“Are you quite all right?” someone from the Treasury inquired on Wednesday evening after I had offered a rather fulsome set of praise for the medium-term budget policy statement (MTBPS) on the radio. The solid presentation from the Treasury last week was an interesting opportunity to take a step back and consider wider issues about fiscal policy and policymaking in general. 

There were so many numbers in the medium-term budget and together they weave a narrative defined by strategic choices by the cabinet, various committees and individual interaction between parts of the state and people within the Treasury. But at its core every number in the statement has layers of models and interactions and decisions behind it. More so they are all interconnected, between the years and upwards into a small set of headline numbers (like the debt-to-GDP share or the primary balance).

In such fraught debates over the budget within SA’s public square and calls for more spending and a “macroeconomic policy reset” it often gets forgotten that the budget output — in February or October — is a result of long institutionalised processes.

This machine of the budget can be criticised for being risk averse and slow or orthodox or overly conservative or all number of other things. But ultimately the system is a political choice on an ongoing basis and not a conspiracy theory. The cabinet is entirely free to decide to take a different course on macroeconomic policy if it decided it wanted to.

Yet it doesn’t happen. Some of the more easily alarmed might say it’s a mystical spell the Treasury has people under.

The real reason is far more prosaic and dull. It’s that the mass of interconnecting numbers simply don’t provide the flexibility for free lunches. If those free lunches ever existed in the recent years of loose global monetary conditions, they certainly don’t now. SA’s yield curve is actually higher now than it was three months ago, driven by higher global interest rates and outflows of investors from emerging markets.

After the MTBPS the Treasury has perhaps slightly overlaboured the point of “look what happened in the UK” (it’s a rather a low bar really), but it shows the important point that credibility can suddenly disappear in internationalised government bond markets.

The problem with the “reset macro” crowd is that they wouldn’t be able to feed their demands through the machine. When there is serious underspending in the government — not easily fixed until capacity and capability is fixed — there is no way that the state can suddenly take on more. The Keynesian idea that the state spends a load more money is cute but not feasible for a government machine that can’t deliver and can’t spend.

Infrastructure is perhaps the most instructive — this is where everyone across the aisle can agree. We need a huge step-up in the pace and scale of infrastructure build in the country with the existing pipeline simply not moving. This is where a huge amount of public and private sector effort is being undertaken to make it work but with little to show for it in the past five years.

This was an MTBPS in which the social relief of distress (SRD) grant became permanent de facto (if not yet de jure), given buffers put in to pay for it in the outer years beyond March 2024. It was also a medium-term budget in which messes created at state-owned companies (SOEs) were being cleaned up — unavoidably with more money, but now with strict conditionality that the Treasury will transparently apply. Overall, it took the extra revenue it now forecasts in the period ahead and split it roughly evenly between issuing less debt to protect the taxpayer and the fiscus in this global environment, and additional expenditure.

To go further the cabinet needs serious trade-offs. There are choices that could be made with the modest R57bn of buffers (given the risks about the budget) that the Treasury has in the outer year if reforms and growth and so revenue momentum continue. You could spend this on an SRD, you could spend it on basic education quality (given about 15,000-20,000 teachers are expected to retire each year from here — a silent crisis not getting enough attention), you could spend it on infrastructure, or you could spend it on better free basic health care.


Or you could (be forced to) spend it on additional SOE bailouts if political fiddling gets in the way of the Treasury conditionality (perhaps most obviously Transnet, which may well need more bailouts quickly) or use it on the wage bill if the current conservative line the government has taken crumbles.

All this will require a cabinet able to decide between alternatives and have a sense of priorities (which can be political of course).

Or the revenue path may just not materialise. If electricity reforms and the rest of the agenda is too slow to take root there may simply be no extra money available to make such choices and we will be stuck with the status quo. In a sense that is also a choice, albeit a passive one.

This is perhaps the central message of the medium-term budget: larger nominal GDP can lead to a greater number of options being possible, but the extra revenue won’t be big enough to make anything easy. This is why tax hikes may still be required by the Treasury in exchange for making the SRD permanent.

This larger economy, however, is still tenuous with hefty downside risks that could derail it, and many competing expenditure demands — which might force themselves to the top of the agenda as events unfold. There is not just one political demand on extra spending (the basic income grant, or BIG) there are a huge multitude of them. Reform and deepening the tax base would make this all much easier for more demands to be satisfied.

 Attard Montalto leads on markets, political economy and the just energy transition at Intellidex, a SA research-led consulting company. This article first appeared in Business Day.

The Top Securities Brokers survey celebrates its 13th anniversary this year and 5,649 clients participated, ranking their brokers on products and services to help determine which is brokers are best at what.

This survey has established itself as the premier independent assessment of SA’s securities brokers. Intellidex is proud of the reputation that this survey has amassed over the years.

Winners of the 2022 Top Securities Brokers survey were announced at an awards ceremony on 25 October, with Infront as platinum sponsor, Financial Mail’s Investors Monthly as the media partner and JSE as the event sponsor.

Rand Swiss took the overall prize once again, while PSG Wealth and Unum Capital won three awards each. Survey newcomer Herenya Capital also put in a strong showing.

For all the winners, download the 2022 Top Securities Brokers survey report below.

Head of capital markets Peter Attard Montalto joins a mini budget panel on Classic Business with Michael Avery alongside Annabelle Bishop, Professor Keith Engel and Lebogang Mulaisi.

“What is surprising here is there is no hint at all on any kind of political fiscal cycle. There is no mass spending going on here. It’s definitely not austerity, I know many leftist think tanks will have you think that this is massive austerity, it is not. Austerity, expenditure interest [sic] are still growing at a fair nick in these numbers,” says Peter.

Listen to the panel discussion below.

Intellidex’s Head of capital markets Peter Attard Montalto joins CNBC Africa’s Godfrey Mutizwa on the CNBC Africa Special centred on the Medium-term Budget Speech. He joins alongside Annabel Bishop, Chief Economist at Investec and Professor David Warneke from SAICA.

“I think the medium-term budget speech is a great starting point to see fiscal slippage from. There are huge execution risks here, there are huge revenue risks, but we have pretty decent buffers coming in. We have 41 to 47 billion that is allocated to the reserve in the altitude [sic] fiscal years, we have some decent buffers in the next fiscal year as well.”

Watch the full discussion below.

You can hate “the market” all you want, but it is the best mechanism humanity has invented to calculate the probabilities of future outcomes. The problem with any economic policy choice is that we cannot know for certain what the outcomes will be. But when Liz Truss and Kwazi Kwarteng imposed an extreme version of supply side economics on the UK economy, the market’s verdict was swift and brutal, ultimately ending the brief careers of the prime minister and chancellor of the exchequer.

The market reaction reminded me of the SA experience in 2015, when finance minister Nhlanhla Nene was summarily fired as finance minister and replaced by little-known ANC backbencher Des van Rooyen. It was quickly interpreted as an attack by the Zuma presidency on the National Treasury and the markets were brutal in response. In the days that followed, the rand tanked more than 10% and the value of government bonds plummeted. Clearly, investors, who manage the savings of locals and foreigners, took Nenegate as a sign that the government was less committed, and soon to be less able, to pay its debts.

In the SA case it took three days for the decision to be reversed, with Van Rooyen replaced by Pravin Gordhan after Zuma faced unprecedented internal and external pressure. In Britain’s case, the chancellor “resigned” 21 days after he announced a radical budget with sweeping unfunded tax cuts. Prime minister Truss announced her intention to exit a week later. In the first three days after the budget, the pound fell almost 8% against the dollar. The price of government bonds fell more than 8% at the same time, an unprecedented level of volatility for a G7 economy.

That fall had dramatic consequences for pension funds, which were using derivatives to manage their risk and were suddenly hit with calls from their brokers to inject cash to cover the margin they must post for their exposures. That forced them to sell to realise cash, which risked triggering a downward spiral. The Bank of England, which not even a week earlier had announced it was going to start selling bonds in a step to unwind years of quantitative easing, stepped in to buy long-dated bonds to “restore order”, ultimately buying £65bn worth.

There are, of course, notable differences in the SA and UK examples. Nenegate did not lead to the end of Zuma’s presidency as it has to Truss’s prime ministership, though I would argue it fatally weakened him and contributed to his eventual fall.

The Van Rooyen appointment was intended to break Treasury’s grip on public spending, particularly to force through the controversial nuclear power deal that it had been resisting. But it was also clear that fiscal controls would be jettisoned too, removing any restraints on the state capture machine’s ability to feed voraciously off the state-owned enterprises and public procurement.

It is tempting to say the UK was different because it was driven by ideology rather than corruption. But I wonder just how material this difference is. The UK budget slashed taxes on the rich, removing the top 45% tax bracket and a planned increase in corporation tax. This was undoubtedly in line with the wishes of those who backed the Truss/Kwarteng ticket. The motivations of the budget might have been ideological, the “Trussonomics” that aimed to minimise the state, slash taxes, cut employment protections and the welfare state. But the immediate beneficiaries were well positioned to extract maximum advantage. The links between the Conservative Party and assorted hedge funds is astounding — indeed, Kwarteng’s first event after the budget was to attend a party of assembled hedge fund managers who were major donors.

In some ways the claim of ideological rather than venal motives is not much different to SA in 2015. Those baying at the gates of SA’s Treasury had purported ideological motives, calling for “radical economic transformation” and denouncing “white monopoly capital” and “neoliberalism”. It was perhaps the opposite of Trussonomics, but no less of a purported belief system to justify radical change to the nation’s finances.

The UK’s turn to ideology over pragmatism was clear in the decision by Kwarteng to not run his budget by the office for budget responsibility, which customarily prepares forecasts as part of the budget development process. This rejection of pragmatism has been a hallmark of the UK since the Brexit campaign and Michael Gove’s famous declaration that Britain had had “enough of experts” when asked whether any economist thought Brexit a good idea.

Tight grip

The turbulence within the ANC is coloured by ideological claims to the party’s historic calling as a revolutionary tool to improve the lives of the people. But this is thin veneer for the venal motivations underneath, particularly the effort to stop the return of accountability and the resurrection of the criminal justice system.

The UK’s Conservative Party is at least as divided now as the ANC, though I would grant that far fewer are motivated by a desire to stay out of jail. But venality has had as tight and strangling a grip on the party.

We will know the next UK prime minister this week, who will have to regain the trust of the financial markets that the country will not veer lightly towards untested radical policy changes again. As SA learnt after Nenegate, that takes time. It took many months before bond yields and the exchange rate recovered, though the background weak economic conditions contributed. The UK’s repair work must occur in a similarly difficult context, with generational inflation highs and weak confidence. Only serious pragmatism will work.

• Theobald is head of capital markets research at Intellidex, an SA research-led consulting company. This article first appeared in Business Day.

One of the great focus points of the post-2017 period was a hope for consequence management and accountability. Indeed, it was a pillar of the expectations of many that this would be a route towards higher potential growth in the economy. While electricity, logistics and other problems were taking time being reformed, so the theory went, it was possible for animal spirits to be unleashed by seeing people in orange overalls.

Unfortunately, growth doesn’t quite work like that, and the electricity and logistics crises far outweigh any shifts in momentum by the National Prosecuting Authority (NPA). In fact, it was unfair on the NPA; that they couldn’t somehow lift animal spirits is not an indictment on them — and misses the point that much has been happening on that front despite limited capacity.

Perhaps if we are lucky some orange overalls eventually will provide a kicker if other problems are being solved, but this seems an odd place to focus on moving the dial. It’s also very backward looking. As much as historic injustice needs to be investigated by both the criminal justice system and the media, preventing crimes is arguably more pressing. That’s not to say the two aren’t linked — after all, harsh sentences for crimes sends a clear message to would-be perpetrators.


The lack of accountability for the July 2021 unrest still plays on the minds of investors and businesses. One of the most regular questions I get asked by investors and corporates is whether it could happen again. The questioners rightly muse that the lack of accountability to date surely means the chances are higher than they would otherwise be.

Greylisting by the Financial Action Task Force has led to plenty of analysis — including the insights we at Intellidex offered in our recent report — but there is a deeper narrative of SA suffering the consequences of its historic, deliberate actions. The pitfalls of inappropriately labelling politically exposed people was fully and publicly exposed during the Zuma administration years, and yet the current course was taken. Many people have wondered how we came to an 85% probability of greylisting; it is simply the subjective sense that consequences are far more likely than not to catch up with SA when you go through the greylisting criteria line by line.

One wonders, however, if policymakers and politicians understand the accountability at play here. There is the opportunity to change things quickly — not necessarily to prevent greylisting, but to get removed from it as quickly as possible, within one year. A key finding is that foreign banks will give SA more benefit of the doubt if there is a sense the country will be off the greylist within a year.

The sense of a lack of consequences (until it’s too late) that so often pervades the economic policy space perhaps explains why the political economy seems happy to trundle along. Eskom and load-shedding are, of course, the primary example. However, on one front the historic inaction is finally coming home to roost, with the consequences finally being swallowed in this month’s medium-term budget policy statement — most likely as the Treasury finally commits to the obvious and takes over roughly half of Eskom’s debt. While that may well be a technocratic triumph, we should not forget it is a failure of Eskom and of the management of state-owned enterprises.

SA often seems to struggle with the idea of consequences coming from unexpected quarters. The increasing focus of the EU, individual investors and companies on the carbon intensity of SA’s exports, for instance, is treated with suspicion and conspiracy theories of colonialist intent. Yet it simply is what it is — a set of stakeholders have decided to treat everyone the same in terms of how countries and their economic products are judged, and SA risks falling foul and suffering the consequences.

One might also mull over the consequences of SA’s stance on Russia at last week’s vote at the UN. The government has the right to pursue whatever foreign policy it wants, but it should at least be ready to be held to account by others for such choices. It might not be long before European and US taxpayers and politicians start asking questions about providing climate funding based on a country’s foreign policy. When you are in competition with a country like Indonesia on the climate funding front, every little issue might count.

After Eskom, attention is about to focus a lot more on Transnet and the public-sector wage bill more broadly. Choices made now to solve short-term problems could have much better consequences down the road.

What is the lesson here? First, eyes-open policymaking that understands the full consequences of actions from all stakeholders. Too often this is ignored — be it trade, energy or industrial policy. Second, just because consequences don’t catch up with you straight away doesn’t mean they aren’t brewing and ready to jump out and kick you in the backside. 

The big question from investors and corporates now though is whether a system that appropriately deals with consequences and accountability might emerge from the ANC’s December elective conference and the 2024 elections. The latest drama in the metros seems to suggest not — though the road to 2024 is still quite long.

• Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company. This article first appeared in Business Day.

Intellidex’s development finance research manager Nxalati Baloyi joined Kaya FM’s Gugu Mphuthi on KayaBiz this week to discuss South Africa’s pending greylist status.

“Grey listing triggers a probation in supervision requirements, there is also increased scrutiny by our partner countries and also scrutiny by any listed organisation such as the international financial institutions and banking systems. This will also have a negative impact on our reputation,” says Nxalati Baloyi.

Listen here for more.

Read the FATF report here.

Intellidex chairman Dr Stuart Theobald joined Ryk Van Niekerk on Moneyweb to discuss South Africa’s potential grey listing and the measures we would have to take either to stay off the grey list, or get removed from it as soon as possible once we are greylisted. This discussion follows the launch of the FATF report commissioned by Business Leadership South Africa and researched by Intellidex.

“To arrive at the 85% probability that SA will be placed on the grey list, I think we looked at the 12 priority actions that FATF set out for SA in order for it to comply with its standard recommendations and effectiveness tests. We looked through all of the priority actions to assess how successful we’ve been in delivering on those actions. Now, there have been good successes and there are some areas where we have delivered, where I think FATF will be satisfied. But there are some areas that are very difficult,” says Dr Theobald.

Listen to the full clip below.

I don’t think many realise just how much energy capacity SA needs to build. It is stupefyingly large.

Thanks to the affable Eskom spokesperson Sikonathi Mantshantsha’s Twitter feed, I can tell you that on Friday night the grid’s available capacity was 25.3GW. Demand was 30GW so the country was on level 4 load-shedding.

There are lots of estimates about how much demand will be in the future. The Integrated Resource Plan, the official national picture, believes 78GW of capacity is needed by 2030. The IRP was last updated in 2019 and the assumptions on which it was based are already outdated. But let’s work with that figure.

While Eskom’s fleet has nameplate capacity of about 52GW, half of that is not working, and that energy availability factor is unlikely to increase given the deteriorating performance of the older coal power fleet.

There is much debate about what kind of energy availability factor is reasonable for Eskom, but it is safe to assume the utility’s coal fleet is not going to miraculously turn around its performance, even if the sabotage and poor management of stations are fixed. This is not an Eskom failing — the energy availability factor of coal plants everywhere falls as they age, and it deteriorates particularly fast after about 50 years of life, and most Eskom plants are older.

The Eskom fleet is gradually being put out of its misery. By 2035, the utility expects it will have retired 12 of its 15 coal plants, representing 33GW of its capacity.

So, if you make optimistic assumptions about Eskom’s ability to get Medupi and Kusile fully operating, and extend the life of the Koeberg nuclear plant, we are going to need 50GW to 60GW of new power generating capacity to be built over the next eight to 12 years. That is not very far away. And the truly astounding number is how much investment will be required to deliver that. A lot depends on which technologies you use and pricing trends.

Solar photovoltaic and onshore wind are now much cheaper than fossil fuel production, but you need storage to even out supply capacity. Based on current global capital costs for different types of technologies, we need to invest R1.8-trillion to R3-trillion to build that capacity, depending on technology spread. And that doesn’t even consider the investment required to expand the grid to handle the volumes.

It is a staggering amount. It is between a quarter and half of GDP. It is up to half of the entire pot of savings in all pension funds. It is three to six times the total capital in the banking system. Of course, not all of that must be invested at once — but even if we do it over 10 years, the amount invested each year will be 5% of GDP, about one-third of annual total capital investment in SA. It is more than it cost to build Medupi, every year.

To date, the standard financing model has been for developers (large international utility companies) and private equity firms to put up the equity and banks to leverage that up about five times. But bank balance sheet capacity is going to be tested if new investment is accelerated. We will need considerable offshore funding, and more direct funding by institutional investors such as pension funds and insurance companies, as well as listed instruments.

So, given the long lead times on electricity plants, how much are we busy building? An embarrassingly trivial amount. While the IPP office, a procurement mechanism set up between National Treasury and the department of energy, did a brilliant job of procuring renewable energy from 2010-16, it has since been stuttering.

An “urgent” risk mitigation round was launched in 2020 to rapidly acquire 2GW of new capacity at just about any price. It ended up in farce after Turkish floating gas turbine producer Karpowership won most of that capacity. A series of court cases have effectively ended that. Finally in June this year, Scatec Solar managed to achieve financial close on three projects with 150MW.

Round five of the renewable energy independent power producers’ procurement programme was held in 2021 and has also ended up in farce. Thanks to a dispute over local content levels with the department of trade, industry & competition, there were delays to closing the projects that were tendered. During the delays, the global energy investment world was turned upside down by gas prices and war. Only three of the 25 projects that were announced have managed to achieve financial close so far with 420MW.

Round six has so far called for 4.2GW of new supply and there will be another 1GW procured in the round too. We are waiting for the results after proposals totalling 9.6GW were submitted earlier this month.

One potentially important source of supply in the mix is embedded generation. This year, the National Electricity Regulator of SA has registered about 800MW of such projects. If a proper wheeling framework is established that allows companies to sell power to each other over the grid, there could be an explosion in the number of such projects.

Add that all together and we’ve managed to only deliver 1.4GW of new procurement in 2022.

 Theobald is chair of research-led consulting firm Intellidex. This article first appeared on Business Day.

Senior banks analyst, Nolwandle Mthombeni joins Michael Avery on Fine Music Radio‘s Classic Business to discuss the recent market sell-off in Credit Suisse shares.

“At the moment the market is reacting to the fact that there actually could potentially be a capital raise which could suggest that there is some financial distress in the company. So if there is a risk of financial distress in the company and there is a risk of Credit Suisse collapsing, obviously that comes with bigger systemic issues. But if we look in terms of what is happening it really seems to be market based in terms of where the reaction is coming from. If we look on the operational side and the fundamentals they are not quite as bad as the picture painted by the market”, says Nolwandle.

Listen to the full clip below.


I often get in trouble for things I write. Given how contentious issues are in SA this is a good thing (that’s my view at least and I am sticking to it).

One of the more interesting areas of debate is to focus on how fragile things are — in particular institutions.

This can often rankle senior people in institutions because the likes of the National Treasury or department of public enterprises are huge — the former with several thousand people and the latter with several hundred. Yet we describe them as fragile. It is the same at Eskom, which we also describe as fragile. There are more than 40,000 people at the state-owned enterprise.

It is not to disrespect the whole mass of people in an institution to say there are key ingredients that are required. It would be like saying that the arches of a bridge are irrelevant and only the keystone mattered. Yet take the keystone out and the whole thing would collapse.

Equally, it’s not belittling leaders to say an institution is fragile. Remove them and chaos could erupt — is the definition of being fragile.

The Treasury still has too few good people two and three levels down below the top to ensure there is comfort with its long-term trajectory. The challenge in finding a new director-general — which has largely been put on ice for the moment — is testament to this. Dislodge the existing structure and the whole thing might disintegrate.

The presidency is another example where far too few amazing people are doing — basically — everything. The way such people are capacitated and supported to build firmer and more sustainable institutions is a key challenge.

Weak institutions held together by good people at the top are liable to collapse when these people naturally move on regardless of the reason — perhaps their own simple need for new challenges.

Eskom is obviously in the spotlight at the moment. In weak institutions (in this case given the cesspit of corruption and sabotage that is being battled back there) certain structures are established and certain people become very important to correct the wide institutional weaknesses. In the case of Eskom, the CEO’s office is exceptionally important with some very high-calibre people that keep the show on the road. Such informal structures would disappear, however, on a change of leadership — and are often forgotten about when considering the risks of new leadership. The impact would be dramatic in my view.

Similarly, if one takes Mandy Rambharos, who is head of the just energy transition at Eskom and is now leaving Eskom for new pastures. The weakness of the broader climate institutional structure in SA means it comes down to individuals and indeed one individual (who deserve a medal) to drive the early stages of change through sheer force of expertise, personality and conviction. SA is blessed for such people, but equally it shouldn’t be this risky key-man-dependent way.

SA exceptionalism is thankfully on the back foot in recent years versus its sickly sweet appearances during the state capture years (which perhaps was responsible for downplaying the risks emerging). However, exceptionalism can still make politicians especially underestimate the risks around institutions, or misdiagnose situations.

Transnet is a key case in point. Thanks to a strong salesperson  Transnet has become an institution lauded far beyond what has actually happened in recent years. Operationally and financially it is on the verge of collapse in the coming year.

All this is rather important as we must both secure existing institutions and build new ones.

We must secure Eskom at a holding company level to ensure that the just energy transition can progress and distractions like the “EAF (energy availability factor) mafia” don’t take over and divert us down a dead end. Eskom, as mad as it seems, remains exceptionally important to what comes next in both the wider energy liberalisation and climate action.

A strong and independent National Transmission Company of SA (NTCSA) in particular is needed, one that can be unshackled from the holding company and have its own board. In the clamouring for a new board of the holding company we should not forget that in some ways the NTCSA board, still months outstanding, sitting gathering dust on a desk in the government, is just as, if not more, important long term.

Similarly, at the National Treasury a change only a year ago to a new head of the asset and liability management division swept out the deadwood and unimaginative leadership that was in that area for too long. There is now an understanding of the need to build internal future leaders.

Equally, the job of the new Eskom board should not be getting involved in boiler tube leaks in power stations but instead on how to strengthen the existing management structures into a sustainable institution to deal with such issues over the long term. In other words, build them into robust institutions.

Climate and the just energy transition are perhaps the most interesting areas to consider. With a 30-year path to net zero, there is the ability to do some hard thinking for the long term on structural imperatives.

A largely uninspiring department of forestry, fisheries & environment — together with the centrality of funding and the importance of consensus a whole society approach — has meant new thinking is needed.

The Just Energy Transition Partnership (JETP) process has caused the creation of new ad hoc institutions to be quickly cobbled together within the cracks of political fault lines. But these are perhaps suboptimal.

The Presidential Climate Commission has been set up more as a quasi think-tank so far. But it has shown it has the political as well as the strategic, logistical and policy leadership capabilities to be something more. Serious thought should be given to how you pull together a broader institutional framework across the government into a central body, either as a separate ministry or something permanent within the presidency.

Politicians like legacies. Institutions are perhaps the best place to focus. 

• Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company. This article first appeared in Business Day.