By Waldo Marcus, Director at TPN from MRI Software
South Africans will be watching this week’s State of the Nation Address (SONA) to see if government’s long-promised structural reforms will finally be fast-tracked to drive much needed economic growth. They will also be assessing how the president balances a number of tightropes including concerns that some of the GNU partners have with the Expropriation Bill, NHI and the BELA Act, local government failures including a rapidly approaching water crisis, mixed with global tensions.
Past SONAs have focused on a familiar litany of issues: lacklustre economic growth, high unemployment, failing infrastructure, poor service delivery and a regulatory environment which is not conducive to economic growth. There is little expectation that this year will be any different with many of the same platitudes about a commitment to growing the economy likely be dusted off again.
What will be different this time around is that the president will be balancing an ever more complex environment. Positivity around the GNU has waned with policy differences starting to appear. While the energy crisis has been partially addressed, water is a looming catastrophe. South Africa’s relationship with its largest trading partner is in the spotlight with a threat of tariffs from the United States. Then there are diplomatic issues one being how South Africa plans to extricate its peacekeeping troops from Rwanda.
Locally, the president is under pressure to facilitate a more business-friendly environment. The IMF says South Africa has one of the most restrictive business environments globally. It has recommended a raft of reforms to enhance the country’s business environment, bolster governance, improve labour market flexibility, facilitate trade and achieve the country’s climate goals. The IMF calculates that South Africa could add 1.8% to its growth rate if it can get corruption under control, improve the regulatory and business environment and make government more effective.
The country has also come in for criticism for its competition regulations with Stuart Theobald, chair of research-led consultancy firm Krutham pointing out in a recent Business Day editorial that government does not appreciate how damaging our competition authorities are to foreign investment and growth. He says South Africa urgently needs to revisit the principles and objective of how competition is regulated. Large property asset sales are already being slowed due to the Competition Commission’s involvement.
Both national, provincial and local government need to become more efficient and effective. Operation Vulindlela is an initiative spearheaded by the president and National Treasury to speed up reforms. Local government in the form of municipalities plays an important role in providing communities with essential services including clean water, proper sanitation, reliable electricity, effective waste management and well-maintained roads and municipal infrastructure.
Of concern is the trend of failing municipalities. According to the Auditor-General’s latest local government and audit outcomes report, many municipalities continue to receive poor audit outcomes with only 13% obtaining clean audits. This has triggered a cycle of low collection rates across municipalities as rate payers demand value for money but fail to see good governance and leadership delivering on promises. Collectively, municipalities owe Eskom more than R109 billion, putting the power utility under pressure.
Property values in poorly run municipalities typically decline. Well-run municipalities that have maintained their public infrastructure, including well-maintained and safe public areas, on the other hand, will ensure that those areas remain sought after by property investors, tenants and businesses.
The president is very aware that the economy pays a heavy price for the high unemployment rate with less personal tax available to be collected, less consumer spend taking place and sluggish GDP growth.
As far as the property industry is concerned, a robust and secure job market is essential for the long-term health of the residential rental market and to keep vacancies low. Stats SA’s employment survey reveals that the unemployment rate increased in the fourth quarter of 2024 to 32.1% from 31.9% in the fourth quarter. The formal sector lost 128 000 jobs with further job losses expected in agriculture, mining and manufacturing in 2025.
A new study by speciality research publisher Taylor & Francis revealed that none of the eight largest metros in South Africa have experienced appreciable employment growth in manufacturing and tradable goods.
An issue that the president will likely touch on in the SONA is reporting on what government is doing to reduce logistics constraints and ensure improved efficiencies at Transnet. He may also touch on government’s draft National State Enterprise Bill which proposes the creation of a centralised holding company to oversee state owned enterprises. Critics of the bill have pointed out that state owned enterprises such as Eskom and Transnet are already owned by a centralised agency which hasn’t improved their efficiency or competency and that the proposed bill will simply add another layer of bureaucratic bloat.
The annual SONA is often described as bland. In a constrained fiscal space, there is little expectation that this year’s address will deliver anything more exciting. In a perfect world, President Ramaphosa would be announcing a way forward that includes improved service delivery, more efficient local government, a plan to address the water crisis, the implementation of a less restrictive regulatory environment while at the same time provide assurance to the country’s major trading partners and investors that their needs were also being taken into consideration.