State of the Nation Address

In his maiden State of the Nation’s address on 16th February 2018, newly-appointed President, Cyril Ramaphosa, gave a broad overview of the strengths and weaknesses of the economy, emphasising that a “new dawn is upon us”.

This SONA needs to be viewed in the context of the recent changes in the ANC (African National Congress) and government. Cyril Ramaphosa, who was already Deputy President of South Africa, was elected President of the ANC on 18th December 2017. Following this, increasing pressure was placed on President Zuma to resign- past pressures had left him unmoved, which led to the ANC recalling him on 13th February.

When he still refused to resign, the ANC called for a motion of no confidence on 15th February. Not wanting to be subjected to this humiliation, and claiming to always do things in the best interests on the party, he finally resigned. Ramaphosa was immediately sworn in as the new President on the 15th and delivered his first SONA on the 16th.

In an address that lasted around 90 minutes, Ramaphosa initially recalled some of the progress that the government had made since the election of South Africa’s first democratic government in 1994. He quickly emphasised a return to ethical behaviour and leadership that was inspired and first demonstrated by Nelson Mandela. He indicated that additional economic measures were necessary to increase growth, break the cycle of poverty, and educate our children.

Throughout the day after Zuma’s resignation, the JSE (Johannesburg Stock Exchange) rallied by 5%. Ramaphosa rightly pointed out that this was an “early indication that investor confidence is on the rise”.

The list of topics that Ramaphosa mentioned as critical to achieve a turnaround in the economy and to address imbalances included the following, some of which have already commenced:

• A need to create drivers for economic recovery
• Tough decisions to be made regarding fiscal deficit
• Unemployment to be addressed via a job summit in coming months
• The need for infrastructure to be maintained and improved
• Foreign investment to be encouraged
• The Manufacturing sector to be expanded with localised programmes
• The development of new industrial hubs
• Ongoing support from government for previously disadvantaged professionals across industry
• Youth unemployment to be specifically addressed with internships and other inclusive programmes
• Healthcare to be improved with a national health insurance starting in April
• Aiming to double the amount of jobs provided by tourism
• Small and medium-sized enterprises to be boosted by a higher percentage of local procurement being allocating them
• The need for a ‘digital revolution’ in IT and telecommunications
• The introduction of a national minimum wage in May
• Higher education to be free for lower-wage earners; to start in 2018 (defined as annual earnings of under R350,000)
• The start of a campaign against cancer, similar to the aids programme
• Taking tougher action against crime in order restore community trust and safety
• The land distribution programme to be accelerated to increase production, which will include expropriation without compensation

However, this last point could have highly negative connotations for local and foreign landowners, and in spite of Ramaphosa’s assurances that he will not permit land grabs, it appears that this policy will need more clarification to allay fears in response.

In particular, Ramaphosa placed particular emphasis on areas that need extra special attention:

1. Corruption: Ramaphosa stated, “2018 will turn the tide on corruption,” This includes the commission of enquiry into state capture, as well as a commission of enquiry into tax administration and In the case of bribes, they will plan to deal with both the giver and receiver.
2. State owned enterprises: These are to be stabilised and strengthened; only boards with expertise and integrity are to be tolerated. No board members will be involved in the procurement role of these enterprises, and there will be a review of the size and configuration of government departments.
3. Cabinet Reshuffle: Allied to the above, a Cabinet reshuffle is expected in due course, after a consultation has taken place and sufficient evidence on errant ministers has been gathered.
4. Mining: Mining has been one of the stalwart industries in the South African economy for decades. It has also been one of the largest employers of unskilled and semi-skilled workers, with a huge multiplier effect; one labourer could support many family members.
   In recent years, there has been controversy and court action surrounding mining rights under the incumbent Minister. In addition, a new controversial Mining Charter is in the pipeline, and the Chamber of Mines currently has a court action pending to stop the implementation of the Charter.
   This uncertainty has resulted in the delay or cancellation of surrounding projects and the potential of any investments from foreign investors. The court action has now been suspended pending Ramaphosa’s promise that negotiations will take place with all interested parties.
   Going forward, fair legislation and policy certainty would have a major positive impact on the industry, including providing stability.
5. Agriculture: Agriculture has been another of the main pillars of the South African economy for many years. Although there has just been a record maize crop, the lack of rain has unfortunately led to some provinces declared as national disaster areas, most notably, the Western Cape.
   The agricultural sector is also a major employer, and improvements could have a major impact on employment with a positive knock-on effect more widely.

Conclusion

This was certainly the best State of the Nation Address that we have seen for many years: it was well thought-out, comprehensive, and efficiently delivered.
However, we have heard numerous speeches and promises in recent years that have come to naught, resulting in widespread scepticism amongst listeners. The many points made and the plans to be implemented will all require funding; Ramaphosa indicated that there are some tough decisions to come. It should be expected that some of these stand out noticeably in the Budget on 21st Feb 2018- Financial resources are limited, and good management will be essential.

What is encouraging, however, is that significant action has already been taken since Ramaphosa was elected ANC president in December. Zuma was recalled relatively quickly, the Hawks have taken action on the Gupta’s, and negotiation on the Mining Charter is imminent. This augurs well for more action soon!

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.