Agriculture ‘deserves state support because it creates jobs’

20 October 2023

By: Carien Kruger

Agriculture drives growth and job creation, and the government should provide more support to this and other labour-intensive sectors, says Ricardo Smith, chief investment officer of Absa.

Over the past 20 years, agriculture has been the second-fastest-growing sector, after the financial sector, which is not labour-intensive, Smith said at Agri SA’s annual congress in Kempton Park.

In the past three years, amid all the turmoil internationally and locally, agriculture has grown the fastest.

The government allocates only 1% of its budget to agriculture while the sector contributes 2.6% to the country’s revenue. While it contributes 3.2% to gross domestic product (GDP), it is responsible for 5.5% of employment.

Nicol Jansen, deputy president of Agri SA, pointed out during the question-and-answer session that weak growth in the construction industry is a significant risk for agriculture.

“We now hear the government is considering the possibility of increasing VAT by two percentage points,” Jansen said. 

“We have a state budget geared toward social responsibilities, not economic growth. Wouldn’t it have been better to invest that 2% in economic activities like infrastructure, thereby obtaining better tax revenue and then using that for social responsibilities?”

Smith agreed with Jansen’s view and said the construction industry, agriculture, mining and manufacturing should receive more support because they are labour-intensive.

“After 2010, we [the government] stopped investing in infrastructure. Quite a few large companies in the construction industry on the JSE have been liquidated. Once that happens, you struggle to find people to do construction work, even when you start to experience economic growth. We see this reflected in our infrastructure, including railways and roads. It is a crucial sector to facilitate growth in other areas.”

Christo van der Rheede, outgoing chief executive of Agri SA, referred to how much more the state spends on social services than on infrastructure. “We are accumulating debt regarding the welfare component, instead of the wealth-creation component. Next year is an election year. Won’t more and more be spent to win votes?”

Smith said there are some favourable developments. “Privatisation generally works well. We have privatised our schools, healthcare and security; it seems like we are privatising our energy and maybe in the future our transportation, like railways.

“Is there political will to change? It’s very difficult to answer.”

Oil price could drop later

Regarding the impact the conflict between Israel and Palestine could have on oil prices, Smith said the price has risen because Opec has cut production to make that happen.

Due to growing fears of a recession and lower oil demand, he expects the price to stay above $90 a barrel. It is expected to move closer to $70 in the next two to three years, and even sooner if a recession develops.

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