Market research firm Intellidex has published its South African outlook, with the group expecting 2020 to be a crucial inflexion year for the country – for better or worse.
Head of Capital Markets Research at Intellidex, Peter Attard Montalto, said that most of the early focus will be on Eskom and the public sector wage bill into the February budget.
This will be followed by an expected cut by ratings agency Moody’s at the end of March.
“Growth will slowly recover but 1.1% is still inadequate to stabilise unemployment and is easily derailed by more load shedding.
“Fiscal consolidation will be minimal and theoretical room to cut by the SARB not taken at the start of the year at least. South Africa can’t ‘bumble along’ for another year, the right decisions may well be made but only after the cliff edge – reform will be minimal beforehand.”
Below he outlined some of the other major themes to watch out for in 2020.
Problems will abound at smaller SOEs like PRASA, the nuclear authority, etc but Eskom and SAA will clearly be in focus.
Montalto said that he expects battles – maybe in the courts – between government and creditors over saving SAA versus an orderly wind-down and over majority stake sales in subsidiaries.
“Overall the 2020 question will be about the mindset of state vs private sector. This will especially be watched at Eskom as the roadmap is slowly undertaken and gives a crucial way of holding government to account.
“Cultural issues and micromanagement of the new CEO there will also be in focus and the need for radical action on the debt burden will come into view.”
In the meantime, Montalto said there is a fightback including from Department of Mineral Resources and Energy (DMRE) to wrest control over Eskom to prevent an SAA scenario.
Public sector wage bills vs ratings/tax
The public sector wage bill issue is a major problem for the government that requires political solutions between the president and unions and where there is little more technocratically that can be done.
“We see little progress pre-budget but then a broadly ‘policy unchanged budget’ will jump government into action through mid-year,” said Montalto.
“Government and the presidency do understand the issue here but the steps to deployment of political capital are not taken. As such we also look to NEC and tripartite alliance on this issue as pressure circulates back through other routes.
“Whilst Eskom and SAA jobs are not part of this issue – the need for large scale cuts at both companies (forced more easily under business rescue in the latter) will be a noisy issue.”
Clean-up progress vs fightback
Montalto said there will be ‘steady progress’ which is expected to accelerate after the Zondo Commission report mid-year.
“The strategy is to work up from mid-levels to cause disarray amongst the Zuma faction leadership and will be effective – keeping them noisy but having little real impact,” he said.
“The main outlet for the fightback will be through parliament and headlines which will make things noisy.”
The mess of energy policy and the global inevitability of the move away from coal, means that 2020 will be a key year of battles between these interests and the forces of inevitability, said Montalto.
“The Just Energy Transition idea of finding ways that cushion the social impacts of moving away from coal will see numerous commissions set up in 2020 to look at this whilst also we see unions and coal interest etc become increasing forceful.
“This is a crucial issue for investors as international scrutiny and the problem of future stranded assets are mulled over. Unions will eventually come round but vested interests may need government pay-offs (more rent).”