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SONA: Strong emphasis on previously addressed themes and an appeal for a social compact to achieve concrete change

14 February 2020 Momentum Investments
Sanisha Packirisamy, Economist at Momentum Investments

Sanisha Packirisamy, Economist at Momentum Investments

HIGHLIGHTS:

• The rand weakened on initial disruptions by opposition party, the Economic Freedom Fighters (EFF), but firmed slightly thereafter on welcome announcements on independent power producers (IPPs) and the release of broadband spectrum by the end of the year. While the market is likely to react positively to the developments in the energy sector, there was a notable lack of detail around timelines.
• The focus of the speech, as with the previous two state of the nation addresses (Sona), remained on growth, job (noteworthy focus on youth) and investment initiatives. The speech further highlighted the establishment of a state bank, to bank the unbanked, and a sovereign wealth fund to “preserve and grow the national endowment of the nation”.
• In our view, repairing South Africa’s (SA) economic future is largely dependent on reviving fragile sentiment. Although there has been an acknowledgment by the presidency that a lot of hard work lies ahead in rebuilding the languid economy, investors have grown impatient with the apparent lethargic pace of reform. Political will is becoming increasingly urgent to turn ambitious reform ideas into concrete action, while the reality of shared sacrifices needs to be more broadly digested to have meaningful discussions between government, business, labour and civil society. The importance of rebuilding a social compact was further highlighted (“social compact” featured eight times in the speech) as necessary to create an enabling environment.
• Moreover, adequately addressing areas of heightened policy uncertainty, including further detail on land expropriation without compensation and the requisite funding of the National Health Insurance (NHI), are necessary to dispel fears and to encourage inward and local investment to drive growth to a higher platform.
• As such, President Cyril Ramaphosa’s plan to accelerate SA’s growth trajectory remains heavily reliant on the ability of the top leadership to execute on the economic plans put forward. Even though the president’s favourability rating remains high with SA citizens, strengthened anti-corruption initiatives and action on politically unpopular reforms will likely be faced with resistance from the anti-Ramaphosa factions within the ruling party.
• Nevertheless, the depth of SA’s social and economic ills requires urgent and decisive action.

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