PRESIDENT Jacob Zuma
's state of the nation address seems to be a usual combination of review of successes with a further push forwards on spending commitments and developmental state provisions.
The speech rightly takes aim at the successes on the presidential infrastructure commission, though arguably faster progress is needed on this front to move projects to ground breaking. New promises on additional projects are also very welcome.
The admission that growth does really need to be about 5% is very true, but to me it seems the speech only runs to allow us to stand still at the current, lower potential growth rates of around 3.7%.
The National Development Plan was mentioned surprisingly little so far and there seems to have been (so far) little explicit detail on what of the NDP will be implemented in any granular way.
However, there are a number of very interesting specifics in the speech.
Specifically a tax commission to assess how the state can garner the resources to boost spending seems to hint that a step change in spending is about to occur, though it seems a greater tax burden may well be pushed till the other side of the election next year.
Such an increase in spending however in our view would risk deficit financing and hence reinforce the deficit and debt risks. It is also all but confirmed that given a mining tax will be part of the study of this commission, a policy on that front should indeed be formed this year.
As part of this, the speech also highlights that the national health insurance funding wrapper will be put in place from next year, again probably after the election.
On the spending side we also have an additional R3bn for job creation, though it is not clear how this will work out given existing money on this front has generally gone on public sector job creation and low-paid manual labour which is not really productive.
Equally, whilst there is an admission that there will be a review of state workers’ salaries, this probably refers more to the expected municipal worker negotiations – however into the election to avoid strikes it may well approve larger than desired increases which can then cause contagion risk into wide public sector wage agreements (including last year’s one).
Some of the statements struck an uncertain chord however, such as that the government has “created certainty in the mining sector” (the opposite is true with additional regulatory reform, and uncertain amendment to the law in parliament and other regulatory reforms, not to mention the mining tax).
Equally there was the reference to a compact being signed at Nedlac soon on labour. Given the lack of any real agreement in this forum so far, it seems difficult to see how such an agreement can be that ground-breaking or impactful.
As expected land reform is being dealt with in detail and in particular the change in language to “fair and equitable” from “willing buyer and willing seller” is as anticipated; however, the reopening of the ability to file claims on land should be watched closely.
There was no mention of foreign land ownership issue unfortunately.
* This is a flash view of Zuma'a address. Full publication to follow.
** Peter Attard Montalto
is a director and emerging markets economist at Nomura.
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