Cyril’s best shot – SONA analysts’ fiery debate

CAPE TOWN — We can only hope that the ANC’s craven conservatives don’t go into hibernation like it appeared several diplomats and MP’s did during President Cyril Ramaphosa’s two hour-long, protein-rich SONA offering yesterday. There’s the danger they’ll wake up at their party’s general council in two years’ time when Cyril’s ambitious efforts have fallen short and fire him, starting another round of snouting. Analysts of the SONA dish up tasty food for thought below, welcoming the juicy items on Cyril’s reform menu but warning that all is not well in the kitchen. His much-need protein includes confirming the break-up of Eskom into three entities plus a new State debt forward-looking thrust, doubtless inspired by the Davos technology theme, includes two years of compulsory early childhood development and closing liquor outlets and shebeens near schools. However, we’re reminded of our frightening youth unemployment which ANC policies aggravate, Eskom’s 50% staff bloat and its plea to Nersa for a 15% hike. Sure, Cyril’s foreign direct investment campaign is flying, but what kind of profit margins might EWC-nervous investors see with hefty staff costs and a shaky power supply? – Chris Bateman

SONA reaction property industry – Yael Geffen

Reacting to the President’s address, Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, said South Africa was the living embodiment of the “good news, bad news” paradigm.

“There are a million jokes with that punchline, but I’m currently seeing the dark side of Chögyam Trungpa’s brain bender that goes ‘The bad news is you’re falling through the air, nothing to hang on to, no parachute. The good news is there’s no ground’.

“For the country the good news is that the government’s foreign investment attraction strategy seems to be on track. Last year’s investment conference generated pledges of around R300bn in investments and in the first nine months of the year R70bn in FDI arrived in the country, according to President Cyril Ramaphosa.

“FDI is critical for economic growth, but the bad news starts with yet another rescue plan for Eskom and while Ramaphosa is adamant that the fiscus won’t shoulder the SOE’s debt, there seem to be few qualms about passing the burden of payment onto the private sector.

“Eskom is R420bn in debt, energy experts estimate it has a staff bloat of more than 50% and AfricaCheck has put the average cost to company per employee at R600,000 per annum. This while Eskom is asking Nersa for a tariff increase this year of more than 15%.”

Geffen says the fundamental failing in the President’s plan is that the government is attempting to build a mansion on a foundation of termite-ridden wood. It looks pretty to the world for now, but it will fall in on itself sooner rather than later unless some serious spadework gets done.

“We can attract investment and shout the good news, but when the global money and the investors arrive in South Africa, we have to start the narrative with the bad news of how operational costs will drive their profit margins into the ground because the power utility is broken and that they’ll have to pay staff more to cover basic bills at home.

“But wait; there’s more. The other bad news is if investors sink billions into land and create infrastructure, we’ll also have to tell them they’re in the same boat as the country’s citizens and there’s no guarantee they’ll get to keep it or see a cent for it should the government decide to take it away. This with Ramaphosa’s adamant reiteration during the SONA that the government is going to drive through the amendment to Section 25 of the Constitution that will confer on them the right to expropriate land without compensation.

“And just like that, the pretty mansion that the government is trying to tell the world is the new ‘us’ collapses, and those who’ll suffer most if that happens are South Africa’s citizens.”

Geffen says that on the face of it Ramaphosa’s second SONA was upbeat and would most likely be broadly hailed as good news for the country – a popular and suitably cheery opening of Parliament in an election year – but a single scratch to the glossy coat of paint would reveal the sharpness of the precipice below.

“Too many people fought too hard for liberation and they don’t deserve to have their dream ripped away from them in this manner. Cabinet needs to think long and hard about who its members work for – not the state, but its people.

“As with all election years, though, it’s probably best to consider any speech to be a campaign speech, and with any luck on May 9 after the poll the Cabinet will crack the whip and get the government working hard to affect a successful turn-around strategy for the national economy.

“They’re responsible to around 50m bosses so hopefully they’ll put their backs into it and get the job done.”

SONA shows Ramaphosa’s New Dawn is floundering – IRR

President Cyril Ramaphosa’s SONA address reveals a floundering recovery effort that calls the likelihood of an imminent New Dawn into doubt, according to Dr Frans Cronje, CEO of the Institute of Race Relations (IRR).

‘There was very little in the address to suggest that the government is in a position to tackle South Africa’s greatest structural threat – the economic exclusion of very large numbers of young people,’ Cronje said.

IRR research demonstrated a ‘close relationship between economic growth and job creation’, yet too much government policy had the effect of ‘stunting rates of growth and shutting off avenues to employment’.

Joblessness is a mounting crisis. IRR analyst Nicholas Lorimer pointed out that the number of unemployed people had risen from 1,998,000 in 1994 to 6,177,000 today, or by over 200%, while on the expanded definition of unemployment the rate had risen from 31.5% to 36.6%, or by 16.2%.

Cronje said employment data ‘reflects a NEET rate (people aged 18-34 who are not in education, employment or training) of 39% – and there is no greater threat to South Africa’s long-term stability than such levels of economic exclusion of young people’.

‘The jobs crisis is also reflected in expenditure data which shows that 50% of households spend less than R3,000 a month.’

The close relationship between economic growth and job creation ‘suggests that South Africa would have to average economic growth rates in excess of 5% for a significant period of time in order to make deep inroads into unemployment and NEET rates’, Cronje said.

‘But the Treasury’s three-year growth projections sit at around 2%, a level at which the rate of unemployment cannot be relieved, while gimmicks such as the much-vaunted Youth Employment Service have failed utterly.’

Cronje argued that ‘too many of the policies of the government have the effect of stunting rates of growth and shutting off avenues to employment. Two of the government’s most prominent policy achievements of the past year – the move towards expropriation without compensation and the new minimum wage laws – will, for example, have a net negative effect on overall living standards and income levels.’

He said: ‘What also stands out from the speech, and is in large part a function of such policies, is that the fiscal position is dire and that on current trends the government will be forced to consider external bailouts or force pension fund holders into prescribed assets, as the ruling party is now considering, in order to finance expenditure.’

Cronje added: ‘While our projections are that the ANC will perform strongly in the next election, should Mr Ramaphosa and his administration not be able to utilise that mandate to fundamentally turn the policy framework of the government and secure much higher levels of economic growth, his domestic popularity will begin to slip, raising the prospect of internal ANC opponents at the party’s next NGC meeting in 2020 setting in motion a chain of events which would force his resignation.’

SONA 2019 – FW de Klerk Foundation

It is enticing to interpret President Cyril Ramaphosa’s SONA as just another election pitch to the electorate a few months before the general election, now to be held on 8 May. A closer look is, however, warranted, as there are some interesting elements that may indicate a different approach and a stronger emphasis on the need to correct what has gone wrong in the last nine years – call it a glimmer of a post-election Ramaphosa.

He begins by emphasising growth, renewal, the fight against corruption and the need to advance the values of the Constitution in addressing the needs of the poor, unemployed, marginalised and dispossessed. His choice of the “five most urgent tasks at this moment in our history” is telling:

  • Inclusive growth and employment;
  • Improving the education system and developing the skills for the future;
  • Improving the conditions of life for all South Africans, especially the poor;
  • Stepping up the fight against corruption and State capture; and
  • Strengthening the capacity of the State to address the needs of the people.

Although none of these is new, the choice of these show a realism and urgency that was lacking from the Presidency before 2018. This public acknowledgement by the President is therefore welcome.

A number of other issues stand out as positive progress:

  • The re-establishment of a National Security Council, chaired by the President, to reign in the intelligence mavericks.
  • The establishment of an investigating directorate dealing with serious corruption and associated offences in the office of the NDPP (reminiscent of the Scorpions).
  • Focusing on key parts of the economy that are labour-intensive, including agriculture, tourism and the ocean economy.
  • Land reform is mentioned in passing as part of supporting agriculture.
  • An emphasis on tourism and especially a world-class eVisa regime.
  • Supporting Eskom’s balance sheet, but also the first signs of possible partial privatisation in establishing three separate entities – Generation, Transmission and Distribution – under Eskom Holdings.
  • Migrating the responsibility for ECD Centres from Social Development to Basic Education; and proceeding with the process towards two years of compulsory ECD for all children before they enter Grade 1.
  • The establishment of a Human Settlements Development Bank that will leverage both public and private sector financing to aid in housing delivery.
  • The introduction by the National School of Government of a suite of compulsory courses, covering areas like ethics and anti-corruption, senior management and supply chain management, and deployment of managers to the coal face to strengthen service delivery.
  • Strengthening the outlawing of public servants doing business with the State and enabling government to deal more effectively with corrupt activities.
  • An emphasis on the need for curbing racism and racialisation.

One can and should remain concerned with other aspects of the SONA. These include the reference to expropriation without compensation, the enthusiasm around the catastrophic NHI Bill, and the idealistic notion to provide every school child in South Africa with digital workbooks and textbooks on a tablet device in the next six years.

In his final paragraphs the President does indeed point to a future that all South Africans can identify with: where every man, woman and child should be provided with the opportunity and means to make a better life for themselves – no pure entitlement here. And he talks about a South Africa that acknowledges the problems of the past but looks firmly to the future – no harking back to apartheid as an excuse for the problems of today. And finally, he made a slight but discernible swipe at his predecessor and his cronies: we want a South Africa whose leaders are bold and courageous, leaders who remain servants of the people – and for whom fulfilling their duty is the highest, and the only, reward.

President Ramaphosa sounded as if he was delivering the State of the Nation for the whole nation and if he was speaking as President of all South Africans. He also sounded as if he has already made a start on the work awaiting him – and all South Africans – after 8 May. The obvious questions are whether he could win the battle in a party that is still at war within itself and if he could repair a State that could support him. For now, those are the big uncertainties.

SONA: Focused on reviving economic growth and investment with enhanced policy certainty and confidence boosting measures – Investec

  • The State of the Nation Address (SONA) reaffirmed the key economic policy objective of reviving fixed investment rates to place the economy on a sustainable faster economic growth path. Economic growth has stagnated at an average of below 2% for nearly a decade, but needs to be closer to the 3 – 5% mark in order for unemployment rates to recede from close to 30% presently, for poverty alleviation and for fiscal sustainability. The President emphasised the importance of collaboration between government, business and organised labour to aid effective implementation of infrastructure projects.
  • Restoring confidence through improved legislative and regulatory clarity and enhancing the ease of doing business is integral to a recovery in fixed investment by the private sector. The President noted the progress made over the last year in mining sector regulation. Going forward, policy areas to be addressed will include competition, the visa regime, the allocation of broadband spectrum and the submission of the National Health Insurance Bill to parliament.
  • However, uncertainty relating to property rights is likely to persist for now. Although the President reiterated that the land reform programme would be accelerated, and the intention remains for agricultural output to be increased and food security protected, the methodology of land expropriation without compensation was not detailed.
  • The SONA outlined further steps to unwind state capture and deal with corruption in an effort to rebuild institutional strength.
  • In parallel to the existing efforts to strengthen governance at many of the state owned enterprises (SOEs), the SONA set out policy actions to shore up the weak financial position of Eskom in particular. These actions will include the unbundling of Eskom into separate entities of generation, transmission and distribution. The President affirmed that government will extend financial support to Eskom, although the quantum was not specified.
  • The forthcoming 2019 Budget (20th February 2019) will contain the details of the financial support extended to Eskom. The SONA did highlight the “need to safeguard our national fiscal framework” and “achieve a positive impact on our sovereign credit rating”. As such, the Budget is not expected to show further fiscal slippage versus the 2018 Medium Term Budget Policy Statement.
  • The President announced that the national and provincial elections will take place on the 8th May 2019. As 2019 is an election year, there will be a second State of the Nation Address. In prior years this usually occurred in the month of June.