Sona: Expect more promises amid little progress

The state of the nation address comes as some economists revised down growth forecasts for this year

07 February 2021 - 00:10 By HILARY JOFFE
President Cyril Ramaphosa. Picture: ESA ALEXANDER
President Cyril Ramaphosa. Picture: ESA ALEXANDER

When President Cyril Ramaphosa presents his state of the nation address on Thursday evening, he will want to report back on the actions he promised last year to revive the economy.

It's hoped that he will provide an update on progress, rather than making yet more promises.

But though his focus is expected to be on two of the most crucial reforms needed to boost growth - in electricity supply and digital spectrum - he may struggle to report real progress, with the energy minister stalling on regulatory changes to fast-track private sector electricity generation and Telkom and MTN challenging the government's spectrum auction process in the courts.

Markets will expect Ramaphosa to provide an update on the government's Economic Reconstruction and Revival Plan (ERRP), which he announced in October. But there's been little progress on implementing the promises in the plan, other than the employment stimulus, which has now seen more than 285,000 young people employed as temporary teaching assistants.

No number of
investment
conferences that
solicit pyrrhic
pledges will create
investment
Mxolisi Mgojo, 
Minerals Council president

And despite the president's commitment to an infrastructure investment drive, and the billions of rands worth of pledges made at his annual investment conferences, last year was one of the worst in recent memory for new investment projects.

Nedbank's latest Capital Expenditure Project Listing shows the number of new projects fell by 60% to 32, its lowest level since the survey began in 1993.

Ramaphosa's address comes in the context of a stinging critique of his October plan by the Thabo Mbeki Foundation, which this week released a document in which it trashes the plan as lacking in substance - and urges the president to negotiate the social compact with business and labour to which he has repeatedly paid lip service.

The document describes the ERRP as "essentially a vision, not the required transformative plan". It says the private sector is "a reliable social partner" and urges the government to make use of the comprehensive economic recovery plan that business tabled in July last year.

It comes, too, after SA's mining industry laid into the government for its failure to address SA's economic crisis.

"The only way we as a nation are going to exit the downward spiral trajectory that we are currently on is for the president and the entire cabinet to realise that SA must become a competitive investment destination, in the top quartile of the World Economic Forum competitiveness rankings. And then, they need to back this up with decisive action," Minerals Council president Mxolisi Mgojo said ahead of this week's Mining Indaba Virtual event.

Mgojo said SA risks a full-blown sovereign debt crisis and that "no number of investment conferences that solicit pyrrhic pledges will attract and create investment".

The October ERRP did not address critical reforms, Mgojo said: "Instead it focuses on a huge infrastructure plan which government has neither the capacity nor the balance sheet to be able to deliver."

In his opening address to the Mining Indaba on Tuesday Ramaphosa did not respond to the industry's appeals for action, opting instead for a bland speech in which he said the government continues to drive policy reform in the sector.

He also told the industry to "step up their efforts to provide employment, business and training opportunities to people in the communities in which mining companies operate".

The Minerals Council pre-Mining Indaba presentation showed that unlike most other industries, the mines have lost almost no jobs in the Covid crisis, with most mineworkers having been paid throughout.

Markets will expect the president to provide an update on Thursday on the R500bn relief and stimulus plan that he announced in April last year, as SA's Covid crisis deepened. More than R100bn of that was pumped into the economy through new and increased social grants as well as through the Unemployment Insurance Fund's Temporary Employer Relief Scheme, both of which have now expired.

But the rest of the programme didn't deliver even close to Ramaphosa's numbers, with companies taking up only R18bn of the R200bn government-backed loan guarantee scheme meant to support them; limited take-up on tax incentives; and only R13bn allocated so far to the promised R100bn employment stimulus.

The state of the nation address comes as some economists revised down growth forecasts for this year, in the light of a first quarter that started with new lockdown level 3 restrictions and load-shedding.

The economy is expected to have contracted by more than 7% in 2020 and the International Monetary Fund forecast last month that it will recover to grow at only 2.8% in 2021, rather than the 3.6% forecast by the Reserve Bank and Treasury.

Most economists then expect the economy to slide back to its sluggish 1% trend, in the absence of decisive and long-promised structural reforms.

In last year's state of the nation address, Ramaphosa promised to "fix the fundamentals" and pursue critical areas of growth, as well as ensure excellence in planning and execution in the government.

He highlighted the importance of a more reliable electricity supply to rebuild the economy and create jobs - and set out a series of measures the government would put in place to bring more private power onto the grid.

Though there has been progress during the year on some of these, others have stalled, with the mineral resources & energy minister and regulators failing to ease the regulations to allow this.

That includes stalling a licensing change that could immediately bring up to 5,000MW onto the grid from companies able to generate electricity for their own use.

Ramaphosa also promised that the long-awaited digital spectrum auction would take place by March this year.

But court challenges by Telkom and MTN to the approach that the Independent Communications Regulator of SA has taken to the auction process make the March date highly unlikely, though it's understood there were frantic efforts behind the scenes this week to get the companies to settle and enable the president to announce some progress.

The president can also be expected to offer some detail on the rollout of the vaccine programme, with more detail on its cost and funding to follow in the finance minister's budget on February 24.