The Mini Budget: turning adversity into success

Delivering his maiden medium-term budget policy statement (MTBPS), or mini budget, South Africa’s latest finance minister, Malusi Gigaba, kicked the ball high into the air…but it landed nowhere. He simply delayed all the crucial budget decisions to some future date.

The minister delivered a nicely crafted speech filled with frank acknowledgements of government failures and commendable but vague promises. However, it was marked by an excruciating lack of firm decisions, specific details, targets or timeframes.

Craig Featherby

General reaction to the mini budget from all quarters was, to say the least, negative. And while it does look bad, it also leads one to opportunity…if you act now. Remember, many of the greatest success stories were born in adversity. My view is that the MTBPS was also a blessing: it gave forewarning, leaving a window period of about three months in which to take action to safeguard your investments against what might still come. After all, we are in the business of helping you to best grow, protect and preserve your wealth and have the solutions to steer your investments safely through the anticipated storm.

If we look at what emerged from the MTBPS, it is clear that proactive action is required now. In a nutshell, Minister Gigaba deferred all the tough calls to the 2018 budget or to some other unspecified future dates, allowing the budget deficit to grow bigger and expenditure to break through the ceiling.  Unfortunately, confidence and investment leading to the growth Gigaba himself acknowledged is so necessary to pull our economy out of its slump, will not be forthcoming based on such vagaries or indecisive dithering.

Immediately after Gigaba’s speech, the rand showed its displeasure by tumbling, shedding 2% to the dollar, 2.5% to the euro and 3% to the pound. Bond prices also fell as yields went up. But we have seen worse; the rand has in the past reacted with greater volatility to various political events, yet we survived. And even from this scenario something positive emerged. As bourse indices around the world fell in anticipation of important announcements from the European Central Bank this week, the JSE bucked the trend on the back of the weakening rand, with its top 40 index gaining 0.5%.

However, we need to take serious note of Gigaba’s MTBPS and the reality of the situation. The disappointing speech served to again underline the many uncertainties, with a dark economic cloud looming over all of it. Global credit ratings agencies were watching for any hopeful signs, but probably found very little. Should the governing ANC’s national conference in December, which is the other big event these agencies are waiting for, fail to bring political stability, the prognosis indeed looks bleak. Further downgrades may materialise, followed by a chain of negative knock-on effects that will touch everyone.

Therefore, we cannot stress strongly enough the need to act proactively now, to review your investment planning and strategies, and guard against the inherent future risk posed to growing and protecting your wealth and investments. The best way to do so is by diversifying. Carrick can help you select and utilise the best options to suit your specific requirements and preserve your wealth, protecting it against whatever may come.

As we pointed out before in another article, in order to address the projected R50.8bn revenue shortfall announced by Gigaba on Wednesday, he will have to find money somewhere before February next year. It has been said that the Public Investment Corporation (PIC) and its large civil service pension fund were at risk. Another possibility is that capital gains tax (CGT) for individuals could be increased in the February 2018 Budget Speech.

The good news is there are excellent forex solutions available to pre-empt the negative impacts of such developments. Carrick can assist you with any of a number of alternative options, such as international pensions, for instance, or diversifying part of your portfolio offshore through various investment vehicles. Carrick clients, and particularly members of our unique, personalised Concierge service, also have access to the services of expert tax practitioners for the best possible advice, and to ensure compliance across relevant jurisdictions.

But it is important that you act now. Talk to one our qualified advisers to find out more about the various options we can assist you with. As Gigaba has himself warned: the period ahead will not be an easy one. Given the above-mentioned trends and uncertainties, it is crucial to review and diversify one’s investment portfolio right now, turning adversity into success. For advice and assistance in this regard, contact Carrick at wealthmanagement@carrick-wealth.com.