Government’s renewed enthusiasm for green power needs to translate swiftly into action by finalising energy policy and seeking bids to build new plants, says Intellidex analyst Peter Attard Montalto. In today’s Business Day.

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Budget post mortem by Intellidex head of capital markets Peter Attard Montalto, in today’s Business Day column.


While it was generally credible, there is nothing left in the revenue cupboard to make big-impact changes

This column was first published in Business Day

There was a weird mania in SA in the week before the budget. A three-letter swear-acronym was being liberally bandied about: IMF!

It was the end of days. I was waiting for someone to scream “won’t someone think of the children!”.

Such “hyper-vigilance” (as Jonny Steinberg termed the general distrust in SA in these pages last week) is not a bad thing and forces an awareness of risks.

However, the IMF end-point diagnosis from many in the business community and some in the financial community misunderstands what is actually going on with fiscal policy.

It also meant expectations were set exceptionally low, and when that happens one is invariably surprised to the upside. Hence the bond and currency markets, after an initial spike weaker, ended budget day stronger.

The budget was broadly credible in its growth and revenue outlook. More than that, the loud thud of the Eskom elephant landing on the fiscus was muffled by challenging reductions in the public sector wage bill and non-core asset sales, and a smattering of line-item trimming.

All this reinforced several “norms” about the fiscal cycle.

First, the Treasury can partially overwhelm political blockages, with a toxic mix of competence, expertise and consistency. The sense from the post-budget parliamentary briefing as well as Tito Mboweni’s speech was that the adults were now in the room.

Second, the Treasury doesn’t waste a crisis. I doubt very much that the 30,000 proposed reduction in public sector jobs would have been possible without the Eskom crisis and shows an ability to see a crack of political space and cleave it open. As such, the underlying fiscal position (ex-Eskom) did show consolidation.

Third, SA has once again passed a hurdle of not having an “electoral-fiscal” cycle where expenditure blows out predictably pre-elections.

The Treasury also drew some some red lines that softened the general blow of the Eskom fiscal elephant.

A simple “no” has been delivered to other state-owned enterprises (SOEs) with a much tighter guarantee framework in future. We should be cautious given a contingency reserve of R13bn set aside for deployment at the medium-term budget policy statement in October, but such support will now come with tighter conditionality and the prospect of a chief reconfiguration officer.

The Treasury is taking control of the SOE mess. How politically sustainable within the ANC and cabinet this is remains to be seen.

No mention was made at all of the National Health Insurance (NHI) scheme. Given this was a major commitment in the state of the nation address, this is interesting and speaks to the fact that NHI is completely unworkable in its current form, likely unconstitutional as envisaged and uncosted. There are simply too many imponderables and never-ending timelines to “infect” the budget’s credibility with, even if NHI remains a huge long-term fiscal risk.

All this sounds sanguine, and indeed is the counterweight to the Eskom elephant and the breaking of the expenditure ceiling.

Different views are forming on breaking the expenditure ceiling. Personally, I think a rubicon has been crossed. True, it has been done “partially”, given that a portion of the Eskom bailout has been squeezed in under the old ceiling, and it has been broken mostly in the coming fiscal year. Yet the whole point is that it has survived free higher education, the Zuma years and is a formula, and it becomes easier to make excuses once it has been broken once. This shows why a more legislative-based rule, likely around debt levels, is required.

Serious political challenges lie ahead around the structure of the Eskom bailout, the cost and complexity of an unbundling (especially when you have red-lined retrenchments of 27,000 “excess” workers, according to the World Bank’s estimates), the tariff and prospect of a large hole remaining despite the bailout, and exactly what a new chief reconfiguration officer and external advisers are going to do when up against an internal culture and morale problem. As such the R150bn (in present value terms) bailout should be considered a minimum number.

Going forward, there is virtually no “easy” room to manoeuvre left to deal with the upside risks to the Eskom bailout, the downside risks to growth and revenue, NHI and all the other fiscal risks. The revenue cupboard has been bare for some time.

Now after the deployment of early retirement for public sector workers and some medium-run defence cuts there is nothing easy left in the expenditure cuts cupboard.

Only Narnia is left at the back of the cupboard to deal with future fiscal pressures. Yet we shouldn’t forget the points above about Treasury’s ability to use a crisis and its ability to overwhelm with expertise.

This means we remain in a situation where the budget broadly holds ground though at a sub-optimal place, meaning debt to GDP keeps grinding slowly higher. This is exactly what we saw with this budget.

When you combine this with decent real yield compensation in the long end of the bond curve, moderate inflation, exchange controls trapping money onshore and a poorly performing JSE,  this position is backstopped. Debt service costs are rising at about 0.1 percentage point of GDP per year and the economy is still growing (albeit too slowly), so the current iterative cycle of minimally sufficient budget restraint with slowly rising debt-to-GDP ratios is sustainable for a little longer.

The downside is there is no room to do anything “interesting” in the budget, such as tackle doing business constraints properly or focus on skills deficits and the transition challenges of the fourth industrial revolution. There also isn’t any room to absorb a global recession or a more disorderly outcome from a cut by Moody’s Investors Service or any deterioration in future public sector wage outcomes or political pressures on social grants.

The IMF, of course, is out there as some future scenario, but the unsustainable is always more sustainable than you think. For now, we stick in the “shock-recoil” ebb and flow of budget events — even with added elephants this time.

• Attard Montalto is head of Capital Markets Research at Intellidex.

Intellidex analyst Peter Attard Montalto gives global perspective on SA’s SOEs. Featured in SABC, watch the clip here .

We see Moody’s on course to cut the outlook in March but this is far from a certainty. More in Business Tech today.

Intellidex analyst Peter Attard Montalto said: “National Treasury managed to squeeze through public sector wage cuts and other trimmings … partly to fund the Eskom equity injections.” In Daily Maverick today.

Intellidex strategist Peter Attard Montalto says the budget office is understaffed and there is a thin layer of top staff who are holding the institution together. Read more in today’s Financial Mail.

The fourth, updated edition of the Financial Mail Guide to Tax-Free Savings supplement, produced by savetaxfree.co.za, was released on 31 January. It is designed to provide new and experienced investors with everything they need to know about tax-free savings accounts (TFSAs).

The guide serves as a useful reference for all investors wanting to start saving from scratch or to use TFSAs to boost their portfolios with tax-free returns. It includes costs of each TFSA, minimum investment amounts, the ideal investment period and the risk profiles of each. Service providers also describe how TFSAs have done in the past year and give their opinions on the future of this growing savings opportunity.

In case you missed it, you can now download your very own copy of the tax-free guide today and get the lowdown on tax-free savings: https://savetaxfree.co.za/news/the-2019-fm-guide-to-tax-free-savings/ .

By: Heidi Dietzsch

A company is struggling with a certain problem and has approached you to find a solution. As a market researcher you are keen to face up to the challenge and start with the research process. You define a clear research objective and decide on the methodology, who the respondents will be and what information should be obtained. You design your sample and create a brilliant questionnaire.

You are ready to start on the data collection, that vital step in the research process, but you are faced with a major challenge. You need to find people who are willing to participate in your research. And not just anyone, these people need to fit very specific criteria. Also, you need a large number of willing participants because your client is expecting robust and authoritative data. Without respondents all the hard work you’ve done so far will be futile.

One way of overcoming this thorny conundrum is to offer incentives. The UK  Market Research Society describes an incentive as “any benefit offered to respondents to encourage participation in a project”.

Providing incentives, however, is not without controversy and raises some ethical issues. If certain standards are not followed correctly you risk being accused of bribery. Some researchers also wonder if incentivisation of respondents can skew data.[1]

Alderson & Morrow (2004) note that no persuasion or pressure of any kind may be put on respondents. It is therefore disconcerting that the offering of incentives might be perceived as coercive – or as exerting undue influence on potential respondents’ decisions about whether to take part in research. In particular, poor people might be vulnerable to possible coercion, especially if monetary incentives are involved. They need money and therefore their consent to take part in research might not be truly “freely given”.[2]

However, despite the above misgivings, the provision of incentives is a longstanding research practice. It is used to promote participation, as well as to encourage honest responses. Of course, it is also a way of thanking respondents for their time.

Contrary to what some researchers fear, many studies have found no support for the claim that data quality decreases when incentives are used. In fact, some studies show that data quality might even improve with incentives. For example, in a customer satisfaction study, a sample of respondents without incentives may be skewed towards dissatisfied customers who will be more willing to participate because they reckon they will be able to influence the research results negatively. For example, a person unhappy with her bank’s service could rate it overly negatively. By offering incentives, you may get a more balanced sample of customers, including those without an axe to grind.[3]

There are many ways in which respondents can be incentivised and it can be monetary or non-monetary. The value of the incentives will depend on the type of project, the data collection method (face-to-face, telephonic or online), the amount of time the respondent will spend taking part in the research, as well as the topic being researched. When research topics are very sensitive or personal in nature, the value of the incentive generally tends to be higher.

In terms of increasing response rates, studies have shown that cash is king and is most likely to pique the interest of potential respondents. Non-monetary incentives like thank you gifts are less successful in increasing response rates.[4]

Incentives have to fit the demographic and the interests of the respondents. For instance, if you are surveying millennials, the incentive should be something that they will find alluring. A pen with your company’s logo on will hardly entice millennials to take part in your study. An online gift voucher, however, will probably do the trick.

Offering incentives can sometimes have the opposite effect and this is something researchers need to be very careful of. When the incentive is too specific and will appeal only to certain people, you might alienate those who would’ve participated otherwise, even without incentives.

Studies that require the participation of high net worth individuals, professionals or people who are very unlikely to partake in research will need a different approach when it comes to incentives. Traditional rewards, especially monetary ones, will not work for this group. A good idea in these cases is to contribute to people’s charity of choice. Such a gesture will also appeal to people’s altruistic side.

Research agencies often need to conduct international studies and rewarding global respondents can be a logistical nightmare. Fortunately, the rise of digital payments such as PayPal, e-gift cards and virtual Visa and MasterCard make it possible to send incentives globally with speed and reliability. Digital rewards can be delivered instantly and can be easily tracked.[5]

Sometimes, however, no physical reward is necessary. The incentive that might hold the most value for respondents is the perception of value itself. When respondents believe that their input is important and will be used to make significant decisions, they are more likely to participate in research. Also, people are more inclined to provide honest answers when they feel that these answers can influence positive change.[6]

The decisions on whether or not to offer incentives and what the incentives will be should not be taken lightly. The correct use of incentives can contribute greatly to the success of your research project. However, it should be part of a well-executed process. If not – say for instance certain respondents don’t receive the promised incentive, or not at the agreed upon time – it can cause serious damage to a company’s reputation and will certainly deter any future respondents.

[1] https://info.angelfishfieldwork.com/market-research-fieldwork-blog/market-research-respondents-incentives

[2] http://www.ethicsguidebook.ac.uk/Compensation-rewards-or-incentives-89

[3] https://www.infosurv.com/survey-incentives-to-use-or-not-to-use/

[4] https://www.surveymonkey.com/curiosity/offer-survey-incentives-without-sacrificing-good-data/

[5] https://www.insightsassociation.org/article/choosing-right-incentive-global-market-research

[6] https://www.cfrinc.net/cfrblog/should-you-offer-an-incentive-to-your-market-research-participants