Sona a mixed bag for economists

President Cyril Ramaphosa. (Jairus Mmutle/GCIS)

President Cyril Ramaphosa. (Jairus Mmutle/GCIS)

President Cyril Ramaphosa’s State of the Nation address (Sona) held as many economic misses as it did hits, economists and analysts said in the wake of the speech delivered on Thursday evening.

Positive comments made on issues like the independence of the central bank, and economic stimulus efforts, were countered by a lack of detail in other areas notably the reform of state power provider Eskom.

In his second Sona of the year, Ramaphosa emphasised the need to focus on implementation and restore the national development plan (NDP) — the overarching economic policy developed by the state in 2012 — as central to efforts to improve South Africans’ lives.

Very soon into his speech Ramaphosa revealed further financial assistance for Eskom — with the announcement of a special appropriations bill to fast track a large portion of the R230-billion in funding earmarked for Eksom in the coming decade.

The power utility is seen as too big too fail, and Ramaphosa revealed will run out of cash by October, if it is not bailed out.

The market is likely to be disappointed by this announcement said Sanisha Packirisamy, an economist at Momentum Investments, as the “emergency measure” did not come with sufficient detail around the restructuring of Eskom, first announced in Ramaphosa’s previous Sona in February.

At the time he announced the planned splitting of Eskom’s business units into three separate institutions — generation, transmission and distribution — under Eskom Holdings. The move was hailed by industry and investors, but has since received significant push back form labour unions.

What was needed was more information on the unbundling, Packirisamy said, including a possible timeline for the plan, which would reveal just how Eskom’s financial and operational difficulties are going to be dealt with.

She however welcomed the renewed focus on the NDP and efforts to stimulate the economy.

Ramaphosa pointed to the need to re-imagine industrial strategy, stating that priority attention would be given to economic sectors with the greatest potential for growth.

Drawing on the successes of the automotive sector — which has a range of incentive schemes run through the department of trade and industry that is now headed by Ebrahim Patel — master plans would be developed for industries such as the clothing and textiles, gas, chemicals and plastics, renewables, and steel and metal fabrication sectors.

Work is also going into intensifying the government’s investment drive the president said.

Of the R300-billion of investments announced at an inaugural investment conference held last year, just over R250-billion in projects has entered implementation phase he said

A second investment conference will also be held in early November he added, in an effort to grow the project pipeline.

Ramaphosa reaffirmed commitments to “build bridges” with the private sector, and heeded calls to improve the ease of doing business and remove policy impediments.

“We are urgently working on a set of priority reforms to improve the ease of doing business by consolidating and streamlining regulatory processes, automating permit and other applications, and reducing the cost of compliance,” he said.

To address youth unemployment he announced a plan that will be coordinated from within the presidency, to create 2-million jobs over the coming decade, in conjunction with the private sector.

In a move to bring down the cost of data, and foster an environment for innovation, Ramaphosa said that, within a month, the communications ministry would direct Icasa to begin the long-awaited process of issuing spectrum licenses.

Although many of the ambitions laid out in the speech, would be viewed as positive by investors, this sentiment is at risk of being eroded, thanks to the fault lines within the ANC and its internal factional battles, Azar Jammine, chief economist at Econometrix, said.

Jammine welcomed the president’s affirmation of the independence of the Reserve Bank, but argued that the good engendered by the president’s positive pronouncements are “being scuppered by the political system” and his own colleagues.

“He’s said all the right things, but will that actually translate into improved growth? I have grave doubts,” Jammine said.

At the heart of the issue was Ramaphosa’s unwillingness to “call out” the ANC’s contribution to policy uncertainty and confusion said independent political analyst Ralph Mathekga.  “He is too willing to compromise,” the economist said.

In what he believed was a largely disappointing speech, Mathekga did say Ramaphosa’s emphasis on rebuilding state capacity was a positive.

For instance, Shamila Batohi, the new national director of public prosecutions has been tasked with developing a plan to “significantly increase the capacity and effectiveness of the National Prosecuting Authority, including to ensure effective asset forfeiture” Ramaphosa said.

A new Special Investigations Unit (SIU) tribunal will start work to fast-track civil claims arising from SIU investigations, which are currently estimated to be around R14.7-billion.

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