Montalto: Here’s why Zuma’s 2016 SONA will be more important than Budget

By Carin Smith

Cape Town – The State of the Nation Address (Sona) by President Jacob Zuma on February 11 is actually more important than the budget to be delivered by Finance Minister Pravin Gordhan two weeks later, according to emerging markets economist Peter Attard Montalto of Nomura.

ANC president Jacob Zuma looks on at the National Assembly in Cape Town, in this September 25, 2008 file photo. REUTERS/Nic Bothma
ANC president Jacob Zuma looks on at the National Assembly in Cape Town, in this September 25, 2008 file photo. REUTERS/Nic Bothma

“After the political shock of three finance ministers in two weeks, opening Pandora’s box in December, a key question has arisen as to the political power of the new (old) Finance Minister Pravin Gordhan,” said Montalto on Wednesday.

“We will watch closely – as will ratings agencies – to see the broader scope of policies on issues affecting growth and the investment environment.”

Apart from possible protests and disruptions from opposition parties, Montalto expects a broadly left-leaning Sona speech in terms of policy specifics outside of what it calls “National Treasury areas”.

Read also: Montalto: ANC helpless against ‘junk’. Zuma’s managed exit post May 2016.

He also expects a concerted and conservative segment on fiscal consolidation, possible hints at tax increases, parastatal management and investments.

“We expect no major surprise policies or any major growth-boosting policies to reassure rating agencies – despite rhetoric about doing everything to secure the rating,” said Montalto.

“Markets still don’t fully grasp that rating agencies (and especially S&P) look set to downgrade South Africa in the medium run to sub-investment grade. This is not because of the budget per se, but because of the lack of growth prospects and an investment-friendly environment, which in turn throws up medium-run budget risks.”

Read also: Montalto: Weak Rand skews rate outlook. 75/100bp hike possible.

Montalto believes Gordhan is having considerable influence on parastatals and issues like modalities of funding for education, but not on core issues like labour market reforms or being able to prevent a high level national minimum wage.

“Put simply, we don’t believe he is having a great effect on growth-boosting policy areas and the political scope of National Treasury actions remains narrow,” said Montalto. – Fin24

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