Business will want to see a crisis plan from president Cyril Ramaphosa when he delivers his State of the Nation speech in Parliament on Thursday (June 20), says Steven Nathan, founder of asset manager 10X Investments.
“He should be in crisis mode,” Nathan said.
“The country is in crisis and things are getting worse, fast. Our finances are getting worse, look at the tax receipts. The liabilities of Eskom are in the hundreds of billions of rand. We need a crisis response.”
Ramaphosa will announce measures to address the crisis at Eskom in his address, economic adviser Trudi Makhaya said in e-mailed comments to Bloomberg.
It said that the president has given assurances that the utility is too big and important to fail and he won’t allow that to happen, while Dondo Mogajane, the director-general of the National Treasury, has said more funding for Eskom is ‘an issue of how much, and when’.
“We have no option but to rescue Eskom,” said Johann Els, chief economist at Old Mutual Investment Group in Cape Town. “No one has the answer on how this should be done. The budget deficit is set to grow to more than 5% and the taxpayer is pretty much maxed out.”
Meanwhile, data showed that South Africa’s economy contracted 3.2% in the first quarter, largely because of rolling blackouts implemented by Eskom.
“We all hoped for radical action after the election, but it feels like there is still a lot of electioneering and not much action at all yet,” Nathan said.
Nathan said he wanted to see less rhetoric and more decisive action, “rather than talking, some concrete action”.
He suggested Ramaphosa started with State-Owned Enterprises (SOEs). “Dealing decisively with SOEs, such as South African Airways, would be a good start.”
“It should be easier to address the problems at SOEs as they have commercial motives, unlike governmental departments, and should be run along commercially sensible and measurable benchmarks.”
Nathan said that commercial benchmarks for SAA, for example, along with tangible actions towards implementing those that would be a very positive step. “It would signal government’s intent to actually correct things,” he said.
And for those who say that Ramaphosa’s hands are tied, that he is being held back by others around him, Nathan said: “The role of a leader is to surround himself with the right people for the right reasons, not the wrong people for the wrong reasons.”
Ramaphosa’s first cabinet, which he announced late in the evening of Wednesday 29 May, was clearly a compromise as he had to accommodate various factions in the ANC and other interest groups, said Mica Townsend, business development manager at 10X Investments.
“The result was not ideal,” said Townsend, “but it was better than what came before, and there were definitely some rays of hope.”
Changes to the cabinet, including its reduction by eight seats to a total of 28 positions, suggested that Ramaphosa intended to embark on a process of economic reform.
The combination of the labour and employment portfolios in the Cabinet looked like “a very clever move given how a lot of economic reform to create employment may be viewed as anti-labour,” said Townsend.
Keeping finance minister Tito Mboweni and minister of public enterprises Pravin Gordhan in their posts has given the markets hope that Ramaphosa is dedicated to stability and economic growth.
Keeping these heavyweights in their posts in the face of populist pressure to remove them showed also that Ramaphosa was prepared to make hard choices.
“Some tough choices have to be made about Eskom and SAA,” said Townsend, “I don’t think the president can afford to keep bailing out these two disastrous State-Owned Enterprises. He also needs to provide clarity about his plan and start executing it.”
From the start of his tenure as president, Ramaphosa has made international investment a focus of his growth plans, and the market will be hoping Sona will include more detail on how he plans to make this a reality.
Again here Townsend pointed to the composition of the cabinet for hopeful signs. In this case, she said, the expansion of Ebrahim Patel’s Economic Development portfolio to include Trade and Industry was another move that would engender confidence in South Africa among the international investing community.
Patel was instrumental in the president’s investment summit earlier this year and his continued presence for further rounds will be reassuring after so much change and disruption over the last few years.
“More importantly it means that Treasury will be solely responsible for economic policy development. This ensures that there is not two different lines of thought in terms of economic policy,” said Townsend.
South African born British MP, Lord Peter Hain, meanwhile said that Ramaphosa is the right man for the job, but he needs to be given more time to get things right.
Speaking to CNBC Africa on the sidelines of the South African property convention in Cape Town on Wednesday (19 June), Hain said that Ramaphosa has not only been tasked with clearing out the corruption surrounding his predecessor Jacob Zuma, but has also faces a number of institutional problems left over by apartheid.
“This is like a ‘double handicap’. Apartheid hanging on his shoulders and the corruption from Zuma,” he said.
“I think it is important for the credit agencies, the international business community, and the world to see that the leadership is heading in the right direction and is receiving support from within the ANC.”
Hain said that it was important to remind investors of the noble history of the ANC and the work of Nelson Mandela and Oliver Tambo.
“They need to convince the world that South Africa stands for those values again because otherwise, people won’t invest.”
Hain said that there needs to be land distribution in South Africa, but it must be pursued ‘very carefully’.
“If you want international investment then you have to satisfy international investors that if they build a factory here, it is not going to be seized.”
10X Investments’ Nathan brushed aside calls for patience and arguments that “Rome wasn’t built in a day”.
“The time has come for Ramaphosa to stamp his authority on the government and focus on kick-starting the inclusive growth that South Africa so desperately needs,” he said.