What Cyril’s Sona must say

President Cyril Ramaphosa will deliver his maiden State of the Nation address (Sona) today, focusing on SA’s current political and economic situation.

Regarding the latter, South Africa experienced deteriorating economic conditions during 2014-2017, and there is great hope for an improvement in economic growth during 2018 under the new administration.

Ramaphosa has elevated expectations of his first Sona by saying SA “must act now – boldly, decisively and collectively – to change the trajectory of our economy”. Promising a “new deal for SA”, Ramaphosa is aiming for economic growth to rise to 5% by 2023.

The rand exchange rate welcomed the election and forthright words from the new ANC leader.

The currency appreciated from R13.70/$ in mid-December 2017, to below R12/$ during the early part of February. A firmer rand improves the outlook for SA consumers through lower cost of imports and inflation.

Bond traders had since the medium-term budget policy statement been pricing in further downgrades in SA’s local bond ratings.

However, the decline in bond yields since Ramaphosa’s election as ANC leader indicated that investors were expecting him to at least stem the downward trajectory.

To further reignite economic growth, Ramaphosa will have to be decisive in Sona in setting out his economic plans.

The following needs to be addressed:

• Radical economic transformation: Ramaphosa wants to accelerate the transfer of ownership and control of the economy to black South Africans towards supporting economic development and a decline in income inequality. Investor confidence will depend on having more information.
• Research shows education is the biggest contributor to poverty alleviation. In SA, the unemployment rate of people with a tertiary qualification is less than half of that for adults with only primary education. Students and tertiary institutions need more clarity over the phasing in of subsidised higher education.
• Ramaphosa’s “new deal” is planning for the creation of one million jobs over the next five years, with the manufacturing sector set to take the lead. History has shown that factory employment played an important part in economic development in countries that have seen periods of high and sustained economic growth since the end of World War II. The president should elaborate – eg the creation of special economic zones – aimed at boosting the sector.
• The restoration of state-owned enterprises (SOEs) as drivers of economic growth and social development is a key commitment set out in a 10-point plan by Ramaphosa. Financially sound SOEs will reduce pressure on the fiscus. Sona should reflect on progress made so far.
• Investment in the mining industry – one of the largest job creators – was hamstrung by policy uncertainty. The stalemate over the Mining Charter needs to be resolved.
• There is concern about property rights in the farming industry after Ramaphosa said he is in favour of expropriation of land without compensation. Sona should elaborate on this. By addressing these issues, Ramaphosa will maintain the momentum he has built since December.

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