The golden theme of Zuma's SONA

Cape Town -  President Jacob Zuma will be keen to highlight how the ANC under his leadership pursued "radical economic transformation" in what could be his last State of the Nation Address (SONA). This is according to a review by Mercantile Bank’s consulting economist Trudi Makhaya.

There is widespread speculation that Zuma may step down before the next national elections in 2019.

She said the key organising principle of Zuma's SONA over the past two years has been the nine-point plan to revitalise the economy. The priorities were:

1. Resolving the energy challenge;
2. Upping the agricultural value chain;
3. Beneficiation through adding value to mineral resources;
4. More effective implementation of higher impact industrial policy action plan;
5. Encouraging private sector investment;
6. Moderating work place conflict;
7. Unlocking the potential of SMMEs, cooperatives, townships and rural enterprises;
8. Reform of state-owned companies, broadband roll-out, water sanitation and transport infrastructure; and
9. Operation Phakisa which aims to grow the ocean economy - such as the shipping and storage of energy products.

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"Once again, the economy will be at the centre of the president’s speech this year. The speech will highlight some successes scored under the plan and make commitments to intensify implementation on the rest, given the uneven progress recorded to date," said Makhaya.

The state of agriculture

She said agriculture will receive significant attention in the speech especially considering the drought and challenges in the poultry industry.

"The president will present progress on the ‘agriparks’ initiative to support small-scale farmers."

The government’s definition of an Agri-park is a farmer-controlled entity that serves as a catalyst around which rural industrialisation is planned to take place. The aim is for the park to provide a network of contacts between producers, markets and processors, as well as infrastructure to process agricultural products.

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Makhaya said the Budget Speech, slated for February 22, will likely reveal measures to support recovery in the agricultural sector as a whole, and to support emerging farmers.

Trade agreements

She said the ANC also recently made statements that suggest that it is uneasy with some of its trade agreements.

"This is in the wake of the impact of imports on the poultry sector and the aftermath of difficult negotiations on the African Growth and Opportunity Act (AGOA) with America, which were resolved early last year. Provoked by these developments in agriculture, which have echoes across other sectors of the economy, the president may announce measures to review or assess some international trade agreements."

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Makhaya said the beneficiation of raw materials is a perennial theme in economic policy making.

"The business case for manufacturing based on the country’s natural resource endowment has been a difficult one to make, especially in light of labour costs, labour relations, energy supply and skills levels.

"Some of these constraints are easing, but entrepreneurial activity in the beneficiation space remains muted. Mining companies do not have the appetite and resources to move downstream, whereas new entrants have been few, and in some downstream industries such as jewellery manufacturing, have struggled to compete with more established international competitors."

She also said although the SONA will address beneficiation, it’s not clear what further concrete budgetary measures can be brought to bear on this long-standing issue.

Barriers to entry into the economy

"Lowering barriers to entry into the economy will be a key theme of the upcoming SONA and Budget. Though it may seem that a lot of policies and plans have already been developed in this area, government remains concerned about the prospects of entrants into the economy, be they high potential start-ups or small businesses in mature industries."

Makhaya said the high levels of concentration in the economy have been identified as a challenge, and policymakers have been dropping hints about further restructuring and transformation of the economy.

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"Generating economic activity in the ‘township economy’ remains another important theme, and tools such as government procurement may be used even more intensively to develop businesses in the townships as well as marginal rural areas."

Proposals about how more government spending and incentive support can be directed in this area are likely to feature in the SONA and the Budget, Makhaya reckoned.

Small business development

She said there is little prospect of government adding significantly to the allocation of small business development for the medium-term expenditure period (R1.46bn for the 2017/8 fiscal year). But government may progressively match the R1.5bn pledged by the private sector to stimulate start-up activity.

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"Government is rethinking incentive programmes to businesses and start-ups. The tools that have been used to stimulate economic activity, including direct transfers, tax, tariff rebates and concessional financing, will be assessed for impact and cost effectiveness, given the pressures on the national purse."

Infrastructure development

"Infrastructure development has featured prominently in the government’s plans and will continue to do so. However, leaders in the ruling party have bemoaned the slow pace of transformation in the construction sector."

Makhaya said this year’s policy proposals may include measures to deepen the participation of black and/or small businesses in delivering and maintaining infrastructure. The ANC lekgotla highlighted the need for small business and local communities to participate in education infrastructure but this would apply to infrastructure in general.

The minimum wage debate

Deputy President Cyril Ramaphosa announced that the country will implement its first national minimum wage from next year.

"Government will argue that the minimum wage is an element of inclusive growth by reducing inequality and stimulating consumption by lower income households," Makhaya said.

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She added that the impact of the minimum wage on small business development is cause for concern.

"It is estimated that 6.2 million workers earn below the proposed minimum wage, though this include part-time workers and workers in the informal sector. Entrepreneurs employing low-wage workers will need to factor in a higher wage bill."

Tax reforms

Makhaya said to maintain the deficit commitments in the medium-term expenditure framework (-3.1% in the 2017/18 fiscal year), further tax reform may be required.

"The next likely candidates for tax reform include the introduction of taxes aimed at assets and wealth. Expect limited, if any tax relief, for entrepreneurs in the face of limited fiscal space."