Momentum Investments have released their report based on ‘SONA: Energy crisis tops government’s agenda’ prepared by the Momentum Macro Research Team.
Commentary and highlights by Sanisha Packirisamy, Economist at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.
The rand and local bonds showed little movement in reaction to the State of the Nation Address (SONA), but financial markets are likely to view the announcements as being broadly positive. The success of these interventions rely heavily on government funding and as such the upcoming national budget plays a pivotal role in getting the ball rolling on the implementation of these announced plans.
The SONA emphasised the risk that insufficient energy supply poses to growth and investment in the economy. It also noted the need to arrest the deterioration in basic service delivery rolled out from defunct municipalities. As part of the ruling party’s larger renewal campaign, government acknowledged the widening trust deficit between itself and other key stakeholders in the economy as is evidenced by slow progress in socioeconomic development. The SONA further highlighted the shortcomings of our law enforcement agencies which have led to a rising level of lawlessness in the country.
In addition to committing to previous plans, government announced new interventions aimed at resolving the insecurity of energy supply, including a state of disaster to prevent a total blackout, a dedicated resource in the way of a new Minister of Electricity to oversee government’s short-term energy crisis response and increased funding for diesel to lower the intensity of loadshedding in the near term.
The speech also confirmed the continuation of the social relief of distress (SRD) grant, but the president did not outline specific details for a more permanent solution to respond to the needs of the most vulnerable. Previously, Treasury confirmed that a permanent extension or replacement would only be possible through a reduction in spending elsewhere or a permanent increase in revenue (or a combination of the two) to ensure the stability of the public purse.
The speech emphasised the poor performance of the country’s municipalities and offered up interventions to improve professionalism in public service.
Reducing policy uncertainty and fast-tracking the implementation of structural reforms that have wide-reaching benefits to improve the country’s growth trajectory and jobs outlook require a broader political consensus on what is needed to fix South Africa’s (SA) ailing growth rate.
In our view, garnering positive consumer, business and investor sentiment requires a concerted effort to align interests between government, business, labour and civil society. The SONA highlighted that as a country we have not yet achieved this. Nevertheless, the intention remains to conclude a social compact so as to enact joint action in a number of areas that are central to growing the economy.
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