Urgent implementation required on positive Sona messages

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By BLSA

President Cyril Ramaphosa gave a highly positive State of the Nation speech. It set out some real plans to deal with some of our most urgent economic challenges, particularly the energy crisis, and deep socioeconomic challenges such as youth unemployment and drought.

The ideas are good – the challenge is implementation. Some of the announcements we have heard before – such as the imminent launch of the round five bid window for renewable energy independent power producers (IPPs).

Now we need to see follow through with rapid implementation to demonstrate that the plans are more than talk. The state has struggled to follow through on policy plans. The president spoke of an “efficient and capable machinery now in place at the centre of government” which sounds good but must now be deployed. It needs to reach far from the centre to ensure the government actually delivers. There needs to be intolerance of failure across the civil service, whether it stems from factional resistance, capacity weakness, corruption or simple ideological obduracy.

The president also set out a prominent role for the private sector to play as investors in the infrastructure needed to drive the economy. We welcome the opportunity to partner with the state to deliver public infrastructure including new energy generation, social housing and student accommodation, among other needs that the president identified. We have proven before that the private sector can mobilise considerable investment when the right policy framework is put in place.

The most encouraging feature of the speech was confronting the energy crisis, perhaps the single biggest driver of the collapse of business confidence and economic growth. The president backed both immediate steps that can be taken and procurement that will come online in the medium to longer term. Some of these, such as procuring additional production from existing IPPs, we have pointed out before as easy wins. But the president has also said that a ministerial determination will be issued to put the Integrated Resource Plan of 2019 into action, opening up new procurement from renewable sources as well as critical new infrastructure such as natural gas and hydropower.

This now puts the focus on minerals and energy minister Gwede Mantashe to follow through, and we look forward to him doing so as soon as possible. Muddled rhetoric on energy policy must be put behind us and swift progress made in delivering the environment in which the private sector can invest at scale to start providing cost-competitive energy supply.

Business will be paying close attention to government’s implementation progress, both because it affects energy producers and because it affects every other business that is desperate for energy security and lower-cost supply, without which they cannot invest to grow.

We also welcome the president’s announcement that municipalities will be able to procure directly from IPPs and that wider procurement will be initiated to acquire emergency power for the grid within three to 12 months.

The president also spoke widely of policy interventions to tackle the youth unemployment crisis. The promised allocation of 1% of the budget to tackle the crisis is a major intervention. The quantum of funding that would be directed in this way is unprecedented, so it is crucial that the right systems are put in place to manage it. The private sector, through initiatives like the Youth Employment Service, must play a crucial role. As the president said, we know that growth and job creation will in large measure be driven by private enterprise. In tackling youth unemployment, the private sector can be galvanised to support small business development and skills programmes that could form part of the solutions.

The president also pointed to progress on making more spectrum available to support broadband rollout. This is crucial to bringing down the cost of data and galvanising investment into 5G and other communications infrastructure. Icasa must follow through with spectrum auctions as soon as possible.

There was also positive momentum on land reform, with promises to implement key recommendations of the Presidential Advisory Panel on Land Reform and Agriculture to accelerate land redistribution, expand agricultural production and transform the industry. This can all be done in the existing policy framework – as we have long argued, it is not the law that has been the problem but the political will to deliver land reform. We do not believe any amendment to section 25 of the constitution is necessary, support the responsible process that parliament has been undertaking in drafting new wording, cognisant of the risks that a poorly handled process and outcome poses to the economy.

However, the president made no mention of resolving the long-running standoff over mining and gas policy in South Africa that remains a barrier to billions of rands of investment. This despite the issue having featured in several previous State of the Nation speeches. It remains unresolved. All of the growth, employment and revenue challenges the state faces could be partly alleviated by unlocking the natural resources industries to invest and grow the economy.

We are also cautious on plans for a sovereign wealth fund and a state bank that the president threw forward to the budget speech due next week. Given SA’s large budget deficits, it is not clear that directing financial resources into a fund makes sense. It is also not clear how a new state bank is needed to facilitate access to financial services when the state already operates two large development finance institutions in the DBSA and IDC as well as the largest retail banking network in the country through the Post Bank. On the face of it, it appears more practical and efficient to work on capacitating existing institutions to fill the gaps in banking provision that the government sees.

On the whole, though, the speech gave much that business welcomes and we look forward to working with government to deliver. But delivery is what matters. The cabinet must take the president’s direction and drive implementation via the civil service. The direction is particularly clear for the minerals and energy minister and we will be looking forward to clear implementation within weeks.

The next major test will be the budget speech on 26 February. The presidency gave positive indications that the urgent need to address government expenditure levels is being taken seriously, particularly with public sector wages. We look forward to delivery of these promises.

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