#SONA2016 / Johannesburg - South African President Jacob Zuma said his administration will slash costs and work closely with business to restore investor confidence in the economy and prevent the nation’s credit rating being downgraded to junk.
Zuma’s annual State of the Nation Address (SONA) was disrupted for almost an hour as opposition lawmakers heckled him and repeatedly argued with the parliamentary speaker.
“We all have a lot to do to turn the economy around and cut wastage,” Zuma told Parliament in Cape Town. “We have made an undertaking to spend public funds wisely and to cut wasteful expenditure, but without compromising on the core business of government and the provision of services.”
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South Africa’s economy has been hammered by the commodities price slump, a growth slowdown in China and the worst drought in more than a century. Zuma added to the gloom in December, when he replaced the respected Nhlanhla Nene as finance minister with a little-known lawmaker, sparking a sell-off in the rand and the nation’s bonds. The president backtracked four days later and appointed Pravin Gordhan to the post, which he had held from 2009 to 2014.
Economic malaise
“There was no rabbit-out-of-a-hat moment,” Peter Attard Montalto, an economist at Nomura in London, said in an email. “The key for us was the total lack of any new way of thinking in wider government policy to boost growth. There was only limited recognition of the current economic malaise, whilst an overplaying of success of past policy targets.”
The World Bank has cut the nation’s growth forecast for this year to 0.8 percent and warned this month that the economy was “flirting with stagnation, if not recession”. Two days later, Moody’s Investors Service said state debt could climb to more than 50 percent of gross domestic product for the first time in more than a decade, as tax revenue slows.
“More of the same, nothing new, nothing substantive going forward,” Mmusi Maimane, leader of the main opposition party, the Democratic Alliance, said in an interview after the speech. “I think the president missed an opportunity.”
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Moody’s cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December. Standard & Poor’s, which puts the nation’s debt one level below Moody’s, also changed its outlook to negative, indicating a possible downgrade to junk.
“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 situation requires an effective turnaround plan from us.”
The rand weakened to 15.8689 per dollar at 10.20pm on Thursday in Johannesburg, compared with 15.8163 before Zuma started speaking.
Ratings downgrade
Zuma and Gordhan have sought to bring in business leaders to find ways to boost investor sentiment. They met with company executives on Tuesday to gauge their ideas on what needs to be done to spur growth and avoid a ratings downgrade.
“Gordhan who will have to flesh out the very bare bones of some kind of economic rescue package hinted at by Zuma,” Daniel Silke, director of Cape Town-based Political Futures Consultancy, said by phone. “This was less of a State of the Nation Address than a prelude to the coming budget speech” on February 24, he said.
Overseas travel will be curtailed, while catering and entertainment budgets will be cut, Zuma said.
“It is about doing things differently,” he said. “We must continue to market the country as a preferred destination for investment. This requires a common narrative from all of us as business, labour and government. We can turn the situation around and put the economy back on a growth path.”
Impeachment calls
The speech came as Zuma is facing one of the darkest moments of his presidency, with opposition parties calling for impeachment and the country’s highest court weighing an application to declare his previous refusal to pay back state money spent on his home as a violation of the constitution.
The opposition Economic Freedom Fighters and the Congress of the People both staged a walkout from Zuma’s address. “Zupta must fall,” the EFF members chanted as they left the chamber, a reference to Zuma’s friendship with the Gupta family, which has built a business empire spanning computer equipment, media and mining.
“What we have to tell investors is that the first thing to get the economy right is to remove this man,” EFF leader Julius Malema said in an interview.
New leadership
On Thursday, competition regulators disclosed that a company in which Zuma’s son, Duduzane, has a stake is part of the group, along with the Guptas, that’s buying Glencore’s Optimum Coal mine. The transaction had previously attracted criticism from opposition parties because Mines Minister Mosebenzi Zwane said he travelled to Switzerland to meet Glencore officials. Zwane said his goal was to save jobs.
“There’s nothing Zuma can do to restore confidence in South Africa’s economy for the simple reason that he himself has been partly responsible for the recent deterioration in sentiment and creditworthiness,” said Nicholas Spiro, a partner at London-based Lauressa Advisory, which advises asset managers. “South Africa has been crying out for new leadership for some time now.”
* With assistance from Mike Cohen
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