President Cyril Ramaphosa used his State of the Nation address on Thursday to defend the success of the ambitious investment drive he initiated in 2018, while also announcing plans to tackle SA’s record-high youth unemployment and rapidly increase electricity generation capacity outside of Eskom.
Here are some of the key economic takeaways from his address.
1. Emergency power procurement
Load shedding was the “inevitable consequence” of struggling power utility Eskom’s inability over many years to service its power plants, said Ramaphosa, which he attributed to a combination of rising debt, lack of capacity and state capture.
The power utility, under its new CEO Andre de Ruyter, has warned of an increased likelihood of power cuts over the next 18 months as it takes generating units offline to conduct maintenance.
To help reduce the power gap, Ramaphosa announcedthat the state would be taking measures to “rapidly and significantly” increase generation capacity outside of Eskom, including by making it easier for independent producers get certification to build and run plants above 1MW.
The state would also start the procurement of emergency power from projects that can “deliver electricity into the grid within three to 12 months from approval”.
2. Municipalities will be allowed to buy power from independent producers
Municipalities “in good financial standing” would be allowed to procure their own power from independent power producers.
This has been a long-running demand from some municipalities, such as Cape Town, who say they will be able to reduce or eliminate load shedding if they are able to buy electricity from independent producers.
Ramaphosa said the state wold “put in place measures” to make this happen, but did not provide specifics.
3. SA will have a state bank & a sovereign wealth fund
Finance Minister Tito Mboweni will be give details around the establishment of both a sovereign wealth fund and a state bank when he delivers his Budget speech later in the month, Ramaphosa said. The president said the sovereign wealth fund was a “means to preserve and grow the national endowment of our nation” while the state bank would help “extend access to financial services to all South Africans”.
4. A new plan to fight youth unemployment
The president announced a new six-pronged plan to fight youth unemployment, which he described as a “crisis”. The plan includes targeted skill building, the expansion of the existing Youth Employment Service, and reallocation of 1% of the national budget to a youth employment initiative.
SA’s youth faces one of the highest unemployment rates in the world, with almost 6 out of every 10 South African between the ages of 15 and 24 without jobs.
5. SAA must be independently sustainable
A week ago the president said that the state did not agree with plans to slash the number of routes flown by embattled flag-carrier, which was placed under business rescue in early December 2019 following years of losses and government bailouts.
On Thursday his only reference to the practitioners was to say that they were “expected to unveil their plans for restructuring the airline in the next few weeks”.
He added it is essential that a future restructured airline is “commercially and operationally sustainable” without the need for government bailouts.
6. Commercialisation of hemp
The state will begin to regulate the commercial use of hemp products, which Ramaphosa said would provide income for small-scale farmers. Government would also formulate a policy on the use of cannabis products for medicinal purposes to “build this industry in line with global trends”. This comes about in the wake of similar moves in neighbouring Zimbabwe.
7. Spectrum licensing before end of 2020
The president said that the Independent Communications Authority of South Africa would conclude the licensing of high demand spectrum for SA industry via auction before the end of 2020. A lack of available spectrum has been a long-running complaint by SA telecoms groups, who say that it is needed to reduce data prices.
8. More Investment Conferences
After holding high-profile investment conferences in 2018 and 2019 in a bid to attract R1.2 trillion in new investment over five years, Ramaphosa said the country would hold a third conference in November to “review the implementation of previous commitments and to generate new investment into our economy”.
The president said that, in the first two years of the investment drive, a total of R664 billion in investment commitments had been raised.
9. Debt heading towards ‘unsustainable‘ levels
“Low levels of growth mean that we are not generating enough revenue to meet our expenses. Our debt is heading towards unsustainable levels, and spending is misdirected towards consumption and debt-servicing rather than infrastructure and productive activity,” said Ramaphosa.
The president said that the Minister of Finance would “outline a series of measures to reduce spending and improve its composition” when he delivers his Budget address later in the month.
SA is facing a heightened risk of a sovereign credit rating downgrade to junk by Moody’s Investors Service, which changed its outlook from stable to negative late in 2019. Moody’s is the sole major rating agency to not already have downgraded SA’s sovereign debt to sub-investment grade, and has warned about the country’s public debt burden.