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5 things to watch for in the SONA

Jun 19 2019 20:04
Mike Cohen
South African President Cyril Ramaphosa looks on a

South African President Cyril Ramaphosa looks on as he delivers his annual State of the Nation address, in the South African Parliament, on February 7, 2019, in Cape Town. (RODGER BOSCH/AFP/Getty Images)

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President Cyril Ramaphosa on Thursday delivers his first State of the Nation speech since the ANC extended its quarter-century rule after last month’s election. His address to Parliament in Cape Town is scheduled to begin at 19:00

Here are five key things to watch out for:

1. A rescue plan for the state power utility

Ramaphosa’s office has said he’ll announce new measures to ease the crisis. Eskom, which supplies most of South Africa’s electricity, has wracked up close to R500bn in debt and is at risk of insolvency.

The utility got a three-year, R69bn bailout in the February budget, but that won’t nearly be enough to stabilise its finances. The National Treasury would probably breach its expenditure ceiling and deficit targets if it’s forced to come up with additional money, and that could cost the country its last remaining investment-grade credit rating.

Ramaphosa could elaborate on plans announced in his last keynote address in February to split Eskom into generation, distribution and transmission units under a state holding company - a measure that’s been opposed by labor unions that fear it will lead to privatization and job losses.

2. Support for the national airline

South African Airways also has its back to the wall - it last made a profit eight years ago and needs to come up with R12.7bn to pay off debt that matures this year and another R4bn to keep flying into 2020. The carrier will be looking to Ramaphosa for reassurances that the government will provide it with the backing it needs to raise new loans.

3. A strategy to revive economic growth

South Africa’s economy contracted an annualized 3.2% in the first quarter, dealing a blow to Ramaphosa’s efforts to halve a 28% unemployment rate. The president may reveal what’s being done to reduce red tape and other hindrances to growth and investment as the government targets a top-50 position in the World Bank’s ease-of-doing-business rankings within three years. It currently ranks 82nd out of 190 nations

4. A way forward on land restitution

The ruling party’s decision in December 2017 to change the Constitution to make it easier for the government to take land without paying for it has rattled investors and farmers.

Since then, lawmakers and a government advisory panel have been wrestling with how to implement the decision in a manner that addresses racially skewed ownership patterns without derailing the economy. Ramaphosa may release the panel’s findings and give some idea as to how the process of land restitution will unfold.

5. Certainty on the role of the central bank

Ace Magashule, the secretary-general of the ruling party, caused shock waves in financial markets this month when he announced that the central bank’s mandate should be changed to ensure it does more to foster economic growth and create jobs.

Ramaphosa repudiated those comments and put the ruling party’s plans to nationalise the central bank on hold, saying they weren’t feasible at this stage. The president could provide further reassurances that the bank’s independence is sacrosanct and it will remain focused on fighting inflation.

sona  |  economy  |  state of the nation address
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