Government caps foreign land ownership

Posted On Friday, 13 February 2015 17:13 Published by
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The annual State of the Nation Address (SONA) in South Africa is an event that is closely watched in the hope of it offering a clear indication on policy direction.

Land

Between the lines

Unfortunately, in recent years it has offered little insight or tangible commitments. Another problem is the delivery of the address. It is widely known that President Jacob Zuma has incredible charisma and off-the-cuff charm that easily disarms his fiercest critics, but his presentation track-record for an official speech on stage is less than stellar and last night, South Africans were bored by the more-of-the-same.

That being said, 2015 is different in two ways:

  • even objectively, things are notably worse than a year before
  • there is a new and vocal political opposition from the floor.

Economic background

The South African economy, one of the biggest in Africa, is currently facing deep structural problems. The problems are not new and South Africans are largely familiar with their impact.

Power failures: Eskom is South Africa's only power utility and has been forced to cut power (locally known as load-shedding) since the end of 2014 in order to avoid overstressing the national grid. Chillingly, there is a risk of a total blackout, which would last for more than two weeks and that would potentially trigger massive social disruption.

Industrial action: South Africa has a tacit tradition of annually recurring industry-wide industrial action. In 2014 the five month long strike in the platinum sector led to an estimated R24 billion in production losses as well as widespread violence and intimidation in the mining communities.

Unemployment: South Africa has an official unemployment rate of just below 40% (which includes discouraged work seekers). The high structural unemployment (i.e. skills deficit) is blamed on restrictive labour regulations that force industry to mechanise to the hilt. If anything, labour regulations have become more restrictive over the past two years with a special focus on restricting the scope of atypical employment, or short-term contracts.

Lower credit ratings: Lower economic activity due to the previously mentioned structural problems combined with an increased government spending trajectory have led rating agencies to downgrade sovereign debt, leaving South Africa on the brink of junk bond classification.

Credit rating is all about the debt-to-GDP ratio, but the problem is that government expenditure (and, therefore, financing requirements) keeps on growing, whilst GDP growth slows down. The Reserve Bank expects 1.4% real growth for 2014 and revised 2015 down to 2.2%.

The public sector wage bill (i.e. government employee wages), one of the biggest components of government expenditure, should grow by at least 6% in 2015 in nominal terms (before adjusted for inflation) but unions are demanding double digit increases.

Politicians in overalls

The political newcomers the Economic Freedom Fighters (EFF) have rightly, but perhaps unknowingly, called into question the usefulness of the SONA. Through an effective mixture of leftist rhetoric and political theatre, the party was able to secure 5% in the national assembly on its debut election.

They have sunk their teeth into specific issues of popular discontent, particularly the corruption allegations around Nkandla, President Zuma's taxpayer-funded personal homestead in rural KwaZulu-Natal.

The EFF has been most efficient in challenging accepted protocol around the staid parliament. The ruling African National Congress (ANC) has more than 60% of the house, which means parliament offers little oversight and acts more like a rubber stamp. Into this malaise, the EFF has stepped with clothing typically worn by manual labourers - that is overalls and domestic workers uniforms.

Their debating style could also not be further from the official opposition, the Democratic Alliance (DA) who depend on appeals to liberal-democratic principles that often seem too clinical and removed from South Africa's majority lower income grassroots population. The EFF has chosen its battles very well and understands the power of punchy hashtag-like slogans. It is no wonder that the risk of the EFF disrupting the SONA dominated political debate over the past month.

Point of disorder

The SONA was stalled as an illegal cellphone signal blocking device was used in the National Assembly. After severe concerns were raised by opposition parties, the blocking device was switched off. However, once President Zuma started with the SONA, he was interrupted by the EFF on a question relating to Nkandla.

After several exchanges between EFF members of parliament and the Speaker of the House, the EFF was "assisted" out of parliament. This caused further tension as the DA pointed out that members of the South African Police Service (SAPS) did the assisting, as opposed to parliamentary security, which is a contravention of parliamentary rules and the constitutional principle of separation of power. This dispute with the Speaker escalated into a DA walk-out, which effectively only left ANC members and a few smaller opposition parties in parliament.

Salient policy items

President Zuma talked to the following salient policy items:

  • The 5% growth target by 2019 is at risk due to slow global growth and domestic energy and skills shortages
  • 270 000 young workers have been employed by way of the Employment Tax Incentive
  • Eskom will continue load shedding over the short to medium term
  • Eskom will receive R23 billion in financial assistance in the coming fiscal year
  • South Africa plans to build a 9600 Megawatt nuclear plant, whose open tender process will involve five different countries
  • The 50/50 land policy that provides for 50% farm ownership to workers will be developed further
  • Government will place a cap of 12 000 hectares on land ownership and restrict foreigners to long term leaseholds
  • 30% of state procurement will be from small and medium enterprises (SMEs)
  • A combined R26 billion will be spent on road construction, upgrades and maintenance

Conclusion

This is the first time that opposition parties have walked out of the SONA and this may set a precedent for further political tension throughout the year.

By far the most significant policy announcement is the details around the planned nuclear power tender process. Government was criticised in 2014 for signing a memorandum of understanding (MOU) with Russia to build a nuclear power plant, and the process detail is a clear response to these criticisms.

Otherwise, there was nothing new in terms of policy direction. Civil society broadly viewed the protracted mining strikes in 2014 as illustration that South Africa's industrial relations framework needs an urgent rethink. This significant policy question remains unanswered.

The land and agricultural policy initiatives are unrealistic, in some cases illogical, and quite possibly unconstitutional and are likely to falter during the pre-parliamentary negotiations. Similarly, the commitment to apportion 30% of government procurement from SMEs is unrealistic, particularly as the office of Chief Procurement Officer in the National Treasury remains vacant two years after its creation.

Another key opportunity at policy direction was lost. The conventional approach of punting a multitude of often conflicting policy initiatives was disappointing, but not unexpected. The policy discussion may have captured more attention if there was more tangible detail and priority given to the different polices. Instead, the actions of opposition parties stole the show and will be the biggest talking point from the SONA for some time.

Instinctif Partners

Last modified on Friday, 13 February 2015 23:55

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