President Jacob Zuma’s eighth State of the Nation Address (SONA) lays out the priorities of government and provides us with a guide as to legislative and policy agenda and the likely general focus of Government. This note seeks to look past the political noise and analyse the implications for business. For more information please contact our Johannesburg office: http://www.brunswickgroup.com/contact-us/johannesburg/

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‘Democratic tensions,
economic threats’
South Africa 2015 State of the Nation address
13 February 2015
1. Introduction
A familiar legislative agenda for
2015 even as chaos reigned in
parliament
President Jacob Zuma’s eighth State of the Nation
Address (SONA) was never going to be judged on
its content. In what was billed in the media as “pay
back the money – part 2”, this was about deeds not
words, about whether the State would
accommodate and engage with uncomfortable,
even divisive, voices, or whether it would choose
to ignore and evict. That the second option was
chosen now rings louder and clearer than anything
in the speech itself.
In terms of public confidence there was not much
that could have gone worse. There was the
extraordinary use of a jamming device installed to
block communications from parliament, with
demands from media and opposition members of
parliament that the signal be restored. There was
the violent, armed removal of the members of the
Economic Freedom Fighters (EFF) for their
disruption of proceedings over demands for
President Zuma to refund non security upgrades at
his private residence in Nkandla. Then there was
the walk out by the official opposition, Democratic
Alliance (DA) and smaller parties in protest over
the refusal by the chair of the Council of Provinces
to explain what security forces comprised the
armed personnel ejecting members of the EFF. By
the time the speech restarted an hour later few
people would have been listening.
In spite of that the content is important. The speech
lays out the priorities of government and provides
us with a guide as to legislative and policy agenda
and the likely general focus of Government. This
note seeks to look past the political noise and
analyse the implications for business.

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2. Key points affecting the economy
and business
Economy and Outlook
Current situation
South Africa’s economy shrank by 0,6 percent in
the first quarter of 2014. This was the first time the
economy contracted since the recession five years
ago. Looking forward, the current energy crisis is
anticipated to prolong this period of low growth
and has sparked fears of a recession. The twin fiscal
and current account deficits remain stubbornly
high. The Rand has lost 1.6 percent against the
dollar this year to R11,88, its weakest level since
March 2002. Fortunately, inflation has fallen below
6% upper limit of its target range due to the low oil
price.
The President said
The President referenced “the slow global growth
as well as domestic constraints in energy, skills,
transport and logistics”.
He mentioned that the growth target of 5 percent
by 2019 was at risk due to local challenges and the
weak global environment but said that it would be
achieved through a nine point plan to ‘ignite
growth and jobs”. This plan includes:
 Resolving the energy challenge.
 Revitalizing agriculture and the agro-processing
value chain.
 Advancing beneficiation or adding value to our
mineral wealth.
 More effective implementation of a higher
impact Industrial Policy Action Plan.
 Encouraging private sector investment.
 Moderating workplace conflict.
 Unlocking the potential of SMMEs,
cooperatives, township and rural enterprises.
 State reform and boosting the role of state
owned companies, ICT infrastructure or
broadband roll out, water, sanitation and
transport infrastructure as well as
 Operation Phakisa aimed at growing the ocean
economy and other sectors.
Our view
The President’s speech did not deal with two of the
most important challenges facing the country; the
government’s ability to execute on infrastructure
spending, and negative investor sentiment - for a
myriad of reasons from policy instability to poor
conditions for productivity improvement - and
attendant poor private sector fixed investment.
National Development Plan (NDP)
Current situation
The NDP looks to be reaching a state of near
paralysis with little political will to implement the
economic policies needed to improve economic
growth.
The President said
The President made scant reference to the NDP,
stressing the importance Operation Phakisa as one
of the innovative solutions aimed to fast-track the
delivery of the priorities set out in the NDP.
Our view
The specific NDP recommendations to address
current economic challenges were not mentioned.
This suggests persistent intra-ANC disagreement
around how (and whether) controversial elements
of the NDP (such as the economic chapter) will be
implemented.

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Mineral and Resources
Current situation
The mining sector and its suppliers contribute
approximately 20% to South African GDP, earn
approximately half of the country’s foreign
exchange, and account for about a third of the JSE’s
market capitalisation. In the last few years the
sector has been squeezed by lower commodity
prices, electricity supply constraints and very
difficult labour relations.
The President said
The President committed the government to
driving the implementation of the landmark
Framework Agreement for a Sustainable Mining
Industry agreed last year by labour, business and
government. The revitalization of distressed mining
communities initiated in 2012 and partnerships to
improve sustainable human settlement were
reiterated. He also acknowledged investor concerns
around the MPRDA (Mineral and Petroleum
Resources Development Act) amendment bill and
noted the need to stabilize the mining sector and to
promote a stable labour environment. He said that:
 Government is reviewing the compliance of
mining companies with the targets set by the
Mining Charter.
 Responding to business requests, Government
has synchronised environmental impact
assessments and water and mining rights
applications and has set a maximum of three
hundred days for all of these authorisations to
be issued.
 Government would establish a one stop inter-
Departmental Clearing House to attend to
investor complaints and problems.
Our view
There is little clarity on how government intends to
help stabilise stakeholder relations, and improve
investor sentiment about the sector.
Energy and Infrastructure
Current situation
South Africa's electricity grid is in crisis, with
maintanance of the old fleet of power stations now
seemingly demanding significantly more of Eskom’s
human resources than the build of new generating
capacity. Now, with insufficient reserve supply to
take units on some days over the past few weeks the
generation capacity that has been unavailable has been
nearly equivalent to Medupi’s full planned generating
capacity.
The President said
The President acknowledged that the lack of
consistent energy supply was constraining growth and
was a major inconvenience to everyone in the
country. He emphasised the use of alternative energy
sources to complement the current energy mix. This
would first require the war room established by
government to stabilise the electricity supply system
and contain load shedding. The President also
confirmed funding of R23 billion for Eskom to
stabilise its balance sheet for the next fiscal year.
He noted that:
 The three new power stations Kusile, Medupi
and Ingula, would soon add ten thousand
megawatts of capacity to the national grid.
 Government has procured 4,000 megawatts
from Independent Power Producers, using
renewable sources and the process has attracted
more than R140 billion from private investors.
 A total of 3,900 megawatts of renewable
energy has also been sourced, with 32 projects
with a capacity of just over 1500 megawatts
completed and connected to the grid.
 Eskom has completed the construction of the
Sere Wind Farm, which is already delivering
100 megawatts to the grid well ahead of its
intended launch in March.
 Government also began procurement in
December 2014 of 2,400 megawatts of new

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coal fired power generation capacity from
Independent Power Producers.
 The procurement process for 2,400 megawatts
of new gas fired generators will commence in
the first quarter of the new financial year.
 A total of 2,600 megawatts of hydro-electric
capacity will be sourced from the SADC
region.
 Government is exploring the procurement of
the 9,600 megawatts nuclear build programme
as approved in the Integrated Resource Plan
2010-2030.
 The Grand Inga Hydro-electric Project
partnership with the Democratic Republic of
Congo will generate over 48,000 megawatts of
clean hydro-electricity and South Africa will
have access to over 15,000 megawatts.
Our view
While the speech highlighted the significant
investment in new generating capacity, it failed to
provide any insights into the work being done by
the newly established “war room” to deal with the
short term grid instability challenges.
3. South African influencers’ views
Business commentary
Mike Teke, President, Chamber of Mines: “It is
critically important for the mining sector and country that
we drive collective solutions that restore Eskom's reserve
margin and build competitive, stable and available
electricity supply for the country in the medium and longer
term.”
Vusi Khumalo, President, South Africa
Chamber of Commerce & Industry (Sacci):
“Sacci is pleased to note that the nine-point plan to ignite
growth and create jobs includes actions that it believes will
provide the impetus that South Africa so badly needs.
Without solutions to the electricity crisis, successful
implementation of the other priorities will not be possible in
the short to medium-term.”
Analysts’ views
Vukani Mde, Group Editor of Opinion & Analysis, Independent Media: “Other than the first (resolving
the energy crisis) and last (Operation Phakisa) items on that list, everything would have been said in the SONA 10 years ago.”
Boitumelo Sethlatswe, Researcher, South African Institute for Race Relations (SAIRR): “Should the
economy grow by 1% over the next decade, Eskom will be able to supply enough electricity. If, however, the economy grows by
3% over the next decade, Eskom will not be able to keep the lights on.”
Kenneth Creamer, Economist, University of the Witwatersrand: “To create sufficient employment
opportunities South Africa needs a step-change in investment levels. The state of the nation did not clearly spell out how South
Africa is going to lift investment from current levels of around 20 percent of GDP (gross domestic product).”

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5. Public reaction – top social media
conversations
Prepared by Brunswick’s Johannesburg public affairs team
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