Last week Friday, President Cyril Ramaphosa gave his first SONA speech. Twitter and Facebook were bursting with delight – but perhaps because I’d read the speech before I watched the video clips, it felt like I was in the twilight zone. Is “true leadership” defined mostly by the quality of one’s speech delivery, and a quote from a Hugh Masekela song that ends in an artful hashtag?
This feels the same as the public infatuation with Pravin Gordhan. If you take anti-Zuma sentiment out of the mix, his tenures as Finance Minister were fairly mediocre – at best.
So let’s talk about that State of the Nation speech.
SONA: The Main Points
Tributes and Calls For Togetherness
There were many tributes and calls for togetherness. The feel good factor was on point.
The current state of the nation is dire
“We remain a highly unequal society, in which poverty and prosperity are still defined by race and gender.
We have been given the responsibility to build a new nation, to confront the injustices of the past and the inequalities of the present.
We are called upon to do so under difficult conditions.
The state we are in as a nation is that while poverty declined significantly following the democratic breakthrough of 1994, we have seen reverses in recent years.
Poverty levels rose in 2015, unemployment has gone up and inequality has persisted.
For several years our economy has not grown at the pace needed to create enough jobs or lift our people out of poverty.
Public finances have been constrained, limiting the ability of government to expand its investment in economic and social development.”
The economic outlook…
…is somewhat better than it was before. Mainly because of external factors (like the recovery of the commodity markets, and improved foreign investor sentiment now that the political crisis of Zuma’s transition has been resolved).
There’s going to be a summit to discuss it.
Youth Unemployment, specifically
There’s going to be a new government-led initiative for paid internships.
There’s going to be a summit to discuss it.
Radical Economic Transformation
It must be part of investment.
The Mining Charter
There are going to be more efforts to resolve the conflict between Government and the Chamber of Mines.
The government promises to set up a small business investment fund, and to reduce red tape.
Expropriation without compensation is going ahead.
Tourism, Telecoms and Technology
These industries exist and should be bigger.
The Tripartite Free Trade Area Agreement
South Africa is part of it.
A National Minimum Wage
This has already happened.
More must be done to help.
Free Higher Education
It’s going to happen – and it’s already happening.
National Health Insurance
Universal health coverage is going ahead full steam.
Size and Structure of Government
This is to be reviewed.
Government is going to be better about fixing these. Some of them are functionally unsustainable:
“We will need to confront the reality that the challenges at some of our SOEs are structural – that they do not have a sufficient revenue stream to fund their operational costs. These SOEs cannot borrow their way out of their financial difficulties, and we will therefore undertake a process of consultation with all stakeholders to review the funding model of SOEs and other measures.”
Less of this, everywhere.
Now some of that is nice. I liked the tributes and the hashtag. And the commitment to reducing corruption and fixing things.
When someone admits that “public finances have been constrained, limiting the ability of government to expand its investment in economic and social development”, you don’t follow that by announcing the implementation of two massive social welfare programmes:
- a National Health Service; and
- free higher tertiary education.
And you especially don’t say that while simultaneously admitting that the State-Owned Enterprises are structurally loss-making (ie. “they do not have sufficient revenue streat to fund their operational costs”).
Because how is this all going to be paid for?
I am all for stamping out corruption and fixing procurement strategies and SOE board appointments and all those other things. And that should hopefully save some money.
But spending in anticipation of those kinds of savings seems a lot like spending in anticipation of winning the lottery. Because one does not simply “overhaul a government”. Especially when one is, oneself, a branch of government, trying to force another branch of government to overhaul itself.
And more importantly, will that “saved money” be enough to cover even some of that new investment in economic and social development?
It may have been politically expedient, but this SONA felt fiscally rash.
So, yes, it’s great that the tide has turned against State Capture and its agents.
But this “New Dawn” is still attempting to fund a developed world welfare state off a developing world tax base. Which is great on the social and moral fronts – but I just don’t know how one accomplishes it in practice.
I guess we’ll find out when the Budget Speech happens on Wednesday.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.
Raul February 22, 2018 at 10:38
I love your blog but I vehemently disagree here. Free higher tertiary education is absolutely essential (and top priority) for this country. Cap of 350K household income will try to ensure that only poor families benefit from it; not that there will not be scams where families will try to hide their income by devious ways.
I migrated many years ago and it is absolutely loathsome that same type of cabal still dominates private sector and at times I have seen capable people not given their dues just because they didn’t have the correct ancestry. It is high time that government takes such drastic measures.Reply
RA February 22, 2018 at 11:16
Hi Raul. Don’t get me wrong – I think that free higher tertiary education is a great thing. And I think that the household income cap makes a lot of sense.
But I’m sure you’d agree that you can’t always have everything on your wish list, all at once? I’m in favour of universal basic income, and free access to good healthcare, and education as a human right – but realistically, there are trade-offs. Not every good program gets to be ‘affordable’ just because of its moral justification. South Africa is a developing economy with a very small tax base. And there is declining tax morality as a result of high taxes and a high rate of corruption and wastage when it comes to these government programs (or, at least, that’s the way it is perceived).
I guess the point is: I’m not questioning the policy – I’m questioning the timing, and the affordability.Reply
Gene February 22, 2018 at 20:49
Free higher education has nothing to do with South Africa’s needs and everything to do with political expediency in the era of an emerging black middle class. It will be funded by people whose children didn’t make it to Matric, and it will benefit people whose parents could have afforded it. And that’s the rule, not the exception, in any democracy: the middle class benefits at the expense of the poor, and the very rich.Reply