State of the Nation Address 2022

Briefing Note

13 January 2022

Focus on Growth and Employment

• Given the troubling state of the South African economy, with:
• Low levels of growth and
• Low levels of investment
• Rising levels of unemployment
• Rising levels of poverty

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• The overriding economic policy message should be that government will boost growth and employment through a range of concrete interventions

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Key Areas of Intervention

• Growth enhancing reforms in key sectors including electricity, telecoms, rail, water and infrastructure
• Promoting local manufacturing through industrial and trade policy
• Growing agricultural output linked to land redistribution
• Expanding public employment opportunities, such as, temporarily placing qualified young people to assist in schools
• Restoring stability, law and order, and improved protection of economic infrastructure
• Facilitating the deployment of digital infrastructure and promoting digital inclusion
• Rebuilding state capacity by fearlessly rooting out corruption.
• Introducing dynamic conditionalities between the public and private sectors, so that public support is conditional on increased business investment, production and employment.

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Shift from Support to Growth

• During the past two very difficult years of the Covid Pandemic, made worse by the outbreak of violence and looting in July last year, government has assisted
• By taking extraordinary measures to support firms, workers and those who are unemployed
• As with all countries, there are limits as to how long such relief measures can be sustained and South Africa is reaching those limits.
• The focus must now shift beyond emergency support measures to economic growth.

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Renewed Social Compacting for Growth and Employment

• During the height of the Covid-19 pandemic government, labour and business were united in taking forward vaccination programmes and agreed on the ERRP

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• Social partners should again be called to come together and build on the success of the ERRP to agree on a programme of economic growth and employment creation.

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• Each social partner can contribute in unique ways to growth and employment creation – and there is power in bringing this together in a coordinated manner

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What Social Partners Bring

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Key Messages for SONA in Specific Policy Areas

1. Interventions to support firms and promote employment
2. Accelerating investments to restore energy security
3. Achieving land redistribution targets and growth in agriculture
4. Improving policing and securing economic infrastructure; and
5. Protecting social grants and avoiding policy errors

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1. Interventions to support firms and promote employment

Key message for SONA:

The Presidency will work with relevant government departments to identify and implement specific interventions designed to incentivise small (formal and informal), medium and large firms to expand production and employment in domestic and foreign markets.

As part of the specific effort to promote employment, South Africa’s key wage subsidy mechanism, the Employment Tax Incentive (ETI), should continue to be expanded to apply to a wider range of workers and firms.

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As per the indicative matrix, specific interventions based on firm size and degree of formality should be considered

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Firm Support Package Matrix (An Example)

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2. Accelerating investments to restore energy security

Key message for SONA:

2022 must be a watershed year in which South Africa aggressively accelerates investment in the country’s just energy transition, begins to put load-shedding behind us and opens up opportunities for growth and jobs in new industries like green hydrogen and electric vehicle manufacturing.

Major interventions are being undertaken to overcome the crippling constraint of load-shedding. As a result of government interventions billions of Rands of private and public investment are in the pipeline to boost the electricity sector.

Government is committed to continuing its policy of easing the regulatory burden for private electricity investment and will ensure the NERSA processes happen quickly and with efficiency.

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On Energy Security

• Government will work to update the Integrated Resources Plan (IRP) in line with changing circumstances

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• Government will continue with the restructuring and revitalization of the entities emerging from Eskom so that they can play a leading role in South Africa’s energy transition.

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• In 2022 we will take forward this USD 8.5-bn offer from partner countries to assist in funding our just energy transition and develop the details of this finance transaction to the maximum benefit of the people of South Africa, particularly those living in coal-producing regions such as Mpumalanga.

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3. Achieving land redistribution targets and boosting inclusive growth in agriculture

Key message for SONA:

At the 2020 SONA, the intention was expressed to establish a Land Reform and Agriculture Development Agency. The Agency is now set to be launched within the first quarter of 2022.

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This will be an implementation Agency with private sector involvement, aiming to boost the land distribution pillar of Land Reform and post-transfer support. Land tenure, restitution, and broader policy formulation will remain under the State.

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It is imperative that through our interventions, we see a growing emergence of a significant number of successful black commercial farmers. In this regard, there should also be an expansion of government’s programme of agricultural extension services to help farmers succeed.

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On Land and Agriculture

• The Agriculture and Agro-processing Master Plan will also be launched within the first quarter of this year and aims to boost inclusive growth in the sector while ensuring that the sector creates the much-needed jobs in rural South Africa.

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• Master Plan interventions include in our animal vaccine manufacturing institutions, the Onderstepoort Biological Products (OBP), improvement in legislations to enable investment in irrigation infrastructure, updated processes to ease registration of key agrochemicals that boost agricultural productivity (the Fertilizers, Farm Feeds, Seeds and Remedies Act 36 of 1947).

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• The turnaround strategy of the Land Bank should be prioritized.

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• The corruption and breakdown in security in the rail, road and ports infrastructure, which presents major risks for export-oriented agriculture and other sectors of the economy.

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4. Improving policing and securing economic infrastructure

Key message for SONA:

To ensure that swift and effective prosecutions follow on from the Zondo Commission recommendations, a special two-year allocation for prosecutorial support for the National Prosecution Authority should be considered.

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More generally, given the country’s rising crime problem, the President should announce a review of the senior management structure and budgeting patterns for recruitment training, equipment and infrastructure of the South African Police Service.

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Further, a process of consultation should be announced with representatives of the Security Cluster as well as with relevant stakeholders from the rail, mining, electricity, agriculture, construction and other economic sectors affected by rising crime levels and the destruction of economic infrastructure.

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5. Protecting social grants and avoiding policy errors

Key message at SONA

South Africa’s long term inclusive growth strategy must be built primarily on employment creation.

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Our vision must be to promote employment rather than ever increasing state-funded income support.

For those of working-age, grant support should be temporary with clear pathways to employment.

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We face a real danger of policy error at a macroeconomic level where we will limit our economy’s growth and job creation potential by increasing the system of social grants payments in an unsustainable manner.

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It is not just the case that we need the political will to “find the money”, but rather we need an appreciation that how we mobilise and use money now will impact (potentially negatively) on the amount of resources we will have available in the near future.

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On Social Grants

Key message for SONA

The temporary Covid grant of R350 should be extended only for a specified period of months from the date that the country moves beyond the Covid lockdown levels as regulated by the country’s national disaster legislation.

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Government should be committed to protecting the real value of state pension grants and child support grants and should seek via the budget process to use any windfall taxes to compensate recipients of these grants for the real reductions that they have experienced in recent years.

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Concluding Remarks and Note of Thanks

PEAC members are grateful for the opportunity to make an input as you prepare for the SONA. It is hoped that you will find value in our various comments and policy recommendations.

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We are confident that the SONA can offer South Africans renewed hope that we will move the economy to a higher more inclusive level and that government is serious about cleaning out corruption and putting people first.

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As ever, we stand ready to offer any further assistance that might be required

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THANK YOU

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