Cyril Ramaphosa expected to shore up business confidence

JOHANNESBURG – President Ramaphosa is expected to use this week’s State of the Nation address (Sona) to shore up business confidence and outline the government’s plans for embattled state-owned entities (SOEs).

The Sona scheduled for Thursday will be delivered against a backdrop of dismal economic performance, following the 3.2percent gross domestic contraction in the first quarter, muted business sentiment, worsening government debt and high unemployment.

Investec economist Lara Hodes said transparent, urgent reforms around key SOEs, particularly Eskom, are likely to be central.

“Additionally, further clarity around other policies that are perceived to have created uncertainty, especially land expropriation without compensation, is likely to be prioritised, while the importance of collaboration between government, business and labour to foster an environment conducive to faster economic growth is expected to be reiterated, including public-private partnerships,” Hodes said.

South Africa’s economy has over the years been hamstrung by muted business and consumer confidence, which are required to drive private sector fixed investment.

The Rand Merchant Bank (RMB) business confidence index compiled by the Bureau for Economic Research last week remained unchanged at 28points in the second quarter, as the country struggles to boost growth.

111120774 - Cyril Ramaphosa expected to shore up business confidence
Intellidex analyst Peter Attard Montalto 

Intellidex analyst Peter Attard Montalto said he believes various short- and long-term bailout plans will have gone to last week’s Cabinet lekgotla for processing and inclusion within the speech.

“Overall, we think there will be enough on Thursday to get a rally in Eskom debt and an initial rally around sovereign (debt), but questions and attention will rapidly shift then to demanding details and conditionality,” Attard Montalto said.

He added that debt-ridden national carrier South African Airways might be forced to go into business rescue in the coming months, and that would be the most likely route to get buyers to pick off parts of the airline.

“The Cabinet lekgotla has also been dealing with the situation at SAA and the fact it needs R3.5billion by the end of June. There is no room within the Public Finance Management Act’s 16-2 emergency funding framework, which has already been committed to Eskom; equally, Parliament would be highly unlikely to be able to process the required expropriation legislation by the end of the month.”

111120773 - Cyril Ramaphosa expected to shore up business confidence
INVESTEC economist Lara Hodes.

Both Eskom and SAA have seen their chief executives resign from their roles this month. The power producer’s boss, Phakamani Hadebe, resigned after he said the demands of the job had taken their toll on his health, and SAA’s head honcho, Vuyani Jarani, blamed a lack of government support for his abrupt departure.

Media reports over the weekend said that the government was mulling a R3.2bn guarantee for the South African Broadcasting Corporation to help it raise money from lenders.


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