Sakeliga’s guide to the good, the bad and the questionable in President Ramaphosa’s SONA

7 February 2019

Breaking Eskom up into three specialised companies will do nothing to address the underlying issues which currently cripple it, warned independent business organisation, Sakeliga after President Cyril Ramaphosa delivered his second State of The Nation Address. This is especially true if each of those companies are, in themselves, state monopolies in their respective areas as well.

But the problem lies deeper than merely the management of Eskom in recent years, or its corporate structure. The real cause of the problem is probably the way in which the electricity sector in South Africa has been sheltered from the free market – and, with it, free market competition.  

“South Africa deserved a bold and courageous State of the Nation. President Ramaphosa, though beleaguered could do much to present South Africa with a new vision of its future. Instead, South Africans heard a repetition of old, questionable policies – if occasionally presented in a new way,” said Daniel du Plessis, legal analyst at Sakeliga. 

Amongst the good and the bad, a few matters stood out: 

The Good 

Special Economic Zones 

Sakeliga believes that special economic zones represent a key potential strategy for improving South Africa’s economic fortunes. It is, however, worrying that President Ramaphosa’s approach seems to fundamentally ignore the true purpose and utility of such zones. By restricting, as he suggests, producers and businesses in these zones to the production of certain products, it ultimately promises to be another over-bureaucratised exercise in governmental interference. It would be preferable for Government to avoid making these determinations by legislative fiat and, instead, use natural market-forces. 

Non-payment 

Sakeliga welcomes the President’s calls on South African electricity consumers to pay across the board. While Eskom’s financial problems (and the concomitant rate increases) are largely self-inflicted, it is manifestly unjust that certain customers should enjoy services at the detriment of others. This is particularly problematic in the context of certain municipalities being cut off from the national grid – punishing even paying customers in good standing. 

Outeniqua Basin gas-deposit 

Sakeliga, like President Ramaphosa, is heartened by the discovery of the Brulpadda gas deposit. It would, however, be wise to pay mind to the fact that similar resource deposits have done nothing to save countries like Venezuela from economic disasters precipitated by bad policy. In this light, it is worrisome to hear that the President intends to introduce new legislation – and, more particularly, that this legislation is to form part of the ANC’s broader of the socialisation of resources. If, however, South Africa, manages to properly utilise these natural resources, the President would be entirely correct in his assertion that it could be a game changer for South Africa. 

Ease of doing business 

Sakeliga welcomes the President’s commitment to improve the ease of doing business in South Africa. Currently, much of our economic malaise is due to overly constrictive and bureaucratic regulatory systems. Without addressing these issues, it is likely that President Ramaphosa’s efforts will bear few fruits. 

The President has made a firm commitment to be in the top 50 economies, as measured by the World Bank’s annual Doing Business Report within the next 3 years. This represents a clear and measurable outcome to his presidency and, accordingly, is a laudable undertaking. Given how critical new business will be in forging South Africa’s future, however, we should carefully monitor Government’s progress in this respect – and not hesitate to hold it accountable. 

Visa-requirements 

Sakeliga is pleased with the steps taken to restore the damage of previous policy blunders in the issuance of Visas.  Our hope is that the eVisa regime would indeed be followed up with stipulations that make it less cumbersome to legally visit and work in South Africa.  

International trade 

Sakeliga welcomes President Ramaphosa’s commitment to participation in international markets.  International trade should be carried out freely – and if the President is serious, South Africa’s tariff structures should be revaluated. How this is to be achieved is uncertain considering the mentioned commitment to “reducing the consumption of imports”.  In addition, care should be taken to protect South Africa’s membership of trade deals, such as AGOA – and to protect international trust in the security of South African investment. 

State land 

Sakeliga welcomes the President’s commitment to reintroduce under- or unutilised state land back into the free market – as this should have been done before land expropriation without compensation could even have been considered. It remains to be seen, however, if the Government will carry out this promise, especially considering that this could – and should – have been done much earlier. 

The Bad 

State-owned enterprises 

Despite claims of measures implemented to improve governance and stability in state owned enterprises, the recent performance of entities, such as SAA and ESKOM speak for themselves. At present, state guarantees for these entities have ballooned to more than R440bn.

It would seem that President Ramaphosa seriously underestimates the challenges faced by South African state-owned enterprises. Even though the President has made much of the fact that new boards have been appointed to these institutions, it is clear that much more will be required. 

The Competition Bill 

The Competition Amendment Bill seeks, in many respects, to introduce draconian and invasive regulation in service of Government’s interference into the private sector. Sakeliga has, at previous occasions, expressed its concerns in respect of this bill. See Sakeliga’s full comments on this Bill here. 

EWC 

Despite Ramaphosa’s promises and assurances of policy certainty, his continued insistence on expropriation without compensation showers doubt on these claims. Ultimately, much of what Ramaphosa depends on to keep his promises, such as economic growth and international investment depend, in turn, on a respect for property rights. 

The Questionable 

Jobs 

Despite claims that the jobs summit was imminently successful, the evidence is still out. It is, however, unlikely that the requisite number of jobs will be created anytime soon, as key impediments to the creation of new jobs still exist. The President’s proposals, at other occasions, to intensify B-BBEE and continually raise the minimum wage, furthermore, suggests that these counterproductive policies are likely to further exacerbate the unemployment crisis. 

Attempts to facilitate “inclusive growth” and job creation will amount to nothing if Government’s fundamental distrust of the private sector does not abate. 

Mining 

President Ramaphosa’s claims that the government has improved policy certainty in respect of mining is questionable. Not only was much of the uncertainty due to the conduct of his immediate predecessor – and, indeed, that of many of those who still hold public office – but the newest iteration of the mining charter itself exemplifies ever encroaching anti-market state interference in the economy.  

Investment 

Ultimately the investment committed during the investment conference is contingent upon South Africa’s internal improvement and stability. There simply is no way to talk yourself into wealth – and no way to cheat yourself rich. If South Africa wants to recruit investment into the country in a natural, organic and sustainable way, it needs to walk the walk, as well as talk the talk. If businesses feel welcome and safe in South Africa, they are likely to invest in the country and local businesses. If, however, they do not, we have no way to force or beguile them into doing so. 

Issued by Gerhard van Onselen, Senior Analyst, Sakeliga, 7 February 2019