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You're listening to Strictly Business
Podcast with Lindsay Williams.

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South Africa's midterm budget policy
statement has been delivered by the

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minister.

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It's the MTBPS or mini-budget.

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With me now to have a look at it is Adam
Furlan, Portfolio Manager at 91 in Cape

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Town.

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I always like to ask Adam what the mood of
the minister was in delivering that

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speech.

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It gives me an idea of what might or might
not be coming.

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Hi Lindsay.

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I think the minister was fairly jovial in
his speech,

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actually laughed a bit during the speech.

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And I think they are quite confident and
happy with the way things are panning out

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in the

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fiscal outlook.

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Yes, I think this year, which is slightly
different from previous years,

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is the cautious sense of optimism with the
government of national unity and a more

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guaranteed flow of

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electricity into the industry and also
into households.

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but there are still nagging doubts, aren't
there?

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What was the main focus?

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Give us some of the nitty gritty, if you
would.

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So I'll start with, you know, there was
quite a big, you know,

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shift towards infrastructure in this
budget.

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Not, you know, in current year spending or
anything like that,

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but a big piece in the actual document
talking about how they will fund future

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infrastructure

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projects, you know, sort of off balance
sheet.

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And.

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encourage private participation in those,

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which has been somewhat of a blockage and
a constraint on new infrastructure in the

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past.

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That is quite promising.

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In terms of the nitty-gritty for this
year,

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not too much actually changed from what
the budget we saw in February 2024.

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Slight revenue undershoots relative to
what they expected earlier in the year,

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and that was predominantly on the back.

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of VAT refunds actually running higher
than expected.

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And we actually think that they are being
a little bit conservative on additional

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tax from personal income tax due to

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the two-part system, which is already
running ahead of what they are expecting.

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On the expenditure side, they are also
having a little bit of slippage there.

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They are giving some additional support to
Sanrel to finalize the payments

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for the...

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toll projects in Hau Teng.

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And, you know, all in all, nothing major.

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Ultimately, we think, you know, the fiscal
strategy from 2024, from February 2024,

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is very much in line with what they
expected.

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Let's go back to the infrastructure, if we
can, because it's all very well saying,

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yes, we're going to concentrate on
infrastructure,

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because infrastructure long term is very
good for the economy.

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And it also creates jobs.

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But on the other hand, was there any
detail there?

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In other words?

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this is what we're focusing on.

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We're focusing on roads or hospitals or
whatever it is.

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Did he say anything about that?

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Yes, so there was a full chapter dedicated
to their plans regarding infrastructure

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investment and how they plan to finance
it.

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They plan to develop special purpose
vehicles for infrastructure investment

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where they can sort of guarantee first
loss tranches and then allow...

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you know, developmental financial
institutions or, you know, jet funding

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into that vehicle.

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Also talk about reforms, you know,

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in banking regulation to allow for
securitization of infrastructure assets to

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make them more digestible for

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the asset management industry or pension
fund industry.

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You know, something we're quite excited
about with the launch of our 91

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infrastructure fund.

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Very good.

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Now, if you say to somebody in the street
or at a trading desk or whatever, you say,

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what would you like to hear from the
minister?

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They would talk about the unemployment
situation, which is dire,

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sluggish growth and guaranteed supply of
water and electricity in not just the

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short term,

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but the medium and long term as well.

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Did you tackle those really big issues?

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Yeah, so I think the thing we forget is
there has been and is ongoing.

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A lot of reform in the South African
economy and, you know, electricity reform,

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transport and rail reform, as well as
water reform is all currently, you know,

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on the agenda.

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Bills are being passed in Parliament and,
you know,

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most recently the water regulation bills
have been put out for public comment and

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are expected to be sent back to Cabinet to

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be signed later this year.

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These main areas are being addressed by
government.

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And, you know, that's going to enable, you
know, critical infrastructure like energy,

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transport and water,

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you know, to be better functioning going
forward.

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Because what you're really saying here is
there's been no big bombshells, nothing to

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scare you, but nothing to infuse you too
much.

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You say you're excited because of the 91
infrastructure initiatives.

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When you look at the market, the market's
immediate reaction, just tell us about the

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very sort of short term knee jerk
reaction.

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And then we'll talk about going forward.

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So what happened today after the speech?

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Yeah, so the market's immediate reaction
was negative.

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We saw bond yields move higher.

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We saw the RAND also move about 15 cents
weaker.

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That was, you know, the immediate reaction
was due to, firstly, a wider deficit this

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year.

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And also, the market had built in some
optimism around the potential for issuance

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reduction,

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which didn't transpire.

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That's all sort of calmed down already.

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And we're seeing the market, you know.

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Fairly close to levels, you know, closing
levels at yesterday's market close.

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So not a significantly market moving
budget.

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As I said, not too much has changed in the
underlying fundamentals.

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But maybe the market just built up a
little bit of too much optimism into this

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event.

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And we obviously do have a big risk event
coming up in the coming week.

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Okay.

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Yes, we do.

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Adam, is there anything that will mean
that you and your team will be sitting

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down this evening or sitting down tomorrow
morning and saying, Okay.

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we need to change our exposure to certain
asset classes, whether it be the bonds in

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whatever duration they are,

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whether it be the RAND or even other asset
classes, anything there to change your

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current positioning?

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From the budgets today, not particularly.

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We have, you know, after a very strong
rally in fixed income, we have, you know,

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reduced our risk ahead of the US elections
next week.

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And, you know, once we have some clarity,
around that outcome,

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which is extremely important and extremely
uncertain about the policy outlook from

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that economy that affects us so heavily.

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Once we have some clarity there, we will
then look to adjust positioning and

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hopefully be in a position to

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re-engage in what we think is still good
value in South African fixed income.

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Adam, thank you very much for your
analysis.

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That's Adam Furlan, portfolio manager at
91 in Cape Town.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision and revision.

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and rethinking at any time.

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Please do not hold us to them in
perpetuity.