The State of the Nation Address is an annual fixture on most countries’ political calendars, an event when the head of the state updates citizens, the legislature, and the executive about the government’s priorities for the year. It’s an opportunity to outline the regime’s progress towards its goals as well as its plans to solve the problems the nation faces in the months ahead.
President Joe Biden gave his State of the Union address in the US earlier this week, while President Cyril Ramaphosa held his speech last night. The challenges facing the two leaders are widely different. The US is trying to tame inflation in a time of record employment, while South Africa desperately needs to revive its economy and catalyse job creation.
The US isn’t without its problems—including the need to reform welfare and Medicare, gun violence, and political divisions around abortion and immigration—but it remains a prosperous country that attracts high levels of investment and entrepreneurship. South Africa, by contrast, is a troubled nation that offers a poor standard of living to the majority of its people.
Even before load shedding became the absolute crisis it is today, South Africa was recording an unemployment rate of 43% and struggling to get businesses and investors to commit capital. Now, many businesses are spending their capital on securing alternative sources of energy rather than on employment-creating growth initiatives.
Ramaphosa’s annual State of the Nation Address saw him take the drastic step of declaring a national state of disaster to address the electricity crisis. The speech had little to offer in the way of concrete new proposals to deal with load shedding, outside the announcement that the President plans to appoint a minister of electricity in the presidency.
It’s not all doom and gloom, however. The private sector remains dynamic, some corruption accused are finally in the docks, and tax revenues have shown astonishing resilience.
We now await the announcement of a Cabinet reshuffle, together with the Budget speech scheduled for Wednesday 22 February.
“South Africa is not the most miserable place on earth, but it’s far worse than it should be. It carries the curse of not being as bad as it could be but never being as good as it should be.” –
– Bruce Whitfield, business speaker, journalist, and author
Global News
- In his first State of the Union address during a new era of divided government, US President Joe Biden portrayed the US as a country in recovery, while calling for bipartisan support on repairing America’s economy and democracy, and to embrace his proposals to raise taxes on the wealthy and extend more social aid to the needy.
- Ahead of Biden’s speech, at a question-and-answer session at the Economic Club of Washington D.C., Jerome Powell, the chair of the Federal Reserve, underscored that the central bank had more work to do when it comes to slowing the economy and that officials remain determined to wrestle rapid inflation under control, even if that means pushing rates higher than expected. He called the recent slowdown in price increases “the very early stages of disinflation.” adding that it would be a bumpy road to get inflation back to normal. An inflation update will be announced next week, but in the interim, market pricing for US rates to peak in July inched higher.
- The dollar surged last Friday on the back of a robust US jobs market. Employment has remained resilient despite economic headwinds caused by the Fed’s interest rate increases. Although this strength keeps the Fed on its monetary tightening streak, it indicates that a feared hard recession is nowhere near.
- UK’s prime minister, Rishi Sunak, wants to reinvigorate the country’s beleaguered government, moving around cabinet ministers and creating new departments to focus on science, technology, and energy policy. However, he remains haunted by his two predecessors, who are escalating campaigns that are potentially at his expense.
- Recently, London lost its crown of Europe’s biggest stock market to Paris. On a longer-term view, the UK stock benchmark has only gained 20% since the 2016 Brexit vote in dollar terms, while the S&P 500 Index has more than doubled, and the Euro Stoxx 50 Index has gained about 55%, also as measured in dollars.
- This comes as the cost of wages and demand for workers has accelerated for the first time in nine months, placing pressure on the Bank of England to keep inflation under control. The BOE lifted interest rates at each of its past 10 meetings, and investors expect at least one more increase by the middle of this year.
- As industrial companies in Europe aim to meet the rising pressure to go green, China Inc. is looking to benefit from this, with Chinese companies raising billions of dollars on the SIX Swiss Exchange through global depositary receipts as they look to expand their production bases in the region. This has been made possible by a cross-listing program which was launched in July last year.
- In France, public transport, schools, and refinery supplies were all but halted on Tuesday as trade unions led a third wave of nationwide strikes against President Emmanuel Macron’s plans to make the French work longer before retirement. These multi-sector walkouts and street protests came a day after pension reform legislation began its bumpy passage through parliament and are a test of the president’s ability to enact change without a working majority in the National Assembly.
- Dell Technologies is joining its fellows in the tech market and cutting 6,500 jobs as it faces plummeting demand for PCs. It’s experiencing market conditions that “continue to erode with an uncertain future”, co-chief operating officer Jeff Clarke wrote in a memo. The reductions amount to about 5% of Dell’s global workforce. At the same time Zoom is letting 15% (i.e.,1,300), of its workforce go as it restructures. In the entertainment sector, Disney has announced plans for a dramatic restructuring of the world’s largest entertainment company, including 7,000 job cuts and $5.5 billion in cost savings. Disney shares rose almost 10% in extended trading on the news.
- Despite this tough time for tech companies, Microsoft and a small research lab partner called OpenAI recently unleashed a new internet search engine and web browser ChatGPT that uses the next iteration of artificial intelligence technology. Many in the industry believe this could be a key to its future. Meta, too, is getting in on the game, unveiling a chatbot called Galactica, designed for scientific research, while Google said it would begin testing its own new chatbot, Bard, with a small, private group before releasing it to the public in the coming weeks. These chatbots represent a change in the way computer software is built, used, and operated and are poised to remake internet search engines like Google Search and Microsoft Bing, talking digital assistants like Alexa and Siri, and email programs like Gmail and Outlook.
- As at Thursday’s close the S&P 500 was 1.33% down for the week.
Local News
- During his annual State of the Nation Address last night, President Cyril Ramaphosa made the usual promises, with the only material change being to declare a national state of disaster and announce plans to appoint a minister of electricity in the presidency. Ironically, the DA, which had previously called for a state of disaster, was rallying its lawyers last night over concerns that the state of disaster would allow the ANC to abuse procurement processes and issue nonsensical regulations that have nothing to do with the electricity crisis. Commentators and business are worried that this will give the ANC opportunities to, again, raid the coffers despite a stated clampdown on corruption.
- Ahead of the address, the Sunday Times investigated how Ramaphosa’s previous promises panned out. In his last two addresses, he promised to alleviate the rising cost of living and address record unemployment rates and a crumbling economy. However, progress has been poor, as there has been little movement in areas such as sorting out the crisis at Eskom – business has warned that supplies of essential goods cannot be guaranteed – creating jobs, concluding a social compact, and improving service delivery. Such government failings could well put the ruling party on the back foot during next year’s elections, with polls indicating that support could fall below 40% for the first time since the start of democracy.
- A Cabinet reshuffle first expected after the ANC’s December national congress has been delayed until after SONA and is only likely to happen in a week or two. Business Unity South Africa, South Africa’s biggest business group, has urged Ramaphosa to use the cabinet reshuffle to improve the performance of a government that has been slow to deliver on promises of economic reform. This reshuffle is however likely to only involve small changes despite the groundswell calling for better political leadership.
- ANC deputy president Paul Mashatile has been sworn in as an MP. Following his election at the ANC’s national conference in December, Mashatile is expected to become Ramaphosa’s second in command once Deputy President David Mabuza’s offer to resign is accepted.
- As the dollar surges, the rand was trading at R17.89/USD this afternoon. This is at a discount to our latest fair value estimate of the rand which is R17.07, up from an estimated level of R16.67 at the beginning of the month. Our currency model suggests that the actual level of the USD/ZAR exchange rate relative to fair value now displays an element of South Africa-specific risk having been priced-in.
- Compli-Serve, which provides advisory and compliance services believes that South Africa still faces a 60% likelihood of being greylisted before the end of February, despite two critical pieces of legislation being hurried through at the end of 2022. These laws are the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Act and the General Laws Amendment Act. While the country now has the necessary legislative framework to combat financial crime, questions still need to be answered on its ability to enforce the laws effectively and prosecute those responsible for transgressing them.
- A multiparty parliamentary portfolio committee on tourism resolved unanimously that the controversial R910 million Tottenham Hotspur sponsorship deal will not go ahead – and that heads should roll. Three board members resigned following the uproar over the proposed deal, which would have started in July.
- Transnet is finally sharing its network with a company called Traxtion in a trial run. When its locomotives and wagons hit the tracks, it will be the first break with a state monopoly that has existed since trains first ran in South Africa.
- At the Mining Indaba, held in Cape Town this week at which there were 7,000 attendees, the mineral resources and energy department announced that it is, at long last, taking steps to put in place a new system that will enable mining exploration while also cutting its backlog in processing mining and exploration licences by half, raising the prospect that South Africa could start to attract more investment in new mining projects.
- Anglo American CEO Duncan Wanblad is still bullish about South Africa, and it is still looking to invest. He noted that the country must urgently fix its corruption, energy and logistics scourges and the mining industry is keen to partner with the government to do that. There also needs to be more stability around security and infrastructure issues.
- Pick n Pay may have to reprioritise its capital expenditure to use some of the money towards footing the increasing bill of keeping the lights on at its operations during the daily load-shedding episodes. Sappi has called for urgent government intervention as it makes its own plans to combat rolling blackouts. Insurers are also being hard hit, with Hollard informing its clients that it won’t be covering any losses caused by any collapse of the national grid, and Santam is due to implement a similar exclusion in April. There have also been warnings that the supply of food could be hampered by Eskom, and consumers could see higher prices.
- Sasol had more than R13 billion of its market value wiped out after it gave half-year profit guidance that came in below forecasts. The company is sensitive to international oil and chemical prices, which rose significantly in 2022 before subsequently cooling off.
- As at the time of writing, the rand was 2.2% weaker for the week and the ALSI was 1.62% down.
