February 11, 2021

Africa

SOUTH AFRICA: Annual address fails to paper over credibility cracks

BY Anne Frühauf

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( 5 mins)

President Cyril Ramaphosa’s State of the Nation Address (SONA) on 11 February seemed even more divorced from reality than usual, amid a terrible public health, economic and social backdrop. The long, detail-packed speech is unlikely to address the government’s growing lack of credibility, nor instill confidence in long-delayed reforms or even the vaccine rollout. Vaccine rollout Ramaphosa listed “defeating” the Covid-19 pandemic as his number one priority, but South Africa’s vaccine rollout – already slow out of the starting blocks – suffered a major setback this week. Days after the much-awaited delivery of the first 1mn doses of Astra Zeneca (AZ) vaccines, phase 1 of South Africa’s vaccine rollout targeting 1.25mn medical workers has been upended by a scientific study indicating that the vaccine is not effective in preventing mild to moderate disease caused by the B.1.351 [or 501Y.V2] Covid-19 variant now predominant in the country. Ramaphosa conceded that the scientific findings would affect the pace, design and sequencing of the vaccination program, which has already been delayed by slow procurement. It is still unclear what will happen with the AZ vaccines, but the government has now decided to rely on the Johnson & Johnson (J&J) vaccine in the first phase of vaccination. This means far fewer doses will be available to roll out over the next four weeks: South Africa only expects 80,000 J&J doses to arrive next week, with further consignments adding up to a total of 500,000 over four weeks.

At least 41mn vaccine doses are now supposedly in the pipeline, but this also includes supplies from COVAX. Consignments will take time to arrive and will still fall short of the government’s ambitious target of vaccinating 40mn residents this year. The government thus risks bungling its vaccine procurement, contracting and rollout strategy, adding yet another downside risk to South Africa’s recovery prospects.

Economic recovery The other, rather broad priorities that Ramaphosa listed included accelerating South Africa’s economic recovery, implementing economic reforms and fighting corruption. The president highlighted the unprecedented 2020 economic stimulus package worth ZAR 500bn (USD 34bn, about 10% of GDP), including tax relief, social grants, and wage support. In reality, only about ZAR 200bn seems to have been allocated. Of one of the stimulus package’s largest components – a ZAR 200bn loan guarantee scheme – a mere 18.9bn appears to have been disbursed. All this means the true size of the stimulus package is much smaller than envisaged, as the upcoming budget speech may demonstrate. The only tangible pledge today was that the Special Covid-19 grant of ZAR 350 per person would be extended by a further three months.

Energy is clearly another overwhelming downside risk to South Africa’s economic recovery. Eskom faces an energy generation shortfall of around 4,000-6,000 MW over the next five years (and probably more according to independent estimates). Already on 10 February, the utility had to resort to ‘stage three’ load-shedding, putting any ramp-up in industrial production on uncertain footing. Like in past speeches, Ramaphosa has promised to rapidly expand energy generation capacity, yet the pace of reforms remains painfully slow. There were no new milestones regarding Eskom’s unbundling into three entities; Ramaphosa also had no news on the urgently needed financing solution for the utility’s crippling debt burden. Like previously, he merely said “[w]e are working closely with Eskom on proposals to improve its financial position, manage its debt and reduce its dependence on the fiscus,” which will require “a review of the tariff path” and a resolution of municipal debt issues, which the government has failed to address for years. Some progress is starting to happen in relation to allowing municipalities to procure power directly from independent power producers. The outcome of an emergency power procurement bid process for 2000 MW is also to be announced “soon” by the Department of Mineral Resources and Energy (DMRE). And the first bid rounds to procure an additional 11,800 MW from renewables, natural gas, battery storage and coal are to begin this year. While Ramaphosa promised to amend the Electricity Regulation Act within the next three months to increase the licensing threshold for embedded generation, this could have been done long ago to unlock what the government estimates as additional capacity worth 5,000 MW.

Beyond energy, Ramaphosa outlined a hodgepodge of initiatives and programs, including an infrastructure pipeline, localization plans (aimed at reducing reliance on imports by 20% over five years), a presidential employment stimulus (much like past programs providing short-term employment ‘opportunities’), and a pledge to improve traditionally poor educational outcomes (in a context where chronically underperforming schools have been hard hit by pandemic lockdowns). On one of the crucial signals from a private sector perspective, the long-promised spectrum auction process has yet to get under way and now faces litigation. Finally, a vague promise to table “[o]verarching legislation for state-owned companies” in cabinet this financial year will hardly be seen as a signal that South Africa’s troubled public enterprises will undergo urgent turnaround.

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