Questions raised by Zuma’s SONA that no one can answer just yet
President Jacob Zuma’s state of the nation address has raised several questions among analysts and economists about what direction South Africa is heading in.
The SONA is set to be debated in Parliament this week, and opposition parties are gearing up for a tough fight as they take Zuma on over many points of contention raised during his address.
According to research analyst at Nomura, Peter Attard Montalto, Zuma’s speech didn’t contain anything unexpected – not even the violent removal of the EFF, nor the walkout by the DA.
But it was filled with enough of a shift in ANC policy to make analysts and economists question the way forward.
Specifically, Zuma and ANC showed a clear shift to a more populist stance – with the strong message given of a further push down the path of radical economic transformation – highlighting ownership and participation in the economy as well as the banking sector specifically.
“There was explicit reference to shifts in Competition Law and a new public consultation on land reform legislation that has been sent back to parliament,” Attard Montalto said.
This raises a lot of questions, he said.
What is different or new now?
“There is a broad outline of radical economic transformation since Polokwane and Mangaung elective conferences of the ANC, 10 and 5 years ago. This was rooted in the so-called ‘National Democratic Revolution’ (NDR) view of the ANC.
“While the ANC has achieved control of all arms of government and state-owned entities as part of this, it has not been able to build a capable and efficient state to drive this revolution.
“A large swathe of policy adopted in those elective conferences has not been implemented. Put simply, the foundations of the ANC’s economic transformation view in its current iteration have not changed for 10 years yet have seen little implementation.”
What new powers does the Competition Commission need now that it hasn’t
had before?
“The Competition Commission has very broad powers under its ‘public interest’ clause which allows it to look at almost anything that might be relevant to radical economic transformation.
“It’s not clear how this needs to be changed. The key problem for the CC has been a significant lack of capacity in either competition investigations (around FDI cases especially) or public interest investigations (the current health care investigation is a prime example).
“For the CC to effectively move through a banking sector public interest investigation would require a significant increase in resources and staff. In reality such a probe could take two to three years.”
How can land reform be accelerated?
“The department also has severe capacity constraints and while land reform claims have been further backdated, the ANC has been cautious up to now of shifting from ‘willing buyer willing seller’ to ‘fair price compulsion’.
“The proposed process for legalisation and consultation this year may indeed last a whole year – this is unlikely to be a fast-moving process.
“That said, we think there should be some clarification of restrictions on foreign ownership of land which is being worked on by the government.”
How can the banks be pressured?
“The Finance Sector Charter Code was agreed some 15 years ago and came into force in 2004. It was a product of the NEDLAC grouping of big business, big labour and big government.
“Pressuring banks through this route seems most likely given National Treasury as a blockage to more left-wing financial sector policy. That said, the NEDLAC process would likely be lengthy and any real movement this year unlikely.
“While implementation may be lacking this year, we should watch for any impact on the sentiment of banks from greater political pressures which may curb risk appetite and so growth.
“We do not pencil that into our forecasts, but it’s something of a downside risk to be watched. Linked to this issue, however, is the roadblock to the FICA bill and a possible CC investigation into the banks.”
Could there be another set of BEE changes?
“It is only a year since the last set of changes and the process last time was long and complex with worries raised by industry resulting in several about-turns by the DTI.
“While individual BEE issue areas like procurement can shift this year, we think a wholesale review is unlikely.”
According to Attard Montalto, while these questions are still up in the air, the baseline view is that nothing much will be happening on these matters, but there will be enough ‘reviews’ and political pressure to impact investment growth and output in 2017.
There is a strong tail risk present, he said, and investors will be watching closely – especially for any moves on land reform.
Ultimately, all eyes will be on finance minister Pravin Gordhan’s budget speech scheduled for 22 February, looking for the minster to reinforce the current market dynamic.
The SONA, Attard Montalto said, had nothing of much substance to make investors more positive on the country’s medium-run potential growth.
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