President Jacob Zuma unveiled the skeleton of what he described as an economic “turnaround plan” in a State of the Nation Address dominated by the current plight of the South African economy, which was unlikely to grow by more than 1% in 2016 and would not nearly approach the 5%-plus levels outlined in the National Development Plan.
The address – initially interrupted by opposition Members of Parliament, which eventually resulted in members from the Congress of the People and the Economic Freedom Fighters leaving the National Assembly chamber – laid particular emphasis on the need to reignite growth and cut waste.
Growth was held up to be at the heart of the country's “radical economic transformation”, with the President arguing that faster growth was vital to creating jobs, ensuring business profitability and creating the basis for the tax revenues needed to increase the “social wage” of education, health and security.
The absence of growth was placing downward pressure on tax revenues, while threatening South Africa’s investment grade credit rating. "Importantly, our country seems to be at risk of losing its investment grade status from ratings agencies. If that happens, it will become more expensive for us to borrow money from abroad to finance our programmes of building a better life for all - especially the poor."
Zuma said the turnaround plan, and avoiding a downgrade by the rating agencies, required government and its social partners in business and labour to forge a “common narrative” that was supportive of improving the investment climate and positioning South Africa as a “preferred investment destination".
"If there are any disagreements or problems between us, we should solve them before they escalate. This is necessary for the common good of our country."
Zuma announced the creation of an Inter-Ministerial Committee on investment promotion, which would seek to set up a "one-stop shop" to facilitate direct investment into the country. In addition, he said a draft migration policy would be placed before Cabinet this year, with a view to easing the regulations for the entry of skilled foreign workers into the country.
The response plan required "doing things differently", acting more decisively in cutting red tape and bringing policy certainty, with Zuma specifically urging Parliament to finalise its deliberations on the Mineral and Petroleum Resources Development Act, which he sent back to lawmakers on Constitutionality concerns.
It would also require the mandates and governance at State-owned companies to be tightened and for those agencies not playing a developmental role to be "phased out".
No mention was made, however, of possible privatisation, a point picked up upon by the leader of the Democratic Alliance Mmusi Maimane, who said the President should have prioritised the sale of State companies and assets to help fund programmes, such as infrastructure, that could help stimulate growth.
TWO CAPITALS UNAFFORDABLE?
Belt tightening within government was raised in the address, with Zuma even calling on Parliament to urgently review the financial sustainability of having separate administrative and legislative capitals, in Pretoria and Cape Town, while announcing that government would be cutting back on overseas travel, conferences, entertainment and catering.
Even on the contentious area of South Africa’s plan to build 9 600 MW of new nuclear capacity, which many feel to be unaffordable, Zuma injected a new tone of prudency, saying any procurement would only proceed at a scale and pace that the country could afford.
He did not turn his back on nuclear altogether, however, announcing that the market would be tested to “ascertain the true costs” of the programme.
The importance of renewable energy, coal and gas in the future electricity mix was also emphasised, with the announcement that independent power producer procurement programmes would either continue or be initiated during the year.
Grant Thornton director: infrastructure advisory Grant Penrose applauded the emphasis placed on nuclear affordability. "His admission to this massive cost and South Africa’s current state of the economy, is laudable. We hope this process will be open and transparent going forward," Penrose said.
However, Maimane said that the cuts outlined were insufficient and that Zuma should have rather announced a trimming of his Cabinet to 15 Ministries, rather than repeating a number of plans that had already been canvassed, including a consolidation of the two capitals.