term Budget Policy Statement (MTBPS), cutting debt and saving some of the proceeds of a windfall tax take, says the International Monetary Fund (IMF), but he may have been too optimistic in assuming that he will hit the fiscal targets he has set.

The IMF’s Africa team is in South Africa (SA), following the publication of its Regional Economic Outlook for Sub-Saharan Africa earlier in October. In an interview in Cape Town, IMF resident representative Max Alier said while “the tone of the MTBPS was right” and it was “very positive”, that Godongwana had opted for fiscal consolidation and to save a large chunk of the windfall tax, several assumptions “were a bit on the optimistic side, given the global conditions”.

The IMF has described the global economic outlook as “extremely uncertain” and expects a third of the world to be in recession by next year. The duration of the downturn is also uncertain. Alier says that several significant risks threaten to derail Godongwana’s fiscal framework, which sees debt stabilising in the current financial year and a primary surplus emerging – that is, the budget for all expenditures excluding debt services costs – in 2023/24.

The first of these is the wage deal with public servants, which has not been finalised, with some trade unions poised to strike in the next few weeks. Godongwana has pencilled in a 3% increase in the wage bill, equal to the government’s final offer. But more concerning, says Alier, is wages in the years ahead are not forecast to rise significantly either. Going forward, wages are kind of flat. So, the question is, are you able to do that in a context of inflation in which interest rates are high? Transfers to state-owned enterprises, which occurred again this year, and which usually result in even higher allocations than budgeted flowing to such entities and the uncertain future of the basic income grant, are additional risks to the fiscal
framework. Even though the Treasury has said that conditions will be put in place for bailouts to state-owned enterprises, Alier says that these conditions seldom come with teeth and the ability for the Treasury to enforce them. It is particularly important to see what these will be in the case of Eskom.

As for the grant, while National Treasury has extended the grant until the end of March 2024, there is nothing pencilled into the budget framework for the outer two years. The IMF regional outlook, titled Living on the Edge, emphasises Africa’s precarious situation with global shocks such as food inflation, making food security a priority for citizens. Despite the need for strong fiscal consolidation in most of Africa – where debt-to-GDP ratios have reached 60% – the IMF urges African governments to provide food or income support to the vulnerable but says this will have to be phased out over time.

In the case of SA, the IMF warns that SA does not have the fiscal space to implement a permanent basic income grant, particularly one along the lines advocated by civil society organisations, which is significantly more than the R350 grant. The biggest constraint in extending or enhancing an income grant is the fiscal space. The government will need to either re-prioritise spending or new revenues would have to be found for it to be affordable,” says Alier. But while South Africa faces some fiscal risk, the situation for much of sub-Saharan Africa is nothing short of precarious, says the IMF. The report says that the debt levels of African countries are back up to those of the 2000’s, before the Highly indebted and Poor Countries (HIPC) debt relief programme.

African countries have increased debt since the 2000s – mainly to expand infrastructure – and shifted the composition of debt away from long-term multilateral lending to shorter-term domestic loans, Eurobonds and loans from China. Budget deficits then expanded further during the pandemic, says IMF Africa deputy director Cathy Pattillo.

“More important than the debt levels themselves was the increase in the interest-to-revenue ratio, which shows how much of the collected revenue is used to pay interest, squeezing out your ability to spend on all the other important things,” says Pattillo.

Pattillo says that while there is a perception that African indebtedness to China is excessive, African debt to China is less than 10% of the total. But while African countries need to stabilise debt, they have few options to cut expenditure, given the political consequences and escalating levels of social unrest. The IMF says that their best options are to increase revenue by broadening the tax base or reducing wasteful expenditure.

Source: News24 2022. IMF warns Godongwana may have underestimated risks in medium-term budget. https://www.news24.com/fin24/economy/imf-warns-godongwana-may-have-underestimated-risks-in-medium- term-budget-20221103 [Accessed 03 November 2022]

1.1 Debate the role of the International Monetary Fund (IMF) in global economies and motivate whether or not you believe that the International Monetary Fund is justified in terms of their warning to the South African Finance Minister, Enoch Godongwana, in terms of him supposedly underestimating the risks evident in South Africa’s medium-term budget.

Your written debate should be 400 to 500 words in length.

Question 2 (25 marks)
Read the case study below and answer the question that follows: MTN is said to be talking to buyers for Afghanistan business.
MTN is in talks with potential international buyers for its wireless business in Afghanistan, a bid
to accelerate plans to exit the country, according to people familiar with the matter. Africa’s biggest mobile-phone operator, the market leader in Afghanistan with a 40% share, is in discussions with several parties, said the people, who asked not to be identified as the negotiations are ongoing. MTN announced just over a year ago a plan to exit countries in the Middle East over the medium term, enabling the Johannesburg-based company to focus on African markets. The carrier has since abandoned its operation in Syria, citing regulatory demands that made operating there untenable, though said last month it’s still evaluating options in Yemen and Afghanistan.

MTN shares have been on a tear this year, more than doubling in value. The stock traded 2.4% lower late on Wednesday. A write-down of MTN’s Afghanistan business without any proceeds from a disposal would cost about R700 million, the people said.

Critically assess the following types of information that MTN would be required to access and utilise when embarking on its strategy of expanding onto the African continent:
Marketing information. (6 marks)

Competitor information. (4 marks)

Other information. (15 marks)

Question 3 (25 marks)

Read the scenario below and answer the question that follows:

3.1 Describe the various ways in which the pharmaceutical company can effectively utilise corporate social responsibility (CSR) and sustainable development practices to its benefit, when expanding its operations into both Middle and Far Eastern countries.

Your written assessment should be between 400 – 500 words in length.

Question 4 (25 marks)

Read the case study below and answer the question that follows: Why DSTV is refining a billion-dollar model.
DSTV is catalysing its 27-year-old business formula to reinforce value for customers. For two
years, the Pay-TV giant has been enhancing its strategies to position itself as a lifestyle partner for its consumers.

Efforts to expand its entertainment ecosystem and develop meaningful drivers of future value have been made clear through the acquisition of Insurance and Internet
platforms Namola and BetKing. A pivot towards the housing of streaming products to add more value for its subscribers is of particular importance in its portfolio expansion.

MultiChoice launched its first DSTV Internet packages in 2021 with a Fixed LTE high-speed internet offering. These allowed customers to either take up standalone data deals or combine them with a DSTV package at a discounted rate. The impact of the pandemic equated to an all-around higher expenditure of time at home, with calls for home entertainment reforms. The more affordable, the better. Resolving to adapt, DSTV is now integrating innovative solutions in its offering to customers and evolving, quickly. The entertainment hub has dived into streaming waters to become a streaming provider.

DSTV Internet via Fibre is DSTV’s solution for people’s need to remain connected online. Abandoning an exclusive business approach, they now offer an inclusive package, with multiple sources of entertainment, at daringly low prices.

Here’s how:

Streamlined processes – Customers no longer need additional infrastructure or installation (like a satellite dish) to enjoy content online. All they need is a stable internet connection. An active DSTV subscription will only be required to watch DSTV channels.

Convenience – Customers can seamlessly switch between multiple platforms such as DSTV, Showmax, and YouTube, and only need to pay one bill.

Compact subscribers automatically qualify for the deal. The DSTV Internet via Fibre deals which include a DSTV subscription, are available on 24-month contracts and provide a fibre package with up to 25Mbps download and 10Mbps upload speeds, with the router included.

The deal’s availability is dependent on fibre coverage in prospective customers’ areas and the savings are real. Given that DSTV Compact streaming normally costs R369/month, subscribers to the streaming Compact bundle will effectively pay R330/month for 25Mbps uncapped fibre Internet. With the satellite option included (the normal price for DSTV Compact via satellite is R429/month), the effective price for the uncapped Internet drops to R270/month.

Using the same rationale, subscribers to the DSTV Internet via Fibre/DSTV Premium streaming bundle will effectively pay R300/month for 25Mbps uncapped fibre Internet. This number drops to just R160/month when the satellite is included, given that DSTV Premium on satellite normally costs R839/month.

A new dawn for the pay-television operator

DSTV can’t hide from the fact that streaming TV has gained millions of viewers (with streaming platforms like DSTV Streama, Catch Up, and Showmax poised for incremental growth) while pay-Tv numbers are taking a significant hit worldwide.

After 2 years in development, their DSTV Internet via Fibre bundle is a value proposition that is hard to beat, and even harder for its consumers to resist.

Innovation and technology are closely related, and both are of strategic importance to business, both in a local and global sense.

Examine the following aspects of technological innovation in terms of the DSTV case study provided above by referring to:

Innovation and competitiveness. (16 marks)
Disruptive innovation. (9 marks)

Answers to Above Questions on Business Management

Answer 1

There are around 190 member countries that are monitored by the International Monetary Fund, and the main role of the international Monetary system is to regularly monitor the global economic developments with the objective of identifying risk and recommending policies for growth and financial stability. A health check of all 190 countries is performed by the International Monetary Fund on a regular basis. In the given scenario of the South African economy, I believe that the International Monetary Fund is highly justified in respect to their warning to the South African Finance Minister regarding the risk evident in Africa’s medium term budget. This is mainly because….

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