President Ramaphosa delivered his State of the Nation Address (SONA22) to a joint sitting of parliament last night. He hit all the notes we expected and some we didn’t. Our expectations were low for this usually ceremonial and bland event, however the President revealed a more comprehensive plan than we expected and we believe markets (particularly SAGBs) should take solace in a state that is sticking to its original plans, and not swaying towards populism, given the ANC’s poor performance at the local election polls last year.
Key take outs:
He confirmed the ZAR350 Covid-19 Social Relief of Distress (SRD) grant (at a cost of between 0.5-0.7% of GDP, we estimate) temporary extension to March 2023, as we flagged in South Africa Outlook 2022: Exhausted recovery on a rockier road,12 January – with focused planning for something sustainably affordable to replace it, which we suspect could imply a 1pp increase in VAT in 2023. The fiscal numbers for the extension are already incorporated in our baseline for the main budget deficit to narrow to 4.8% of GDP in FY22/23 (incidentally a lower deficit ratio than before the Covid pandemic).
He stuck his neck out ideologically (for an ANC politician who would normally have been careful to always acknowledge a central role for the state in the economy), stressing that “government does not create jobs … (b)usiness creates jobs”, “ (t)he key task of government is to create the conditions that will enable the private sector …” and similar comments scattered throughout the speech – to heckling from the EFF and other left wing groups.
The Zondo Commission showed decisively that “public institutions and state-owned enterprises were infiltrated by a criminal network intent on looting public money for private gain.” By no later than 30 June his government committed to a concrete plan of action in response to the findings including “the creation of special court rolls for state capture and corruption cases”.
The talk gave details of many projects from power generation via independent power producers to 3rd party operators on freight lines related to reforms of the network industries, with major SOEs at their heart designed to attract private investment – power, freight, ports, telecommunications (heavily delayed frequency auctions to be released by the end of Q1) as discussed in South Africa 2021/22 policy Tracker: Grinding towards the Centre, 9 September.
One broad strategic shift that is becoming more apparent is that the Presidency is centralising key functions – from intelligence, just energy transition, network industries high impact reforms, ridding the countries of red tape, housing the SOEs shareholder in one place (depoliticising them and making them difficult to ‘capture’). These shifts are important and useful with the reformist character of President Cyril Ramaphosa, but in as far as they imply structural shifts in governance could be threatening under a less benign presidency in the future.
ENDS
