18 Feb 2018
State of the Nation Address 2018
Outlining plans to address SA’s institutional weaknesses
Under the new President, Cyril Ramaphosa, 2018’s State of the Nation (SONA) address focused on recognizing the need to repair SA’s key institutions and previous competitive strengths, ranging from SARS, SOEs and other areas in the public sector to the mining sector, with its business unfriendly recent Charter, and eradicating corruption. Rapid economic growth was placed firmly on the agenda, to lift and drive employment and so reduce poverty and inequality, as the need for a substantial strengthening in business confidence and so private sector investment was formally recognized.
These key issues were broken down into:The need for a strong capable state, cost reduction for businesses and consumers, the need for reindustrialization and a revitalised mining sector, and faster growth in tourism, improved infrastructure, support for small businesses and marked reduction in unemployment.
Specifically, President Ramaphosa said, “Growth, development and transformation depend on a strong and capable state. It is critical that the structure and size of the state is optimally suited to meet the needs of the people and ensure the most efficient allocation of public resources. We will therefore initiate a process to review the configuration, number and size of national government departments.”
Furthermore “One of the initiatives will be to convene a Jobs Summit within the next few months to align the efforts of every sector and every stakeholder behind the imperative of job creation.The summit will look at what we need to do to ensure our economy grows and becomes more productive, that companies invest on a far greater scale, that workers are better equipped, and that our economic infrastructure is expanded. To this end, we will organise an Investment Conference in the next three months, targeting both domestic and international investors, to market the compelling investment opportunities to be found in our country.”
Additionally, the President highlighted as key issues the need for the support social welfare delivers, along with increased delivery of school infrastructure, NHI and a national minimum wage, transformation, land redistribution, land expropriation without compensation and repairing government finances.
“This means that as we pursue higher levels of economic growth and investment, we need to take additional measures to reduce poverty and meet the needs of the unemployed. … We will finalise work on a permanent public sector-led hybrid model, which will allow a set of public and private sector service providers to offer beneficiaries maximum choice, access and convenience.”
“We will improve our capacity to support black professionals, deal decisively with companies that resist transformation, use competition policy to open markets up to new black entrants, and invest in the development of businesses in townships and rural areas. Radical economic transformation requires that we fundamentally improve the position of black women and communities in the economy, ensuring that they are owners, managers, producers and financiers. We will accelerate our land redistribution programme not only to redress a grave historical injustice, but also to bring more producers into the agricultural sector and to make more land available for cultivation. We are determined that expropriation without compensation should be implemented in a way that increases agricultural production, improves food security and ensure that the land is returned to those from whom it was taken under colonialism and apartheid.”
As in past years, the SONA listed many areas SA needs to address, although more detail was provided than historically, and the tone was certainly one of ‘can do.’ However, SA has been beset by multiple plans, frameworks, proposals and strategies over the years. To keep the positive momentum in business sentiment, which if sufficiently supported can translate into faster growth and investment, and so employment, President Ramaphosa now needs to change tack post SONA compared to in previous years.
Failure to deliver both on the pro-private sector business and investment stated intentions, and to eradicate state capture, corruption and poor governance would see business confidence flag, and then subside down to the previous close-to-a-decade suppressed state, taking the hope of fast economic growth and employment down with it.
Financial markets have appreciated Ramaphosa’s weekend SONA address, with the rand reaching R11.58/USD, R14.28/EUR and R16.23/GBP, and the R186 at 8.11%, while the JSE is at 59 122 and foreigners have been net purchasers of R43.3bn worth of SA equities.
The next crucial event for SA will be the Budget, on Wednesday this week (21st February 2018), as SA holds it breath to see how severe tax increases will be, while rating agencies will also judge the sovereign on its ability to cut back on expenditure and so debt projections. With the need for a streamlined, capable state, public service sector remuneration costs could reduce compared to previous fiscal projections, which is key given that it is a main expenditure item.
Reducing the size of the state and tripling the size of the private business sector through business supportive strategies, and transformation, through growth and substantial additional employment, is the only sustainable method to eradicate poverty and so inequality, and reduce unemployment to single-digits in the longer-term.