President Cyril Ramaphosa is expected to update the public and investors about the government’s plans to restructure troubled state-owned enterprises during his State of the Nation address (SONA) tonight.
Ramaphosa will provide details on structural reforms aimed at containing the government’s spiralling debt and growing the economy. Economists said Ramaphosa’s SONA would be delivered in a very difficult environment this year, as economic growth risks coming out close to 0percent in 2020.
Investec chief economist Annabel Bishop said this year’s SONA could prove market neutral to negative if none of the key issues for the markets were decisively addressed. Bishop said statements in the SONA that South Africa would proceed with the renewable energy build programme.
She said the substantial economic reforms detailed in the National Treasury’s 2019 growth plan have not been implemented.
“With government debt projections high and climbing in South Africa as a percentage of gross domestic product (GDP), particular market focus will centre on Eskom,” Bishop said. “Cosatu’s recent proposition to use civil servants’ pension funds to purchase a major stake in Eskom’s debt could alleviate some of the pressures on the sovereign debt trajectory, and so also South Africa’s credit-ratings profile.”
Last year, Ramaphosa announced the separation of Eskom into three units as it continues to hamper economic growth due to its inability to provide energy supply security.
Eskom’s chief executive, Andre de Ruyter, has assured the markets that the power utility was forging ahead with its separation plans and was not planning on further bailouts.
Ramaphosa also committed his administration to focus on seven priorities, including economic transformation and job creation, education, skills and health.
Unemployment is at an 11-year high after rising to 29.1percent at the end last year as big companies went on a massive retrenchment drive.
Of the approximately 1.2million young people entering the labour market each year, almost two-thirds remain outside of employment, education or training.
Addressing the Youth Dialogue yesterday, Ramaphosa said the high youth employment rate was unacceptable.
Ramaphosa announced the implementation of the Presidential Youth Employment Intervention, which sets out five priority actions for the next five years.
“Its aim is to increase levels of alignment and focus across government and begin to tackle youth unemployment at scale,” Ramaphosa said.
“In my address (this) evening, I will announce some of the immediate steps that we are taking to make this a reality.”
The low-growth path of the economy was expected to continue this year, with business and consumer sentiment at their lowest in 20 years.
Jeff Schultz, a senior economist at global bank BNP Paribas South Africa, said economic growth could suffer even further if Eskom continues its power cuts.
BNP has lowered its 2020 economic growth projections from 1.4 percent to 1.2 percent.
“Assuming that the first half of 2020 could see a minimum of 15 to 20 days of Stage 2 load shedding, we estimate this could shave a further 0.3 to 0.4percentage points off growth, which is why we have lowered our already sub-consensus GDP growth forecast to just 0.5percent from 0.8percent,” he said.
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