With Eye on Downgrade Zuma Tackles Economy

PRESIDENT Jacob Zuma last night launched a last-minute bid to save his own and SA’s credibility in a speech heavily focused on the economy, aimed at staving off a credit ratings downgrade.

 

The speech was, however, met with mixed reactions.

Mr Zuma’s state of the nation address ticked many of the boxes that business and the investor community have in the past two months emphasised needed rapid and serious attention.

However, whether what he promised was enough and whether the general sentiments will be backed up with the necessary action is likely only to be determined after the budget speech on February 24.

Sketching a bleak picture of the global economy and conceding that some domestic constraints had worsened the picture, Mr Zuma acknowledged the danger of an imminent ratings downgrade and the need for action by the government.

"Our country seems to be at risk of losing its investment status from credit ratings agencies. If that happens it will mean that it will become more expensive to borrow money from abroad to build a better life for all.

"The situation requires an effective plan from us, by doing things differently and acting on things that have not been acted on quickly enough before."

To avoid a downgrade the government, business and labour had to provide a common narrative for the good of the country, he said.

Finance Minister Pravin Gordhan, whose budget is eagerly awaited, described the speech as "bold", saying it was a good start in the process of building confidence in SA. While there were problems globally, it was also important for SA to take responsibility for its own economic situation, he said

Others were, however, sceptical of the speech.

The rand slipped 0.3% to R15.94/$ after the address, erasing all gains notched up earlier in the day.

Democratic Alliance leader Musi Maimane said the speech had failed to put forward a convincing programme to put the economy back on track and avoid a ratings downgrade.

"The president is still using the 2008 economic crisis as a scapegoat for SA’s poor economic performance and failure to create jobs.

 

He essentially conceded a downgrade to junk status, giving up the fight and showing no innovative leadership."

Kevin Lings, chief economist at Stanlib, described the speech as "a step in the right direction", which required further details in the budget to assess their credibility. Among these were promises of some privatisation of state-owned enterprises and efforts to improve the effectiveness of government spending.

But on another of the essential ingredients that rating agencies and economists have cited — a credible growth plan — Mr Lings said he was disappointed.

"The National Development Plan was mentioned but that seems in the background. What the growth strategy might be and how it will be implemented, he did not show us at all."

Lumkile Monde, senior lecturer, Wits school of economics, said although Mr Zuma was quite cautious, probably due to the political constraints of his constituency, he did not say enough about cutting spending.

"We needed to hear, for example, that he is cutting his own executive."

"His comments on state-owned companies, while important, will only be believed when there has been action. The reality is that as long as these companies contain cronies among top executives and on boards who are there to give away transactions, things will not improve for the better," Mr Monde said.

Peter Attard Montalto, a senior emerging markets economist at Nomura International, said Mr Zuma’s speech sounded "too much like business as usual".

The speech struck the "wrong note" because it contained no sense of economic panic or different ways of doing things to boost growth.

Working through a list, much of which arose in his discussions with private-sector CEOs earlier this week, Mr Zuma promised to: fast-track partnerships with the private sector; cut red tape; address the governance and performance problems in state owned companies; encourage skilled migration into SA; promote and encourage tourism in the context of a competitive exchange rate; and expedite regulatory certainty in the mining sector.

He appealed to Parliament to expeditiously deal with amendments to the Mineral and Petroleum Resources Development Act.

"We have heard your concerns about state owned companies…. For state-owned companies to successfully implement the national development plan they must be financed soundly and they must be properly governed and managed.… Companies that are no longer relevant to our development agenda will be phased out," he said.

He said the recommendations of the presidential review commission on state owned enterprises, would be implemented.

The commission recommended the disposal of non-core state companies and encouraged private investment in others, such through public share offerings.

Such measures, he said, "are essential for growth and to reduce national debt levels".

Mr Zuma said the nuclear energy expansion programme remained part of the future energy mix.

"Our plan is to introduce 9,600 megawatts of nuclear energy in the next decade."

He said the government would test the market to ascertain the true cost of building modern nuclear plants.

"Let me emphasise that we will only procure nuclear on a scale and pace that our country can afford."

Promising again to cut wasteful government expenditure, Mr Zuma proposed that parliament give serious consideration to the expense of maintain two capitals.

Government would also — as promised in 2013 — make greater efforts at limiting overseas travel, conferences, catering and social events.

With Linda Ensor, Sam Mkokeli, Natasha Marrian and Bloomberg