There has been a cautiously positive reaction following president Cyril Ramaphosa’s 2019 state of the nation speech, with analysts and economists lauding the bluntness in addressing South Africa’s problems – but concerns have been raised about the lack of detail on how to tackle these problems.
Notably, concerns have been raised about Ramaphosa’s promises to make South Africa more competitive by opening up to business in the next three years, as well as the lack of detail around the plans to unbundle Eskom and pursue National Health Insurance.
Making South Africa more competitive
Dawie Roodt, chief economist for the Efficient Group, said that “the penny had clearly not dropped yet with the president” that it was the private sector that created jobs and that it was the job of government to create an enabling environment for business to grow and prosper with minimum government interference.
“We welcome the president’s commitment to making South Africa a more business-friendly country to attract more foreign investment into the country,” he said.
“The fact that the country remains way down the list of business-friendly investment destinations is clear evidence that it is not going to be an easy task to make it a more attractive destination.
According to Intellidex analyst, Peter Attard Montalto, the goal of being ranked within the top 50 most competitive nations is a bold ask, “given other countries are improving and it is unclear any country has ever managed such a feat in three years,” he said.
However this was a good move, and should be encouraged.
“This type of target necessitates nitty gritty shifts in many different areas around registering and running a business, access to credit and utilities and efficiency of the state. Plans to ease this will be positive but we are sceptical on implementation.
“However, this gives something very specific now to benchmark SA against and hold government to account – which is positive,” Attard Montalto said.
Eskom and the NHI
Two areas of concern to analysts, however, is Eskom and the NHI.
While Ramaphosa confirmed the state’s plan to unbundle the power utility into three different entities, there was no detail on when, or how this will happen. Ultimately, without a clearer indication of what government plans with the utility, there’s a risk that nothing will change at all.
“The risk is very little will change in this structure rather than three independent companies that report directly to the department of energy – and likely reflects a push back by cabinet,” Attard Montalto said.
“A mindset change is needed in Eskom and it’s not clear this achieves this, whilst still riling the unions. Separating within Eskom mean incentive issues and monopoly mindset will remain and any upside from internal capital allocation being more transparent between entities may be limited.”
A market positive, however, is government’s commitment to bail out Eskom, which was largely expected. Again, the lack of detail around this could prove problematic, analysts say, with markets now having to wait until the budget speech at the end of the month for clarity.
Regarding the NHI, Ramaphosa said that the process to introduce national healthcare was on-track, and legislative momentum was promised shortly.
This came as a surprise to many, as previous indications from the department of health were that the scheme was put on hold due to financing issues.
Attard Montalto said that this is a “deeply worrying and negative reform” as the current draft would decimate the private healthcare sector in South Africa and is at odds with the National Treasury.
“National Treasury is not working on any long term funding framework for it, given the likely inability to execute the thing. Nevertheless, the policy remains a key risk,” he said.
According to Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, this was overall was a well-received SONA with Ramaphosa clearly targeting foreign investments to boost economic growth.
“While sentiment since the inception of President Ramaphosa’s administration has improved significantly, the rand did not reflect the previously experienced ‘Ramaphoria’, leading up to and during most the much-anticipated 2018 State of the Nation Address,” she said.
“The rand retreated by 0.9% during Thursday to trade as weak as R13.65/$.
“However, as President Ramaphosa dug deeper into core issues, such as the dire state of Eskom and what the plan of action was, the rand managed to claw back some of the lost ground.”
Botes added that the rand has primarily been driven by global factors with local politics relatively subdued as parties prepare for the national elections.
While the rand has been in retreat for most of the week, it has not been a result of SONA, she said.
“Rather, the dollar has bounced back from the weak levels it experienced last week, trading stronger for six consecutive sessions and putting pressure on the rand.
“Local politics has been largely subdued in recent months, with the Zondo Commission of Inquiry into Allegations of State Capture taking centre stage.
“The local political landscape is expected to intensify as we head towards the general elections in May, with most political parties making their manifestos public,” she said.