Op-Ed: Plenty of heat on the street, but no fire in #SONA2019

PUBLISHED: Fri, 08 Feb 2019 11:26:20 GMT

By Gary Van Staden, Senior Political Analyst at NKC African Economics

With an election around the corner, it was always a little unrealistic to expect the State of the Nation Address (Sona) given by the South African president in Cape Town on Thursday, February 7, to be an era-defining speech.

President Cyril Ramaphosa delivered a talk more tilted toward the African National Congress (ANC) than the country, but what politician would have done anything different? Under sweltering heat-wave conditions there was nothing unexpected – apart from the rather sudden announcement of May 8 as the date for this year’s general election – but the tone was positive and left listeners with the feeling that, certainly in terms of the economy, there was some prospect of an improvement.

Mr Ramaphosa covered all the bases he had been expected to cover, including announcing that power utility Eskom would be split into three entities, responsible respectively for generation, transmission and distribution.

There was also, however, a lot of repetition. Mr Ramaphosa spoke about dealing with corruption, strengthening state institutions, establishing strategic partnerships in state-owned enterprises (SOEs), better education, more investment, and more economic development plans – all familiar themes a year into his presidency.

To our mind there was still too big a role for the state in his plans, and too much superficial mention of “reform” without the major policy shifts that reform will require. But then again… a May date looms for the ANC to try to retain power.

There was a good dose of calling back the past with plans to reintroduce technical high schools and formal pre-school learning. Business and investors would not have found anything disagreeable in the presentation, and enough to be publicly encouraging.

That will help sentiment, but positive sentiment will last only if implementation and delivery follow the talk, and implementation has been and remains an ANC weakness.

Our understanding from sources close to the Economic Freedom Fighters (EFF) was that the leftist opposition party would allow its members to make only minor interjections and not to be altogether disruptive of Sona. Also, there is clear evidence to suggest that the apparently accidental meetings between Mr Ramaphosa and opposition leaders, including Julius Malema of the EFF and Mmusi Maimane of the Democratic Alliance (DA), were no accident.

So, Mr Ramaphosa was allowed to proceed with a speech that was a little too much of all things to all people to provide any real insight into what we can expect when he delivers his next Sona once the ANC has comfortably won the election (if the result turns out to be in line with our expectations).

Some news channels searching bravely for breaking news in Sona got excited about the formal announcement of the breakup of Eskom, a policy which had been pushed by Public Enterprises Minister Pravin Gordhan and expected for some time to be announced in the speech. We find it disappointing, however, that the three operations – generation, transmission and distribution – will remain under the SOE Eskom Holdings when only the natural monopoly of transmission should remain a state function.

We expect that this will mean the companies will remain less efficient than they could have been if they were sold at least partly to private operators, but it does provide an opportunity to deal with Eskom’s massive surplus labour problem.

The company is estimated to be overstaffed by between 40% and 60%, and the restructuring provides a reason for retrenchments, but that is not a topic the president was willing to tackle in this pre-polls speech.

Mr Ramaphosa also mentioned that the utility “will need more revenue through an affordable tariff increase” and said that more detail about the state’s support for Eskom would be included in the budget speech that Finance Minister Tito Mboweni will deliver later this month.

The plans to deal with Eskom and its financial problems are illustrative of the whole speech: it was largely anticipated and covered all the bases. It was somehow underwhelming without being overtly negative. The elections do loom very large so perhaps we got the best Mr Ramaphosa was prepared to offer without supplying his opponents – both within and outside of his own party – with any political ammunition.

In general, we are encouraged but hold back on too much hope given the ANC’s poor record of translating words into deeds, a weakness that Mr Ramaphosa has not entirely dispelled. Perhaps the main point, given the political tightrope Mr Ramaphosa must walk, is that unlike almost all previous Sonas of the past decade this one was a notch better than neutral rather than downright negative.

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