Chaos rules as Zuma delivers another State of the Nation Address low on substance

Last night South Africa’s young democracy was the big loser as violence and populist theatre in all its ugliest forms took centre stage in our Parliament where President Jacob Zuma delivered his State of the Nation Address (SONA).

When he finally did so, an hour and a half late due to the mayhem, he rendered a populist vision of the “radical transformation” of the economy. The speech contained the usual brag list of so-called government achievements, as well as the usual grand promises of more to come, as he played to the masses, attempting to recapture lost appeal for himself and his troubled party. However, experience has taught that implementation is usually slow in following.

Not only was much of the rather underwhelming speech simply a rehash of previous SONA’s, but it also borrowed heavily from the radical, populist agenda of the Economic Freedom Fighters (EFF), the party that almost prevented him from speaking last night.

Filled with sweeping statements, the speech was again low on detail and specifics: it will now once again be up to Finance Minister Pravin Gordhan to flesh it out the week after next when he presents his Budget to Parliament. This will be no easy task for Minister Gordhan, given the sweeping promises made by Mr Zuma against the background of a troubled economy that remains in a tight corner. Fortunately, Mr Zuma’s lack of specifics leaves Mr Gordhan with room to manoeuvre.

Just how achievable the economic growth of 1.3% in 2017 anticipated by Mr Zuma last night will be, Mr Gordhan will be better able to elaborate on. It is almost treble the estimated 0.5% growth of 2016.

But it is the scenes of a veritable war zone in Parliament – violence, obscenities, disruptions, teargas in the public gallery, and armed soldiers and police – rather than the uninspiring address that is making headlines today and will leave the most lasting impression. In addition there were sporadic outbreaks of mayhem on the streets of Cape Town.

One can only wonder what many of the more than 6,000 investment specialists, investors, mining executives, government ministers and financial journalists from some 71 countries still in the city last night as the annual Mining Indaba was wrapping up, made of this.

But it is essentially the honest, hardworking South Africans with hard-earned assets and wealth to protect, that had to be very concerned: the rand immediately started reacting during this drama. Those who are invested offshore will no doubt be less troubled by this spectacle, which is why we always advise our clients to diversify their portfolios and move at least a part of their assets offshore. Given the events of last night, this remains good advice.

Much of what Mr Zuma announced as he outlined what he called “a new chapter in radical economic transformation”, were policies and programmes that had previously been announced or are already in process. He simply dressed them up in a more populist coat.

Touching on issues such as the “exclusion of the majority” from the economy, land redistribution, mining, ownership patterns in the economy, and job creation, he promised more central intervention from government. Government, he said, will “utilise to the maximum the strategic levers that are available to the state including regulations, legislation, the budget, procurement and black economic empowerment charters to influence the private sector and drive transformation”.

One can be forgiven for detecting traces of Hugo Chavez-style intervention, but the proof will be in the implementation pudding, which usually falls short.

Rehashing the government’s Nine Point Plan, first announced in his previous SONAs, he singled out as focus areas industrialisation, mining and beneficiation, agriculture and agro-processing, energy, SMMEs, managing workplace conflict (labour), attracting investments, growing the oceans economy and tourism. Again, none of this is new.

President Zuma lamented the exclusion of the majority of blacks from the economy, racial income disparities, the slow pace of workplace transformation through affirmative action, and the “skewered nature of ownership and leadership patterns” in an economy that continues to be dominated by white males.  This needed to change through “radical economic transformation”, he said.

While these are very real and problematic issues, the way in which they are addressed or “transformed” without causing more harm to the economy, will be key.

Mr Zuma said that the business community accepted these transformation imperatives, but on what authority exactly he based this is unclear, given, for example, the long-running battle between the mining sector and government over the yet to be finalised Mining Charter, which continues to create great uncertainty in the sector. There are other tensions too in other sectors.

All of these undertakings, Mr Zuma said, will be guided by the National Development Plan, a document we all know has been gathering dust for many years.

Finally, in the weeks before Mr Zuma delivered his SONA, there was much discussion in the governing ANC about targeting the financial sector for “radical transformation”, an area that would naturally have been of great concern to us. But in the end Mr Zuma did not utter a single word in this regard.

It’s hard to tell whether we should feel relieved or concerned.

It will probably be prudent to put a night of unprecedented mayhem and a flat, empty speech behind us and rather wait for Finance Minister Gordhan to present us with the real state of the nation the week after next. Till then, hold on tight!

So in conclusion, the only recommendation that I could give that would be of value, is to ensure your finances are intact and can handle the volatility that will be a result of last night’s terrible episode.

 

Craig Featherby

Chief Executive Officer