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Implementation is key - Old Mutual Investment reflects on SONA 2020

19 February 2020 Johann Els, Group Chief Economist, Old Mutual Investment Group

This year’s SONA followed the usual pattern of highlighting the country’s most pressing issues without providing much policy detail. Importantly, the speech focused on important areas such as economic growth (or more accurately, the lack of) and the electricity crisis crippling South Africa.

While there were very few surprises and little new news, I view the speech as mostly positive. I was left hopeful by the emphasis on the social compact between government, labor and business. I am of the opinion that this undertaking has the potential to be a real game-changer and prompt the necessary momentum South Africa needs.

Placing economic growth at the center of the government’s plans and acknowledgement of the urgent need to address the energy crisis are welcomed pronouncements. However, the devil will be in the detail in executing implementation.

While there is a definite sense of urgency by the president to repair public finances, I question whether it will be sufficient to satisfy investors and rating agencies. Investors want to see tangible action taken by the government to fight corruption and state capture.

In response to the government’s plan to establish a sovereign wealth fund and state bank, I question where Government believes it will find the resources for this. Instead, I urge treasury to first address public finances by tackling the widening deficit and debt-to-GDP ratio. Reflecting on the current state of our parastatals, I believe venturing into banking is also ill advised.

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