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SONA: Mixed views on impact and implementation

Cape Town - President Jacob Zuma’s proposed steps for “radical economic transformation" - referred to in his State of the Nation Address (SONA), are a continuation of a harmful policy that will not get SA out of the fix it is in, but would rather suppress the economy even further, trade union Solidarity said on Friday.  

According to Gerhard van Onselen, economics researcher at the Solidarity Research Institute, the current policy environment, supported by last night’s state of the nation address, gives rise to an economy that is currently being "held hostage" by external factors such as the demand for resources.

“Despite higher commodity prices and a stronger rand experienced of late and which could support economic growth, SONA offers little hope that the economy will fully benefit from it,” said Van Onselen.

According to Van Onselen, the heightened focus on black economic empowerment (BEE), expropriation and a land reform programme will further compromise private ownership rights, entrepreneurship and private investment - to him the very factors needed for economic development.

“Unfortunately, SONA did not nip uncertainty about harmful policy in the bud. If anything, it aggravated the uncertainty. In so doing, private investment and entrepreneurship are inhibited, which in turn, hamper development of the private sector, the real engine of the economy and the source of tax revenue,” said Van Onselen.

Energy mix

The Coega Development Corporation (CDC) welcomed SONA as it is encouraged by government's renewed commitment in ensuring energy security as well as the diversification of energy.

The Coega Industrial Development Zone (IDZ) has been identified as one of two locations for the gas-to-power programme, a 1 000 MW of power facility, with an estimated budget of R25bn.

Furthermore, the CDC welcomed government’s commitment to the overall Independent Power Producers' Programme and Zuma’s remarks on the outstanding power purchase agreements for renewable energy.

The CDC also welcomed government’s commitment on “the new regulations making it compulsory for big contractors to subcontract 30% of business to black owned enterprises”.

Economic participation

Business Unity South Africa (BUSA) said it agrees with Zuma's SONA that current participation in the economy is insufficient and requires significant realignment with imperatives in the country.

This includes the participation of society at large to ensure that we are able to achieve inclusive growth on a sustainable basis. BUSA acknowledges that effective and comprehensive transformation is a critical component to achieving inclusive growth.

Tanya Cohen, CEO of BUSA, said the core economic priority for SA should be ensuring an enabling environment for investment and inclusive economic growth.

"All role players need to work together to achieve fundamental improvements in levels of employment, productivity, income distribution and poverty reduction. The country must build on this to strengthen the economy and drive economic inclusion,” said Cohen.

BUSA appreciates the Zuma’s acknowledgment of the work done through the efforts of business and government to collaborate. In this context, BUSA’s focus will be on working with its members and alongside business and social partners to improve SA’s growth, jobs and economic inclusion, in order to achieve the necessary structural reforms.

Black economic agenda

The National African Federated Chamber of Commerce and Industry (Nafcoc) said SONA was probably "the clearest and bold articulation of the black economic agenda ever done since the advent of democracy"

It commended Zuma for what it sees as a radical and significant step to truly transform the SA economy.

Lawrence Mavundla, president of Nafcoc, said the measures and the policy levers that Zuma has outlined, particularly in support of SMMEs, will go a long way in addressing the triple challenges of poverty, unemployment and inequality.

Nafcoc was particularly pleased with government's commitment to accelerate land reform and land restitution, tougher measures aimed at dealing with cartels and collusion practices, recommitment to renewable energy programme and the one-stop Invest South Africa.

"The challenge is that as this radical economic transformation may be undermined by the current low growth conditions and fiscal consolidation which amounts to austerity," warned Landiwe Mahlangu, Nafcoc chief economist.

Lack of access to finance by blacks and general reticence by big local business to invest in the economy is also one of the binding constraints to growth.

"It is, therefore, important that this radical economic transformation programme also address the financial and banking exclusion and investment strike by big business - an issue we hope the minister of finance will address in his budget speech," said Mahlangu.

SMMEs

Sona has wisely put SMMEs at the centre of SA's economic growth strategy for the next few years. This is to be welcomed since it is only by unlocking the entrepreneurial energy of the country's business builders that SA can reach its full potential, said Anton van Heerden, managing director and executive vice president, Africa & Middle East, at Sage.

"A prosperous economy is built on top of a successful small business sector. Small business puts wealth in the hands of the entrepreneurs and their community, and it's often more labour-intensive than capital-intensive large enterprises. Encouraging more South Africans to start businesses is the best way to reduce poverty and inequality," said Van Heerden.

"President Zuma is correct to note that there are many opportunities we have to grow small businesses specifically in areas as diverse as tourism, beneficiation and agriculture. It is also heartening to hear that government expects the economy to grow 1.3% this year, up from around 0.5% in 2016. We believe that South Africa has many great opportunities for small businesses and that investing in small business is a great opportunity for government."

Novare’s economic strategist, Tumisho Grater, said on a whole, SONA 2017 was pretty much in line with expectations, and although the pandemonium that unfolded earlier in the address was not favourable, ratings agencies and investors will not just be looking at one event, but a collective view of developments regarding where the country is headed.

"The next big event on the calendar is the national budget speech, which will also form part of the bigger picture," said Grater.

Working with government

The Consumer Goods Council of South Africa (CGCSA) has noted comments by Zuma in SONA on plans to further promote economic growth, address poverty and unemployment as well as accelerate transformation.

The CGCSA said it has and will always support and work with the government to achieve these outcomes.

"Our members already participate in the tripartite partnership of government, business and labour which is addressing economic challenges facing South Africa. There is no doubt that the triple challenges of unemployment, poverty and inequality need vigorous and sustainable policies to achieve the anticipated outcomes of the National Development Plan (NDP)," the council said in a statement.
 
The CGCSA believes that to attract further investment, it is important that South Africa avoids an investment credit downgrade, and that this can be achieved if there is greater economic, policy and regulatory certainty to improve investor confidence. Economic transformation objectives, as outlined in SONA, can be achieved by implementing policies that are inclusive and encourage broader participation by all stakeholders in the growth and success of the country.

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