Business

Sona 2014: Zuma sticks to past economic achievements

Lynley Donnelly  

President Jacob Zuma's State of the Nation address didn't address much with regards to economic policy for the year ahead.

President Jacob Zuma delivering this year's State of the Nation speech. (AFP)

President Jacob Zuma delivered, as many expected, a firmly backward-looking State of the Nation address on Thursday night. Sticking to the achievements of his past five years in office and the 20-year legacy of his predecessors, Zuma avoided looking beyond the elections scheduled for May 7.

This was not the "occasion to present [the state's] programme of action for this financial year," he said. Instead that programme "will be presented by the new government after the elections". 

To prepare for this, Zuma's administration had been working on its medium-term strategic framework over the past year. The framework has been designed as the "first five-year building block" of the country's National Development Plan (NDP) and incorporates key targets taken from other economic policy programmes, namely the Industrial Policy Action Plan, New Growth Path and the Infrastructure Plan.

But the decision to jettison details of any future action plan has disappointed analysts.

Peter Attard Montalto, executive director and emerging markets economist at Nomura, said in a research note that the speech amounted to "a long report on what the ANC had achieved since both the 2009 election and 1994, the progress made and the ongoing policies of government".

Contentious plan
The NDP featured strongly in the speech, with Zuma naming it "one of the major achievements of this fourth administration".

But the NDP, while praised initially, has come under fire from labour quarters as well as the business world. 

Just two days before Zuma's address, National Union of Metalworkers of South Africa leader Irvin Jim again criticised the NDP. He said it was yet another plan in a litany of economic policy frameworks that failed to change fundamentally the structure of South Africa's economy. 

Private-sector analysts have critiqued the NDP for different reasons. 

Russell Lamberti, chief strategist at investment advisory firm ETM Analytics, has called the NDP too "broad, unfocused and vague to itself be a catalyst for profound action in economic policy".

Lamberti said in research released in November that many of the document's plans "require highly complex and extensive regulatory and bureaucratic oversight, which in turn requires state capacity that is simply not attainable". 

Some good bits
The NDP was not "all bad", he said. It recognised the need for, among other recommendations, more flexible labour markets, more competitive and predictable mining regulations, energy market reform and the critical importance for improved education. 

But in many of these areas the specifics of their implementation was either too vague or politically unpalatable. 

Lamberti said there were some deeply troubling aspects of the plan, notably monetary policy that was "too focused on easy money conditions [rather] than on fostering savings and capital accumulation". This would result in "a low savings-high consumption economy that hollows out its manufacturing base and does not progress productively".  

Against this backdrop a framework that yokes the NDP to other economic policy plans, none of which sit truly comfortably together, seems questionable. 

As Attard Montalto said: "There is unlikely to be any clarity on exactly how these three tangential economic visions can be truly reconciled."

Mining sector strife
Zuma did break away from his written speech to emphasise his concern over labour relations in the mining sector. 

"I want to underline an important point, the importance of [the] economy, particularly to the mine owners and leaders of the unions," he said. "In no way can we have conflict that destroys the economy."

His words came as the strike in the platinum sector grinds on, having kept an estimated 70 000 workers out of work for almost a month. But Attard Montalto took issue with the extent to which government's efforts were credited as reasons for the improvement in the sector in 2013.

Comments that the mining sector was now on a firmer footing owing to investment in housing and the government's work with mining companies were also "odd", he said, "during an ongoing and damaging widespread strike" as well as "the fact that [Nomura's] understanding remains that mining companies [made] very real and good progress on improving worker conditions and [human resource] functions since Marikana".

Infrastructure spend
Zuma said South Africa's infrastructure programme would become more expensive because of developments in the United States, which have spurred a rapid depreciation in emerging market currencies, including the rand.

This did not stop him from announcing that government expected "to conclude the procurement of 9 600 megawatts [MW] of nuclear energy" as outlined in the country's 20-year electricity road map, the Integrated Resource Plan (IRP). 

This is despite the fact that a revised draft of the IRP has questioned the need for this scale of nuclear procurement, given reduced electricity demand and the emergence of alternative fuel sources such as gas. The procurement of 9 600MW of atomic power is estimated at anywhere between R400-billion and more than R1-trillion. 

Tax committee
While Zuma's speech resolutely revisited passed themes, one that did not get a mention was the tax review committee announced in his 2013 State of the Nation address, now headed up by Judge Dennis Davis.

The committee was launched expressly to review current tax policies, including the mining royalties regime, to ensure that the country had an "appropriate revenue base to support public spending".

It would appear that Finance Minister Pravin Gordhan's budget speech is where more detail about government's work in the coming year will be found. Here the question of how to support public spending cannot be ignored. 

For everything else, we wait for May 7.

Topics In This Section

Comments

blog comments powered by Disqus