By Peter Attard Montalto

The 2020 state of the nation address (Sona) on February 13 scores highly for PR/rhetoric (an 8/10), actual policy is “ok” (a 6.5/10, being generous), but signs of any shifts towards actual implementation with specific timelines falls flat (2/10 at best). The Sona was therefore a decent speech and a win in those narrow terms and will generate some buzz. That said, only action will move business sentiment.

PR/rhetoric

This is the last stand. There was little choice for the president but to try and press the accelerator on the PR and rhetoric and in doing so he delivered a speech that generated a certain warm glow. It was in truth far too long at 32 pages and exactly 7,400 words, which meant that, while it tried to drive momentum and the feeling of vision through social compacting, this got lost somewhat in the detail.

Part of the festering problem is that so much has been mentioned before, on energy, on Eskom, on ease of doing business and more. The references to building an “operating environment that is favourable to doing business” [the underlined emphasis was theirs in the e-mailed speech] reinforced a somewhat private sector focused speech. Yet recent action on SOEs like SAA and the inability to seriously move the reform dial has shown that this sentiment only goes so deep and will be met with scepticism by corporate SA. Yet the fact that social compacting was front-and-centre showed that leadership in simple logistical terms will remain a long and drawn out process and speed is still on the back burner.

Policy

In order to credibly press the accelerator, President Cyril Rampaphosa clearly had to be specific on policy issues. However, what is interesting is that we believe the process to do this was deeply challenging for the Presidency in several areas – especially regarding energy – and so political capital had to be deployed. The president is therefore – despite all the talk of social compacting – starting to strain at the seams and nail colours to the mast. This is the most positive aspect of Sona that we think will end up being under-appreciated. However, it counts for little without implementation as growth and sentiment won’t shift without movement.  

As for the specifics, there is too much ground to cover here so we highlight only a few key takeaways below:

• The headline new announcement was an invigorated plan to reduce youth unemployment, devoting 1% of the budget to it. This would amount to around R20bn in the 2021/22 fiscal year (from R523m for national youth development) but how this will be achieved is far from clear.
• There was very little new mentioned on Eskom really. On Eskom debt specifically, the speech said measures would be forthcoming to “mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed”, yet the same thing was said last year and we sense no real movement behind the scenes on this.
• SAA was referenced as needing to be viable, a hint at the need to keep it going rather than liquidated — but really there was little to get one’s teeth into.
• Fiscal policy got some play but uncertainty remains. There was a rallying cry certainly to “fix our public finances” yet this will starkly raise expectations ahead of the budget when there is really little room to move.
• Energy was the most significant and detailed area of the speech. Much of it was not new but was immediately muddied by media interviews with minerals and energy Minister Gwede Mantashe afterwards.
• The two most crazy areas of policy were the announcement of a sovereign wealth fund (new) and a state-owned bank (not new). Both are ANC resolutions which the Sona says will see details fleshed out in the budget. We think National Treasury has no appetite on either and see no real rush to implement these.

Implementation

“With an efficient and capable machinery now in place at the centre of government, we will focus on the most urgent reforms and intervene where necessary to ensure implementation.”

There was no particular detail on exactly why existing blockages to implementation would be dusted aside and a general lack of timelines and delineated responsibilities means that the speech offered little to convince that implementation is forthcoming. The phrase above from the speech does not hold up to inspection. We still believe that a proper system of accountability and deployment of political capital is lacking and hence implementation remains exceptionally challenging.

Concluding thoughts

Sona was a victory on the PR and even policy fronts, though it was not revolutionary. Yet we must consider that so much was repetition on last year, that the baseline was always that reform would progress but too slowly to meaningfully move the potential growth dial. Overall, little has changed since before Sona other than the warm after-glow it might be leaving.