Fitch says SONA was not enough for investors concerns
JOHANNESBURG - Ratings agency Fitch cautiously welcomed President Cyril Ramaphosa’s State of the Nation Address (SONA) on Friday but warned that it did not go enough to address investor concerns.
Fitch said the speech touched on a broad range of domestic concerns and went on to address electricity supply concerns, it was short on detail.
“The difficulty of addressing competing priorities of reducing inequality, raising growth, improving public finances and containing populism and in-fighting within the African National Congress will continue to limit the government’s ability to take more decisive steps to accelerate growth,” Fitch said.
Ramaphosa announced sweeping changes to the nation’s electricity industry to address energy shortages and the commitment to cut spending.
He said the government was planning to generate additional electricity capacity outside Eskom, accelerate the rollout of high-speed spectrum, and provide additional support for budding entrepreneurs.
Economists said the impact of the SONA would depend on the successful implementation.
“President Cyril Ramaphosa’s plan to accelerate SA’s growth trajectory remains heavily reliant on the ability of the top leadership to execute on the economic plans put forward,” said Sanisha Packirisamy, an economist at Momentum Investments.
Investec’s Kamilla Kaplan said while the speech acknowledged the prevailing critical issues facing the economy and heightened fiscal imbalances it did not do enough to allay investor concerns.
“Although the SONA did not contain new decisive growth-enhancing policy initiatives, the tone suggested an impetus to get structural reforms underway,” Kaplan said.
“Nevertheless, policy uncertainty has not been alleviated in total and so will likely continue to undermine confidence. Specifically, the regulatory nature of expropriation without compensation has not been detailed.”
Organised business said that while the government’s proposals to create a state bank and create a sovereign wealth fund was ideal, it was ill timed given the country’s current economic problems.
Business Unity South Africa (Busa) - the largest federation of business organisations - described Ramaphosa’s announcement as “inexplicable”.
Busa said the state bank and sovereign wealth fund should be canned until the budget deficit was addressed.
“We are also concerned about references to a sovereign wealth fund, which is fine in principle, but we can’t talk about this until we address growth and the budget deficit,” Busa said.
“The decision to establish a state bank, at a time many SOE’s are in severe trouble, is inexplicable.”
“We must also question what a state bank can do that the private banking sector can’t, if the government plays an appropriate enabling role.”
Old Mutual chief Investment Group's economist, Johann Els questioned the metrics of how the wealth fund was going to be funded.
Els said that the idea of a sovereign wealth fund was good for countries with natural resources endowment like Norway and Saudi Arabia, not South Africa.
"We must first sort out our public finances and stabilize the debt ratio. We've got a budget deficit running at around 6 percent of the GDP and a debt ratio that was 26 percent in early 2000, now it's more than 60 percent and by Treasury's own forecast it is going towards 80 percent in a few years," Els said.