President Cyril Ramaphosa will deliver his maiden State of the Nation Address (SONA) on 16 February 2018. The annual speech kicks off the Parliamentary year and focuses on the country’s current political and economic situation. Regarding the latter, South Africa experienced deteriorating economic conditions during 2014-2017, and there is great hope for an improvement in economic growth during 2018 under the new administration.
President Ramaphosa has elevated expectations of his first SONA after saying late in 2017 that South Africa “must act now – boldly, decisively and collectively – to change the trajectory of our economy”. One of his immediate priorities is to restore confidence among local and foreign investors. Promising a “New Deal for South Africa”, President Ramaphosa is aiming for economic growth to rise to 5% (a level last seen a decade ago) by 2023.
The rand exchange rate – which has been increasingly sensitive to domestic political developments over the past few years – welcomed the election and forthright words from the new African National Congress (ANC) leader. The South African currency appreciated from R13.70/$ in mid-December 2017 to below R12/$ during the early part of February. A firmer rand improves the outlook for South African consumers through lowering the cost of imports and associated inflation. Indeed, the South African Reserve Bank (SARB) was able to lower its inflation forecasts during January in part due to a stronger rand.
South Africa’s 10-year bond yield declined from 9.3% in mid-December 2017 to 8.3% during the last week of January 2018. Bond traders had since the Medium-Term Budget Policy Statement (MTBPS) been pricing in further downgrades in South Africa’s local bond ratings that would result in it being excluded from the Citi World Global Aggregate Bond Index (WGBI). This could result in more than R100 billion in foreign money exiting the domestic capital market. However, the decline in bond yields since President’s Ramaphosa’s election as ANC leader indicated that investors were expecting him to at least stem the downward trajectory in sovereign ratings.
In order to further boost confidence and reignite economic growth, President Ramaphosa will have to be decisive in the SONA in setting out his economic plans for the next year. PwC economists would like to see the following economic issues addressed in #SONA2018:
By addressing these issues, President Ramaphosa will maintain the momentum that he has been able to build since mid-December. He needs to build on his comment at the World Economic Forum (WEF) 2018 in Davos that “[t]he wheels of change are moving now and they are going to start speeding up”. Foreign stakeholders are already listening to this message. SARB Governor Lesetja Kganyago commented at the WEF: “Last year at this time in Davos, I was trying to look for people to talk to and convince that South Africa is worth investing in. This year, I'm having a lot of people come to me saying, ‘Hey, it looks like a lot of things are changing in South Africa. Where are the opportunities?’".
The outlook for the South African economy has improved with the ascent of President Ramaphosa to first the party leadership and now the leader of the national government. There is great anticipation that his “New Deal” will result in a collection of necessary reforms being made to the local economic space, including confidence-building solutions to economic policy uncertainty in areas such as mining and agriculture. It is believed that economic growth will improve over the coming 12 months on the back of these changes.
Senior Manager, PwC South Africa
Tel: +27 (0)11 797 4470