20 Feb How The State of the Nation Address (SONA) Affects The Country

Key Outtakes from SONA 2019 and the implications for South Africa

The State of the Nation Address (SONA) of 7 February 2019 saw many South Africans glued to their seats to hear what President Cyril Ramaphosa and his crew have in store for South Africans.

As usual, the address was not without controversy and featured a few altercations at parliament which somewhat detracted from the aim of such an event. Nevertheless, there are several outtakes which will have saffas either smiling or frowning, depending on their political and economic stance.

Big promises, bigger apprehension

The president’s address seemed for the most part promising and positive. However, most politicians from opposition parties believe his promises to be a bit too grandiose and that his deliverables aren’t feasible in the current South African economic climate.

Main concerns voiced by opposition parties:

• New ideas need to be supported by implementation plans.

Patricia de Lille noted that the state of the nation address seems to be an endless platform for introducing new ideas and planning, but that these ideas are futile if implementation isn’t addressed at the same time.

Mmusi Maimane of the DA echoed De Lille’s concerns, stating that the State of the Nation Address was an address of “no action” and lacks direction. Maimane further voiced concern for the President’s notable silence on the issue of crime—one of the greatest concerns for all South Africans—and vague commentary on corruption.

The lack of planning and action was also noted by EFF DP Julius Malema who stated that it was a clear indication that the president has no plan to address unemployment.   The EFF even went so far as to accuse the president of stealing their manifesto and using it for SONA, though the EFF seemed to have been mildly appeased by the commentary that president Ramaphosa would publicly serenade Julius Malema should the EFF win the elections in May.

• Land expropriation plans remain vague:

Both Julius Malema and the Freedom Front Plus’ Pieter Groenewald noted the president’s vague stance on land expropriation, but for opposing reasons. Where the EFF wants immediate action with clear direction, the Freedom Front Plus seeks clarity on what land owners can expect and how the land expropriation without compensation would be carried out.

• SONA mentions the problems without proposing solutions:

Groenewald called SONA 2019  a “wishlist and analysis of the problems” of South Africa, but stated that no solutions were placed on the table.

• Concern about a totalitarian National Intelligence:

Groenewald also questioned whether the president’s proposal for a new “national intelligence” doesn’t hint at the apartheid government’s intelligence which only had the leading party’s interests in mind.  This is especially worrisome, given that President Ramaphosa announced that he would be chairing the intelligence service, casting the slightest hue of totalitarianism.

Election euphemisms – is the president stalling?

Some analysts believe that the president used SONA as an opportunity to stall any paramount decisions  in the run-up to this year’s general election, gracing the nation with a mere shopping list of assertions and proposed positive outcomes that lack solid action plans.

By identifying the problems and promising that these problems would be addressed, the president seemed to have appeased most of his following and even some of the opposition’s notorious stone-throwers.

Without clear direction on how corruption, crime and land expropriation would be dealt with, the president is forestalling the ire at both ends of the gantry; those who can be accused of corruption vs those who want to see the corrupt pay their dues, those who want to see land expropriation without compensation effected immediately vs those who fear how widespread land expropriation would affect them.

Professor Susan Booysen, Director Research at the Mapungubwe Institute for Strategic Reflection (Mistra) and Visiting Professor at the Wits School of Governance, calls it “Ramaphoria” and stated that the president seems to be deliberately trying to woo both the members of his own party and those in opposition. With the general elections having been diarised for 7 May 2019, the president will have to propitiate those members of the ANC who had been in the Zuma camp all along, while simultaneously nursing possible alliances in mind in the event of the public vote going south for the ANC.

An analysis of key points

Irrespective of your view on the president’s strategy, however, it’s important to take a closer look at some of the key outtakes from the address and what it means for the country.

Brulpadda oil and gas find

The president ceremonially announced the Brulpadda oil and gas find and commented that, “This could well be a game-changer for our country and will have significant consequences for our country’s energy security and the development of this industry”. Many view this as akin to counting South Africa’s unhatched chickens. 

One particular misnomer has creeped up in the media:  the idea that Total had found crude oil reserves, when what they have discovered is, in fact, natural gas condensate. Though both crude oil and natural gas condensate serve as energy sources, there are marked differences in the way they are extracted, transported and refined.

Though condensate is generally easier to refine than crude oil, the transportation of condensate to a refinery can be problematic. To retain its liquid state, condensate must be transported under very specific conditions, according to Wintershall. The temperature at which condensate is relayed via pipelines must generally exceed 25°C to prevent solidification during transportation. In the case of the Brulpadda Prospect, the natural gas condensate would likely be transported to Petro SA’s Mossgas via pipelines to avoid the construction of new refineries. The transportation of unrefined condensate  elsewhere is highly unlikely as it’s not practical; it is simply not viable to transport condensate over long distances.

Harsh conditions will further significantly affect  feasibility of the condensate extraction,  with one of Total’s  rigs having already succumbed to the harsh deepwater drilling environment in 2014. The loss of this rig had delayed re-entry by four years and saw millions of additional Rands spent to accommodate exploration. The hundreds of millions spent on this project had only but touched the surface as far as expenditure is concerned, since—up until now—funds have been used for the prospecting phase of the project alone, and drilling has only taken place at one of the five prospects. The environmental conditions are, in fact, so unaccommodating that drilling (and related exploration) is only possible during a very small window each year; approximately two months. Which infers that we should not hold our breaths, as a clear answer to Total’s “find” will only be available in a few years.

Of particular importance is to note that although Africa Energy Corp, Total, Qatar Petroleum and CNRI (the four main shareholders) have announced the discovery of natural gas condensate, they have stated clearly that the resources have multi-billion-barrel “potential”. Of the five prospects located in the Paddavissie Fairway of the Outeniqua Basin, only one has been prospected thus far, with the rest of the prospects having shown high probability of hydrocarbons—though the nature, feasibility and magnitude of these four remaining prospects are still speculative.

In order for oil and gas deposits to be classified as “reserves” the exploration companies first need to establish the viability of such reserves by breaking it into three categories:

• Proved Reserves, 90% Certainty of Commercial Extraction
• Probable Reserves, 50% Certainty of Commercial Extraction
• Possible Reserves, 10% Certainty of Commercial Extraction

1P reserves are Proved reserves, 2P reserves are both Proved and Probable, whereas 3P reserves are Proved, Probable and Possible. The three P’s refer to the total amount of reserves a company estimates to access. The Three P’s of this project have, however, not yet been established.

The fact that there are natural resources with potential off the coast of South Africa is undeniable, but it remains to be seen whether the extraction, transportation and refining of these resources are feasible given the extreme conditions, type of resource and exorbitant costs of both executing and maintaining a project of such magnitude over the long term. Furthermore, since conditions only allow for periodic exploration each year, we should not get our hopes up for a quick energy solution even if the project were to go ahead full steam.

Critical Energy Crisis

We’re not sure whether Eskom’s latest energy collapse should serve as a note of irony or a revelation, but it doesn’t bode well either way.

Mere days after the president announced in SONA 2019 that Eskom would be remodelled and split into three SOEs, the energy regulator experienced one of several major failures in the past few years. The president’s remodelling plain is aimed at enabling Eskom to service its debt via splitting it into the following three respective entities: Generation, Transmission and Distribution.

In addition to persistent technical and operational failures, the energy regulator is facing a debt burden of R419 billion, with no capacity to collect revenue to address this debt.  It’s unclear how splitting Eskom into three parts would make any difference to its seemingly hyperbolised incompetence, as such a split would carry additional costs and may not address the issues of ineptitude and negligence which abounds. And exactly how long would such a restructure take to execute? Can South Africans wait out the restructure, and at what cost?

Energy analyst Chris Yelland had estimated the national economic loss during Load Shedding at R1 billion per Phase per day. Given that South Africans have been knee-deep in Phase 2 to 4 load shedding all week, this gives us an average loss of R21 billion per week. 20 More weeks of load shedding and South Africa’s loss would equal the debt that the energy regulator has incurred thus far. Add the R1,4 trillion loss that energy expert Ted Blom has ascribed to Eskom in the 2008-2018 decade and Eskom’s debt starts to look like small change. In fact, Annabel Bishop of Investec has warned that load shedding of this magnitude in the first quarter of 2019 could see our GDP all but halved. 

But there are at least three theoretical silver linings to the Eskom unbundling.

Firstly, the unbundling will offer greater transparency as to the source of Eskom’s failures as each respective SOE’s performance would be monitored independently.

Secondly, in its current structure, the energy regulator owns the transmission infrastructure and opts for buying electricity from its own generators. Not only does this present a conflict of interest, but it keeps alternate and independent energy providers on the sideline by monopolising the energy production. It would seem that Minister of Public Enterprises, Pravin Gordhan, hopes that the split would ensure a more competitive playing field and force the respective SOEs to up their performance. Eskom Transmission would, for instance, invite several energy providers to compete for access to the grid and maintain strict service delivery mandates. This, in turn, would force Eskom Generation to lower their costs and improve their service delivery should they wish to provide energy to Eskom Transmission. Should Eskom Generation’s prices be higher than competitors, or they not deliver the requisite service, they may well be ousted by private entities.  The new structure would also mitigate finger-pointing between the respective entities, since they would no longer be dependent on each other for their mutual performance.

Lastly, since the unbundling would open doors to new players to enter the energy generation market, this would also open the doors to clean energy. Chris Ahlfeldt of Blue Horizon Energy Consulting Services stated that the new structure would allow renewable energy providers to compete with Eskom; allowing for cleaner energy, job creation and more “distributed benefits” across South Africa. These changes would not only solve South Africa’s energy crisis, but address our status as one of the world’s top 10 polluters.

BUT, as Moody’s Vice President, Lucie Villa noted, the unbundling does not address the regulator’s financial crises and the president’s announcement which, “offered few concrete measures to overcome these structural challenges in the face of entrenched vested interests”.

There are two thorns in the side of Eskom’s unbundling  though:

1. Pravin Gordhan and the Eskom board have announced that they will appoint external engineers and auditors to determine the cause of Eskom’s crisis—something which would further delay resolution of the issue.
2. Trade Unions have already opposed the Eskom unbundling, stating that it would lead to job losses, which means that we may have protest action and strikes on top of the existing crises in the near future.

In addressing the issue of possible job losses, Chartered Accountant and Analyst, Khaya Sithole stated that although it would be unfortunate, one must consider that Eskom is employing far too many people when you take a look at their performance and production. His view is that the “pain” of Eskom’s transition will have to be distributed between the state, the regulator and the public, as there is no single solution. The public burden, of course, being both electricity cuts and rate or tax hikes.

Sithole further notes that there is no clarity as to how the unbundling will distribute Eskom’s current balance sheet. If, for instance, the debt is spread equally across all new SOEs, then it would be a futile exercise since the sum of the debt would be exactly what it was before the restructure. The Government would therefore need to decide which of the three sub-units has the greatest capacity to be profitable in the short term. The business unit which is most likely to make a quick turnaround on their service delivery will need to have less debt than the others, whereas the SOE which has the lowest chance of quick recovery will need to take the brunt of the liability. He notes that it may be necessary to add a finance house into the mix which will take over the debt of all three operational SOE’s to ensure that each unit can start off “less encumbered” than they would with the current burden of the debt held over them.

Land Expropriation without Compensation

Although many saw President Ramaphosa’s initiation as president in a positive light, for others, his term in office has already caused much dismay. This is particularly relevant to those who oppose land expropriation without compensation (LEWC).

Ramaphosa’s decision to give the go-ahead for LEWC was not entirely unexpected. Having taken over the reins from a rather disappointing predecessor, both his followers and opposition were looking to him to take immediate action on matters which had been left to stew far too long. Land reformation is, after all, nothing new and neither is the failure to address the matter in near 25 years of democracy (though land expropriation legislation in South Africa dates back to 1976).

But the president was fairly mum on the issue of land expropriation in SONA 2019, much to the dismay of his opposition.

The current property clause has sought to strike a balance between private property ownership and state interference with the willing-seller-willing-buyer model, but reform has been severely protracted, with most South Africans getting the short end of the stick for the duration of the reform. Though most land owners have been up in arms over the reform, it is to be noted that the high cost of bargaining with land owners whose land is valued far less than they are willing to settle for is partly to blame for expedited reform. Another factor which many South Africans don’t take into account is that the current clause also caters for land ownership by state-owned enterprises which are to be expropriated at equally exorbitant compensation, there is a catch to this though.

The new bill aims to rectify such oversights or obstructions by identifying five main types of land which could be expropriated without compensation provided it is in public interest:

1. Land owned by state-owned entities
2. Land which has been abandoned by its owner
3. Land whose value is less than any state subsidies from which it may have benefitted
4. Land which is occupied and/or used by a labour tenant
5. Land held for speculative purposes only

Regarding the first three points, most South Africans are not necessarily that concerned. It does make sense that the state should cede property to its people without compensation, that abandoned property be reappropriated and that land which has been misused or failed after state subsidisation be re-evaluated. But one has to wonder how readily the state would be willing to grant expropriation to land owned by its entities. In fact, the bill explicitly states:

“Despite the provisions of any law to the contrary, an expropriating authority may not expropriate the property of a state-owned corporation or a state-owned entity without the concurrence of the executive authority responsible for that corporation or entity.”

GOVERNMENT GAZETTE, 21 DECEMBER 2018, Application of act (2)(2)

It seems like a bit of a contradiction when one considers that the bill also states that expropriation, “may not be exercised unless the expropriating authority has without success attempted to reach an agreement with the owner or the holder of an unregistered right in property for the acquisition thereof on reasonable terms”.

Expropriation without compensation is therefore a last resort actionable only if no resolution or agreement could be found, but if the executive authority responsible for a state-owned corporation’s property does not agree with the terms of expropriation, then essentially it cannot be expropriated, even though the expropriation authority has been told to do just that. The clause which requires agreement by executive ownership is only applicable to state-owned land, and so the inclusion of state-owned property in the latest bill seems like a bit of a wisecrack at the expense of land owners and claimants—it is a symbolic gesture which the state may have (given the deliberate phrasing) no intention at executing.  How much of the State’s 93 000 buildings and 1,9-million hectares of land would it be willing to part with without compensation?

There are three stipulations which are also catered for in the bill:

1. Expropriation applies to land only, and cannot be applied to intellectual property, shares, debentures or intangible property.
2. Expropriation carried out without the full authority of the  state will be subject to legal challenge.
3. The rights of ‘unregistered’ rights holders will also be protected, since 60% of property ownership in SA is unregistered and falls outside the formal legal system.

With South Africa’s free market economy already hanging in the balance, one has to question how expropriating land will affect local and foreign investment, and how a country in the grasp of poverty will balance the exorbitant legal and administrative costs of expropriation with its need to grow its economy and achieve harmonious interaction between individuals of various demographic and socio-economic profiles.  And yet land expropriation is something which many deem a necessity given that most South Africans had not been privy to land-ownership or the economic status to afford land for many decades.

Of particular interest for South Africans living abroad is the possibility that their investment property held on SA shores could be expropriated. Indeed, one would be given the opportunity to query and oppose the expropriation, but since no one has gone through the process as yet, it remains to be seen how protracted and volatile such a process would be, how readily the state and legal entities will be to negotiate and whether the state will—as it has noted in the bill—cover the legal costs of these disputes.

Regardless the process, all parties on the political spectrum seem to be quite agitated at the lack of clarity on the matter. In some ways, the president’s silence on the matter comes down to legalities, as the president himself is not the one responsible for the constitutional review. In fact, the Joint Constitutional Review had only given the go-ahead for the constitution to be amended.

The committee in charge of the amendment met for the first time earlier in February 2019, where ANC MP, Thoko Didiza was voted chair of the committee. In coming weeks, the committee will have to produce their draft amendment which will then be made available for public commentary for 30 days from publication. Once public commentary has been collected, the committee will have to work through the feedback and refine the bill accordingly. The bill will then be tabled in both houses of Parliament.

Should opposition parties oppose the amendment, the Institute of Race Relations may feel compelled to order a review of the committee’s process by the courts.

Once the bill is approved, it can be ratified and the constitution formally amended. Only once the Section 25 of the Constitution has been amended can further amendments be made to legislation which would support the execution of the amendment, and each section of amended legislation will have to go through a similar parliamentary approval process.

Given the complexity of constitutional amendments, it makes sense that the president would remain mum on the issue until after the elections, though one has to wonder why he didn’t apply the same restraint and caution with other pie-in-the-sky promises.

Other points of contention: Healthcare, Education and “Scorpions 2.0”

Healthcare chimera

One part of the presidential address which rubbed trade group Solidarity the wrong way, was his assertion that the NHI bill which provides for free universal access to healthcare for all South Africans, is almost ready for submission to parliament.

Of course, Solidarity is not opposed to universal healthcare, but it does find the president’s promises somewhat absurd and ill-timed.

The union’s Occupational Guild for Health Practitioners voiced its concern given that a previous bill which was submitted to parliament at the end of 2018 was rejected. This, according to senior researcher at Solidarity, Marius Malan, is due to the concept of nationalised healthcare not being economically viable and practicable, and the union does not see how all the major flaws of the previous bill could have been addressed in a mere three months since the previous Bill’s rejection.

The promise of a South African NHI is therefore very much still a pipe-dream.

Education Nation

One matter which most opposition parties at least agreed upon was the decision to institute a second year of compulsory early education before entering school, and to transfer the responsibility for this education from the Department of Social Development to the Department of Basic Education (DBE).

Given South Africa’s shortfalls in education, this decision would better prepare learners for entry into formal schooling and give the DBE a better view of the aptitudes and needs of the learners.

But while the presidency got early childhood development right, it completely overshot in its vision for digitised education. The address included the vision that within six years all students in South Africa would have access to tablet devices.

The announcement stunned the public and opposition parties, who questioned how the leading party could foresee offering digital devices to a country in which 4 000 schools still use pit toilets, theft is a prevalent problem, load shedding is a daily reality and where 40% of the country does not have internet penetration.

“Scorpions 2.0”

In 2009, South Africa was shocked by the news that the ANC government had decided to shut down the investigative directorate of the NPA, the Scorpions, with immediate effect.

Now, a decade later, President Ramaphosa mentioned in SONA that a similar directorate will be launched and that it, “will identify priority cases to investigate and prosecute, and will recover assets identified to be the proceeds of corruption,”

All good and well, of course, but we should remember that Ramaphosa had been a member of the executive council (MEC) responsible for disbanding the Scorpions in the first place. The rationale behind disbandment ten years ago had, after much fuss and ado, pointed towards the Scorpions having ventured too close to the source of political corruption. 

The question on many South Africans’ lips is therefore how the new investigative unit will be insulated from governmental and political interference, and what assurances we have that it would not simply be dismantled once more should it reach the heart of corruption?

The conclusion: another year another SONA?

These are, of course, all things which the president and his advisors would be aware of. So why would they take the chance to create hype around topics which are not yet viable? Why risk criticism? It’s a question we needn’t explore too deeply to understand.

Politicians the world over are known for their bloated promises—and one cannot exactly blame them for it. The ability to create a rhetoric of hope and hype in tough political and economic climates are necessary tools in the experienced leader’s arsenal. They should enliven their followers and win over critics. They should conjure up views of a better world and a better life for all who would lend their ears. They should be able to forecast without assurance of future outcomes,  and do so boldly and tirelessly. With great leadership, it seems, comes great bravado and this is nothing new. But at what cost do such inflated campaign tactics come? How will our leaders deal with what Psychology Today dubs “negative expectancy disconfirmation”?

John Stewart, in an interview with Barack Obama, questioned whether politicians substitute campaign audacity with legislative timidity. Though this question was aimed at President Obama at the time, it’s something which we could ask of all politicians, including those on home turf. Daily Maverick’s Marianne Menter calls Ramaphosa’s SONA 2019 an “election-mode SONA” which “hit all the right notes”, and perhaps all South Africans should take a step back and examine exactly what this marketing campaign is selling us, what the hidden costs are, and who we will turn to when the things we buy into aren’t what we expected. What do we do when the end-product doesn’t resemble what it says on the label? Herein lies the truth of the matter, and the reason why politicians can afford such boastful claims at the risk of criticism; the risk is mitigated by the white noise that drowns out any opposition or critique, and the general malaise with which any outrage is greeted.

In South Africa in particular, we’ve seen what lengths we need to go to for authorities to notice our agitation. We’ve witnessed how long it takes to investigate and prosecute corruption, state capture, cronyism, illicit activities and other nefarious dealings. These matters take years to resolve, with millions of taxpayer monies spent, hundreds of protests and millions of names added to useless petitions and most perpetrators walking away with a slap on the wrist. We’ve even witnessed protestors slaughtered for the “crime” of thwarting their employers. Are we to forget that the last protest where South Africans were massacred was at Lonmin Mine, Marikana, while our current president served on its directorate with a vested interest, and personally advised on “concomitant action” to end the conflict?

Indeed, both from within and outside respective political parties, it seems the ease of whistle-blowing is inversely proportional to the ease of ousting those in the wrong. If we can’t weed out the corrupt and be recompensed, how would we hold newly appointed politicians and state enterprises to their promises? We can make noise, surely, but will the noise serve any lasting purpose? Are we to believe that our outrage would be heard this time around when our voices have been muted for so long?

Khaya Sithole notes that one of South Africa’s main problem is our clear lack of accountability mechanism to show the public the scorecards of ministers, their departments as well as SOEs. Without knowing what our leaders are responsible for, there is no way of gauging their performance and essentially no way of weeding out those rotten apples which are bringing the country to its knees.

We have to commend the president for one thing though—the job of rectifying decades of mismanagement at executive level in a country with South Africa’s history is a mammoth task, one which requires a combination of business acumen, political persuasion, social empathy, strong-arming and unrelenting integrity. In President Ramaphosa’s address, he noted his dismay with the wrongs, indicated intent to find solutions and sought to remind all South Africans that we as a country will ever be a coalition of divergent groups with mutual goals: economic stability, education, equality, security and peace.  Our current president possesses the intellect, experience and affiliation to address a wide spectrum of problems, across industries, with a broad reach of stakeholders, income groups and social classes—but does he possess the clout to make the hard choices which rectify past wrongs without concern for his own standing? Does he have the wisdom and clarity of thought to rule justly while lending his ear to all creeds and classes? Once more we will have to wait and see.

For South Africans living abroad, the silver lining may be that they don’t need to experience troubles within South African borders first-hand. On the other hand, those who still have funds left in South Africa (or are still in the process of moving abroad) have to take the knock of volatile stocks, fluctuating exchange rates and devaluation of assets while the country teeters between growth and collapse.

It seems the only true solution would be to unwind those assets still left on home turf and keep them on safer shores while the country wades through yet another political mudslide. The waters will take several months to calm and clear and, when they finally do there is still that matter of new expat taxation laws looming, which we will discuss in our next blog post.

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