While many people expected to dismiss President Ramaphosa's SONA speech as unsubstantial in nature, he presented a speech with a comprehensive look at the government's priorities across a broad spectrum of portfolios. Key focus points for us were the President's interventions around addressing the electricity crisis, the downward spiral in SOE's and the lack of capacity in the public sector.
A new energy department: The energy crisis has been fusing in the Department of Mineral Resources and Energy (DMRE), where coal interests and the imperative of accelerating renewable investment have been in a face-off. A big focus was if President Ramaphosa could split the two components of the DMRE portfolio. The President announced that a new energy department would be created in the Presidency, with the implication that the minerals resources portfolio, and specifically coal, will remain under Minister Mantashe. This is a major political step for the President, as most people believed that Mr Mantashe's position was almost untouchable. President Ramaphosa's announcement means that coal will continue to constitute the baseline of the energy mix. Still, it guarantees the development of renewable and alternative energies for the foreseeable future. A new Minister will take responsibility for Eskom (although the Department of Public Enterprises (DPE) remains) and its development of a mix of energy sources, including gas. Eskom's unbundling into three units, viz generation, transmission, and distribution, remains a critical sign for opening the electricity system to the private sector, but resistance from trade unions is likely. However, this is closely tied to Eskom's debt restructuring plan, expected to be revealed in the Budget Review 2023 to be presented to Parliament on February 22.
A national state of disaster: A new national state of disaster has been declared over the electricity crisis, as it posed an "existential threat to the economy and social fabric." We are cautious about its significance and impact until all the emergency regulations have been published. Certain institutions, such as the exemption of critical infrastructure from load shedding, improving the coordination between government departments, and emergency procurements, are covered under the disaster management act. The key concern in the aftermath of Covid-19 procurement corruption, is that the Auditor-General will be brought into continuous monitoring expenditure.
SOE's: Developments at the DPE will be closely monitored. Very little progress has been made over the year. The President stated that "many of our SOEs are struggling with significant debt, underinvestment in infrastructure, the effect of state capture and a shortage of skills." A State-owned holding company will be established, which is part of a centralised shareholder model that will ensure effective oversight of SOEs. This remains a crucial area of uncertainty for the fiscus and the government's contingent liabilities.
Public sector service: Professionalising and reconfiguring the public sector are critical elements enhancing the implementation and delivery of policies. National Treasury estimates a potential saving of R27bn in the medium term if overlapping mandates, ineffective programmes, and consolidation of entities could be achieved. This will lead to better coordination as the current structure leads to many inefficiencies.
Cabinet reshuffle: A cabinet reshuffle is expected any day, but the question is whether it could happen over the weekend or in the middle of next week. The SONA debate in Parliament will take place on Monday and Tuesday, and the budget will be tabled on February 22. A newly constituted cabinet will provide a good indication in which direction CR will possibly move.